Blockchain technology has been touted as inherently trustworthy for years. Recently, collectors of Non-Fungible Tokens (NFTs) have explored expanded use of the new technology. Some courts have bought into and in doing so recently approved a use that perhaps no one imagined when NFTs first entered the mainstream: service of process.
IN Bandyopadhyay v. Defendant 1, No. 22-CV-22907 (SD Fla.), a victim of crypto theft filed suit against the alleged perpetrators alleging that the defendants had stolen cryptocurrency worth approximately $950,000 from his Coinbase wallet. However, the plaintiff was unable to make traditional service of the complaint on the China-based defendants, and sought the court’s permission to serve the complaint via NFT. The NFT contained a link to download the complaint and could be sent to the blockchain wallet address where the plaintiff had traced the stolen cryptocurrency. The court found that service was proper under Fed. R. Civ. S. 4(f)(3), which permits service “in other ways not prohibited by international agreement, as the court directs.” The plaintiff served the non-serviceable complaint, but ultimately the defendants failed to appear and a default judgment was entered.
This follows on the heels of a New York state court allowing service via NFT on an anonymous cryptocurrency thief. A discussion of the New York court’s decision to allow service of NFTs can be found here, on Hunton’s Blockchain Legal Resources blog. Since then, the plaintiff has served the complaint via NFT, after which the parties entered into a settlement. Taken together, the two cases illustrate the role NFTs can play in litigation.
NFTs can be a useful tool for serving process on bad actors operating cryptocurrency-related fraud from abroad, as there is often no other way to find (much less serve) them. However, critics of the new means of service may argue that the failure in this case should raise concerns about the effectiveness of the service via NFTs, since the service must otherwise be “reasonably calculated to provide notice.” Other courts may therefore be reluctant to approve service via NFT.
Digital holdings are now measured in the billions of dollars, putting digital asset holders at significant risk from system and user errors as well as bad actors, as was the case with Bandyopadhyay. Recognizing these risks, insurers are expanding coverage offered under legacy insurance products to specifically address risks associated with digital assets. Hunton’s Insurance Coverage team works closely with the firm’s Blockchain and Privacy teams to collaboratively address these and other emerging cyber, crypto, blockchain and metaverse issues. An example of this cross-practice effort can be seen in an article published recently in the Journal of Emerging Issues in Litigation entitled “Insurance Coverage for Digital Assets: Mitigating Losses in Cryptocurrency and Non-Fungible Token Markets” which discusses the evolution and current status of digital assets, the market for crypto and NFT insurance, and the legal issues surrounding these issues. As the two decisions and our recent article illustrate, NFTs and other aspects of blockchain technology may have found a place in litigation, helping to ensure that services that might otherwise be difficult or completely impossible to implement can now be easily implemented, thereby facilitating the resolution of disputes that might otherwise be missed.
