You’ve Been Served...Via Airdrop of an NFT

On 2 June 2022, in the context of a cryptocurrency fraud claim, the New York Supreme Court approved service of a pre-trial restraining order by “airdropping” a non-fungible token (NFT) into the alleged fraudster's public wallet.

Airdropping allows the distribution of NFTs and other digital assets into a known public wallet address. It is often used as a marketing tool by NFT projects to promote their current (and/or new) projects or reward existing participation in a project by airdropping NFTs and other digital assets into the wallets of their NFT holders.

In LCX AG v John Does Nos 1 – 25, the Court took a novel approach and permitted a temporary restraining order preventing further dissipation of stolen cryptocurrency to be served on a defendant by airdropping a NFT hyperlinking to the court's order and other relevant documents. Critically, the "service token" was to contain a mechanism enabling the claimant to track when the hyperlink had been accessed so that valid service of the order could later be demonstrated.

One of the practical difficulties in cases of cryptocurrency fraud is identifying the fraudster or recipient of stolen assets and notifying them of a claim and/or orders preventing them dissipating assets. While the disclosure of information to enable identification and notification can be achieved through legal action against a crypto exchange through which stolen assets have passed, this can present its own difficulties including exchanges refusing to cooperate or where an exchange does not possess relevant information about a particular customer. Similarly, where digital assets are received into a wallet which is not associated with an exchange, information about the wallet holder is likely to be unobtainable. Airdropping a "service token" into a wallet may provide a useful workaround to these issues.

The English civil procedure rules already provide a basis for seeking an order for alternative service where there is good reason under CPR 6.15 and there have been numerous cases where alternative service has been permitted by social media and whatsapp. While each case will depend on its facts, the decentralised and pseudonymous nature of the blockchain may lend itself to "good reason" for seeking service by airdrop in the English courts in future cryptocurrency and NFT disputes.