Published on Aug 11, 2022
The High Court of England and Wales recently granted an order that permitted the court to serve proceedings through an NFT (Non-Fungible Token) on the blockchain. In other words, you can use the blockchain to sue someone.
A Non-Fungible Token is a line of code on the blockchain that confirms a unique certificate of authenticity. NFTs exploded into the public consciousness last year when digital art assets started to be sold online for huge amounts before seeing their values drop enormously this year. However, NFTs are not limited to digital art, and indeed can be anything on the blockchain that represents ownership. In this case, the NFT is a legal instruction.
The case, D’Aloia vs Binance Holdings & Others, saw an Italian engineer, Fabrizio D’Aloia, file a claim against four cryptocurrency exchanges because his cryptocurrency was stolen by unknown individuals operating a fraudulent clone online brokerage.
Cryptocurrency fraud is, like cryptocurrency itself, a new kind of fraud in which the identities of the fraudsters is unknown. In this case, NFTs were used as alternative methods to serve proceedings against these unknown individuals by airdropping the NFT directly into their wallets – specifically the wallets into which Mr D’Aloia had deposited the cryptocurrency that had been stolen.
Mr D’Aloia – who is the founder of an Italian-based online gambling company called Microgame - claimed that he had fallen victim to embezzlement of the crypto funds in his account. The anonymous scammers used a fraudulent online broker and Mr D’Aloia claimed that his crypto assets were fraudulently cloned on the brokerages. The two wallets in question were hosted on centralised exchanges, and it is the exchanges that Mr D’Aloia has served proceedings against.
This is important not only because of the technology being used to serve proceedings, but in that the cryptocurrency exchanges are effectively trustees of the assets, and therefore they are responsible for the funds stolen and deposited on their exchanges. It is important to note that the exchanges themselves are not being held liable for embezzlement, but they do bear responsibility for the funds, with private keys and assets managed and secured by their infrastructure. As the anonymous fraudsters used their platforms to move the assets, they may be held responsible for them.
Consumers in the US have lost over $1bn to crypto scams over the last year. Indeed, in the UK, around 20% of scam reports handled by the FCA (Financial Conduct Authority) were related to cryptocurrency.
The ability, therefore, to serve legal proceedings via a Non-Fungible Token shows that the courts are willing to adapt to new technologies to step in and help consumers where previous legislation may have been insufficient. The digital serving of these documents means that the recipients have a chance to respond in order for the case to progress, and it implies that future cases of fraud on the blockchain may well see legal documents served in a similar manner.
If you want to learn more about how the Blockchain and NFTs work from a legal perspective, we're running a half-day course, presented by Mark Weston. Discover more about this course here.
Published on Aug 11, 2022 by Dwane Charalambous