NFTs finally evolves beyond “expensive JPEG” status, now seeing their first use to represent lawsuits and subpoenas in response to cryptocurrency scams and hacks. Blockchain-based non-fungible tokens (NFTs) have been around for years, but despite their ability to represent “literally anything” they still haven’t been able to shake their public image as overhyped, overpriced, collectible JPEG tokens. However, that’s starting to change thanks to crime (strangely enough).
Blockchain would not be what it is without the countless scams, pump and dumps, fake projects, protocol hacks and clever contract bug exploits that have resulted in losses in the hundreds of millions, as criminals are usually the first to use powerful new technologies for nefarious purposes. Although crime has not been the majority of crypto, it has always been a major problem that haunts the industry. Fortunately, due to the transparent nature of public blockchains and the existence of blockchain analytics firms, it is now extremely difficult to liquidate stolen NFTs and crypto. That still doesn’t stop fraudsters and hackers from trying, and the authorities know they have to catch up. At least two courts have now stepped up to lead the way.
According to Giambrone Law, the UK High Court of England and Wales on June 24th issued an order to deliver legal proceedings via NFT airdrop to an anonymous person(s) operating a malicious cloned brokerage site, as well as subpoenaing five cryptocurrency exchanges operating in the UK to comply with the return of the victim’s misused cryptocurrency. This decision came within weeks of the New York Supreme Court’s decision to issue an NFT restraining order to the wallet responsible for an $8 million hack against the LCX exchange, which was reported by Lexology on July 6. These are examples of how NFT benefits and innovation can involve more than just speculative image files, and Lexology’s paper supports the claim that this could become a normal method of serving blockchain crime lawsuits.
Criminal record for criminal wallets
A much more useful feature of NFTs is their ability to be easily checked for in a wallet, such as the restraining order in the LCX case notifying exchanges of that wallet’s past activities. Airdropping non-transferable NFTs into wallets used in hacks and scams would allow exchanges, Web3 apps, and even some smart contracts to check for criminal history at the protocol level, thereby rejecting deposits and interactions without human intervention. While crypto transfers cannot be stopped, NFTs can be automatically sent into wallets receiving stolen crypto, flagging each new wallet it passes through. An NFT can represent a list of crypto frauds and crimes the wallet was involved in, and if the wallet owner’s identity is ever discovered, the NFT’s records can be used as evidence. Because the blockchain never forgets, these NFTs can be useful in making life difficult for fraudsters and hackers.
However, this is not without disadvantages. Realistically, a trial NFT will not commit anyone to appear in court to face sentencing for their chain crimes if they remain anonymous, and it will likely result in them simply creating a new wallet and never using the tagged wallet again, leaving the funds sit in blockchain limbo forever. A blockchain-savvy criminal who follows operational security practices can still use a mixer service to slowly launder their stolen crypto and liquidate it over time through exchanges that do not enforce KYC/AML regulations, but the process of withdrawing their crypto. will still be very long, difficult and risky.
All in all, this is a big step forward for NFTs as it shows a government’s willingness to exercise a legal presence on the chain using some very powerful features that NFTs possess, and hopefully it will demonstrate a way this technology can be used to fight crime on the blockchain. There is a lot that can be done with the help of NFTs ability to represent anything, and these applications barely scratch the surface of a powerful technology that can do so much more than represent collectible JPEGs.
Sources: Giambrone Law, Lexology
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