In a groundbreaking legal decision, a federal judge in Florida has ruled in favor of a plaintiff who sued anonymous hackers and notified them of the lawsuit through a Non-Fungible Token (NFT), as per recent court documents.
Judge Beth Bloom of the United States District Court Southern District of Florida issued a default judgment stating that the unidentified hackers are responsible for repaying the $971,291 worth of USDT (Tether) they stole from plaintiff Rangan Bandyopadhyay’s Coinbase wallet in December 2021.
The court ordered the hackers to return the stolen amount to Bandyopadhyay, with interest accruing on the debt until it is paid in full. However, the process of recovering the funds remains uncertain.
Due to the nature of blockchain technology, the identities and locations of the hackers remain unknown. Consequently, Judge Bloom allowed the hackers to be served via NFT, using the same on-chain addresses they employed to steal from Bandyopadhyay.
The hackers deceived the plaintiff into connecting his Coinbase wallet to a counterfeit liquidity mining project, subsequently transferring money from his wallet to their own. Eventually, the funds were deposited into a Binance Exchange Pool.
This case marks the first time a U.S. federal court has permitted defendants to be served through an NFT. Previously, a New York county court allowed the practice early in 2022, while a UK court approved the use of NFTs for serving anonymous on-chain defendants in 2021.
These developments signal a shift in legal systems attempting to adapt to new forms of crime enabled by blockchain technology. Cryptocurrency-focused hackers often establish complex networks of fraudulent companies to lure victims into connecting their wallets, which are subsequently drained.
Recovering stolen digital funds and assets is notoriously difficult. However, Fernando Bobadilla, the attorney who represented Bandyopadhyay in the recent case, believes that blockchain technology can be as problematic for hackers as it is for their victims.
Bobadilla told Decrypt, “These fraudsters are usually outfits outside of the United States, and everything that they tell the victim is a lie about their own identity. But what they can’t hide is the transfer of the funds via the blockchain. The ledger is there and they can’t hide.”
The attorney expressed confidence that he and his client are on track to recover at least some of the stolen funds, although he did not disclose the method they plan to use. He stated, “Us knowing where the crypto is sitting makes the entire collection strategy viable.”
U.S.-based crypto firms like Circle and Coinbase have previously frozen funds or accounts at the request of the American government. The stolen cryptocurrency in Bandyopadhyay’s case, USDT, is issued by Hong Kong-based Tether. Binance, where the stolen funds were reportedly deposited, has also frozen stolen funds in the past. However, the company has been notably evasive about its base of operations.
Mirrored in the UK
In another case in July 2022, a UK court granted law firm Giambrone & Partners LLP permission to serve legal proceedings to an anonymous individual via an NFT airdrop sent to the individual’s crypto wallet. Fabrizio D’Aloia, represented by Giambrone, sued an unknown person and several crypto exchanges over a loss of crypto funds.
NFTs are unique tokens that exist on blockchain networks such as Ethereum or Solana and signify ownership over a digital item, which can be anything from an image to virtual land or, now, legal papers.
The use of NFTs for serving legal documents is an innovative approach to dealing with the challenges posed by the anonymous nature of blockchain technology. However, the enforceability of legal documents served via an NFT remains uncertain.
Preston Byrne, lawyer and partner at Anderson Kill, told Decrypt via email that such a practice is likely of “limited practical effect.” He explained, “It’s an interesting type of alternative service, and in keeping with the UK’s tradition of alternative service via platforms like Twitter, albeit one which is of limited practical effect if a user has been fastidious about [operational security] or decides simply to never transact with that wallet again.”
As the crypto world continues to evolve, legal systems worldwide will need to adapt and find new ways to address the challenges posed by digital assets and blockchain technology. The use of NFTs to serve justice is just one example of how the legal landscape is changing to keep up with the rapid pace of technological advancements.