LCX AG Cryptocurrency Service uses NFTs to serve legal documents

LCX AG Cryptocurrency Service uses NFTs to serve legal documents
LCX AG Cryptocurrency Service uses NFTs to serve legal documents

LCX AG, a cryptocurrency exchange based in Liechtenstein, recently lost nearly $8 million in digital assets from a cyber attack. The perpetrator’s identity was unknown. Through the public ledger, LCX found the blockchain address that received the stolen assets and quickly filed a complaint in New York to freeze certain of those assets.[1] With no other way to contact the perpetrator, the court allowed LCX to send the wallet address with an NFT containing a hyperlink to the required legal notice documents.[2] This may be the first example of service-by-NFT.

Each jurisdiction has its own rules for service of process. Giving legal notice is sometimes done without difficulty by serving a defendant in person, or even by certified mail or email. However, evasive defendants can make service difficult. Process servers are often hired when the parties are resistant or evasive, resulting in some creative services.[3] But even the most imaginative process servers cannot help when the defendant himself is unknown, as is often the case in crypto fraud.

This innovative use of NFTs by LCX, if successful, could be helpful to parties struggling to provide legal notice, especially victims of cyber-attacks and crypto-phishing scams, which have cost $1 billion in lost assets for 45,000 + wallet owners, according to the Federal Trade Commission.[4] Other courts may be catching on: a few weeks after LCX successfully petitioned the New York court to send legal notice through an NFT, a London court held that service-by-NFT was valid in a case where the plaintiff was defrauded for over USD 2 million in digital assets by a Hong Kong-registered trading platform.[5]

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Operating a crypto thief of NFT over the blockchain has advantages. Although the personal identity of a thief may be unknown, the wallet address—a unique string of numbers and letters used to verify transactions on the blockchain—used for the fraudulent transfer of assets is publicly available to anyone on the blockchain. The hyperlink embedded in an NFT ensures that the sender knows exactly when the NFT has been opened, indicating that the recipient has seen the court documents. This provides a quick and easy way to notify an otherwise unreachable party. Because NFTs are digital and non-duplicative, there is no risk of the legal message being “lost in the mail” or otherwise tampered with during delivery.

Looking ahead, it is conceivable that other digital means may be used to try to improve service in the near future. For example, a party may attempt to use the metaverse to provide legal notice to defendants via their avatars in a shared virtual space. Or perhaps a process server will try to visit a virtual residence or other virtual property location to serve court documents on a defendant.

On the other hand, service-by-NFT has shortcomings. The recipient can simply ignore the NFT and never open the link to the court documents. And while the sender can see when the NFT is opened, there is no way to know who opened it, which could cause the courts to worry.

This is an area to watch, but for now the courts are likely to view service-by-NFT as a last resort. The parties should continue to follow existing procedures in the relevant jurisdiction, including federal, state and other local legal notice rules; currently, there is no guarantee that a particular court will adequately consider service-by-NFT. Based on precedent, we expect that courts will at least mandate a showing that a defendant cannot be reached by other means before approving this alternative method of service.

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END NOTES

[1] LCX AG v. John Doe No. 1-25, Case No. 154644/2022, NYSCEF Doc. No. 2, in the Supreme Court of the State of New York, County of New York.

[2] See

[3] For example, Olivia Wilde was served with court documents while giving a presentation at a film convention in May 2022. See

[4] See

[5] Fabrizio D’Aloia v. Persons Unknown, Binance Holdings Ltd. and others, case no. BL-2022-001008, doc. No. 2022 EWHC 1723, in the Business and Property Court of the High Court of Justice of England and Wales.

Copyright © 2022, Hunton Andrews Kurth LLP. All rights reserved.National Law Review, Volume XII, Number 202

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