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NFTs break legal grounds, are used to serve anonymous hackers
NFTs made legal history last week. For the first time in a federal court, Judge Beth Bloom of the US District Court for the Southern District of Florida ruled that sending an NFT can be considered serving legal notice. Why did the judge decide to use NFTs for legal purposes?
Why did the judge allow the use of NFTs to provide legal notice?
One of cryptocurrency’s primary use cases is anonymity. Users can trade with other people anywhere in the world in a trustless, anonymous way. This advantage also creates problems, unfortunately.
With increased anonymity also comes the increased likelihood of being defrauded. Scammers use fake identities and convince unsuspecting victims to transfer their crypto to them. Because opening a crypto wallet does not require any personal identification, it is usually impossible to subsequently track down the anonymous fraudsters to recover the funds.
This presents a dilemma. There is a chain of events that must be completed before the authorities can help retrieve the stolen funds. Victims of theft must first report to the police. Police then review the complaint for probable cause before potentially serving an arrest warrant. However, because there is no place to send the warrant, the police are unable to complete their statutory procedure and begin their investigation.
Enter NFTs. Every Ethereum transaction includes the public address of the sender and receiver. This case marks the second time in US history that a judge allowed a fraudster’s public address to serve as sufficient identifying information. The victim’s defense attorneys filed a lawsuit against the fraudster, and the judge allowed notice of the lawsuit to be sent to the fraudster’s Ethereum account as an NFT.
What were the details of the case?
The theft victim, named Rangan Bandyopadhyay, lost $971,291 in USDT after connecting his Coinbase wallet to a fake liquidity mining pool website in 2021. The thieves drained his wallet of all funds and transferred them to Binance, the world’s largest crypto exchange. Bandyopadhyay sued the fraudsters by creating an NFT of the Notice of Suit before sending it to their Ethereum address.
According to Judge Bloom, this action is sufficient for the case to go through the legal process.
Image credit: Wikipedia
It remains unclear whether Bandyopadhyay will be able to recover his money. For reference, the US government has successfully frozen stolen assets involving USDC, a stablecoin created by US company Circle. Unfortunately for Bandyopadhyay, however, USDT is issued by a Hong Kong company that is less likely to cooperate with US authorities. Furthermore, Binance, the exchange that holds the stolen funds notorious for hiding its corporate headquarters, is not under the jurisdiction of US regulations.
Still, Bandyopadyay’s lawyer commented, “The fact that we know where the crypto sits makes the whole fundraising strategy viable.”
What is the future of NFTs for legal purposes?
This court decision demonstrates the willingness of the US legal system to use technology to level the digital playing field. Sophisticated criminals don’t rob banks anymore. They rip off DeFi protocols and scam crypto users out of millions of dollars every year.
By embracing NFTs as a method of identifying criminals, the US government is making strides in bringing our legal processes into the Web3 world.
