I have now seen two cases of courts authorizing service of legal process through the delivery – or “airdropping” – of non-fungible tokens (NFTs) to the Ethereum addresses of pseudonymous defendants, with the NFTs linking to the court papers.
In early June, the law firm Holland & Knight, with the blessing of the New York Supreme Court, served a temporary restraining order on the Ethereum address of an anonymous hacker using a so-called “service NFT.” Later that month, a UK court approved the same approach, authorizing the service of a subpoena and complaint on a stolen Ethereum address.
I applaud the lawyers for their ingenuity and the judges for their willingness to embrace new technology. And I understand the need for alternative service in the blockchain world, where there is no shortage of lying, cheating and stealing, but identities are represented not of people with physical addresses, but of aliases and avatars with cryptographic wallet addresses. So the idea of NFT service is super cool.
Still, I have serious questions.
Firstdoes the service via NFT comply with fair process?
An elementary and fundamental requirement for fair proceedings in any proceedings that must be given finality is notice reasonably calculated, under all circumstances, to inform interested parties of the pendency of the action and give them an opportunity to present their objections.
Mullane v. Central Hanover Bank & Trust Co.339 US 306, 314-15 (1950).
Is airdropping an NFT with a link to legal papers “reasonably calculated” to notify the owner of the public address of the action?
Keir Finlow-Bates (@bcgandalf), one of my favorite blockchain technologists, don’t think so. Among many other technical issues, @bcgandalf correctly observes that “a wallet is not an address.” Rather, “a wallet contains addresses, and NFTs are minted to an address, not a wallet.” A single wallet can have dozens of addresses under its umbrella, and people usually don’t check their addresses with any kind of regularity for recently canceled NFTs. No pop-up notification is displayed when a new NFT arrives.
Even if you checked your various addresses periodically for unexpected arrivals (again, this is not really a thing), the platforms that most people use to view the NFTs, such as OpenSea, do not always show you all of your NFTs because they have spam filters and don’t do a perfect job of scraping the blockchain for signs of your NFTs. Because NFTs are not actually stored in a wallet or in an address – they are stored in a smart contract distributed to the blockchain. Wallets and marketplaces scan the blockchain for records of assets associated with your addresses and show them to you.
Secondwhat exactly does displaying an NFT on a public wallet address accomplish?
If a defendant is so anonymous that the plaintiff must send an NFT to serve them, why would the anonymous party reveal itself and submit to the court’s jurisdiction?
Presumably the answer is to avoid default. But let’s say the anonymous party defaults. How then would the plaintiff file a judgment creditor against the anonymous party?
I guess the answer is by enforcing the judgment against the anonymous party’s digital assets “held” in their digital wallet. But the problem is that the digital wallet is almost certainly “non-custodial” – meaning that no bank or financial institution holds the digital wallet. How do we know that? Because otherwise there would be no need to serve the newspapers via NFT airdrop. If the digital wallet was held by a bank or its blockchain equivalent – such as a crypto exchange – the plaintiff could simply subpoena identifying account information from that institution, which is legally required to perform customer due diligence as part of its anti-money laundering and know – compliance by your customer.
So what’s the problem with enforcing a judgment against a non-custodial wallet? No one but the owner of the digital wallet has the credentials – the seed phase/private key – to unlock the assets. You can get as many judgments as you want against a non-custodial wallet address; they are worthless without the key.
What is needed are mechanisms for enforcement in the chain. Imagine a future of digital courts and arbitration tribunals that use smart contracts and Discord-based juries of peers to settle disputes and enforce crypto judgments. It may seem far away, but in the fast-paced Web3 world, it’s only an NFT away.
