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I've now seen two instances of courts authorizing service of legal process though 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, 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 summons 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 world of blockchain, where there's no shortage of lying, cheating and stealing, but identities are represented not by people with physical addresses, but by aliases and avatars with cryptographic wallet addresses. So the idea of NFT service is super cool.
Yet, I have serious questions.
First, does service via NFT comport with due process?
An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.
Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314-15 (1950).
Is airdropping an NFT with a link to legal papers “reasonably calculated” to notify the owner of the public address about the action?
Keir Finlow-Bates (@bcgandalf), one of my favorite blockchain technologists, thinks not. Among many other technical problems, @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 may have dozens of addresses under its umbrella, and folks typically don't check their addresses with any kind of regularity for newly airdropped NFTs. No pop-up notification appears 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 their NFTs, like OpenSea, don't always show you all your NFTs because they have spam filters and don't do a perfect job 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 deployed to the blockchain. Wallets and marketplaces scan the blockchain for records of assets associated with your addresses and show them to you.
Second, what does serving an NFT on a public wallet addresses actually accomplish?
If a defendant is so anonymous that the plaintiff needs to airdrop an NFT to serve them, why would the anonymous party reveal themself and submit to the jurisdiction of the court?
Presumably, the answer is to avoid default. But let's say the anonymous party defaults. How then would the plaintiff turned judgment creditor collect against the anonymous party?
I suppose 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 almost certainly is “non-custodial”—meaning there is no bank or financial institution holding the digital wallet. How do we know that? Because otherwise there would be no need to serve the papers via NFT airdrop. If the digital wallet were held by a bank or its blockchain equivalent—like a crypto exchange —the plaintiff could simply subpoena identifying account information from that institution, which is legally required to conduct customer due diligence as part of its anti-money laundering and know-your-customer compliance.
So what's the problem with enforcing a judgment against a non-custodial wallet? No one except the digital wallet owner 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's needed are mechanisms for on-chain enforcement. Imagine a future of digital courts and arbitral tribunals that use smart contracts and Discord-sourced juries of peers to adjudicate disputes and enforce crypto-judgments. That may seem far off, but in the speedy world of Web3, it's just an airdropped NFT away.
www.fkks.com
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