AirDrop, and Service of Process – a National First

AirDrop, and Service of Process – a National First

For the first time ever, a court in the US authorized Service of Process by way of a tokenized airdrop.

This came to our attention from an article published in Lexology by Shumaker, Loop & Kendrick.

 At 360Legal, we are watching this closely. Moving Service of Process to a Digital Delivery poses several interesting process and technology challenges, and we chose to be preparing for the coming digital future.   360 Legal already deploys a host of tools to automate and systematize reporting of Service Of Process, and will continue to invest in future technology to assist our clients in any way possible.

The plaintiff’s attorney was given permission by the Supreme Court of the State of New York to serve copies of the Order and other legal documents, such as the underlying Summons and Complaint, on the owner or owners of a cryptocurrency (Ethereum) wallet address through the “airdrop” of a special-purpose token with a distinct identity (the Service Token) to that wallet address on June 2, 2022 (collectively, the Order). The Order and other legal documents for service are accessible through a link on the Service Token that leads to a website made by the plaintiff’s attorney (the Service Hyperlink). A system for monitoring clicks on the Service Hyperlink is also present. This type of service “will constitute good and sufficient service for purposes of jurisdiction under NY law on the person or individuals controlling the [Wallet] Address,” according to the Order.

The lawsuit was brought by the Lichtenstein-based fintech and cryptocurrency exchange LCX AG (LCX). LCX suffered a hacking incident in January 2022 and lost about $8 million as a result. Fortunately, the majority of the monies that had been taken were finally located and locked at two bitcoin wallet addresses used by the hacker (or hackers). Outside of the cryptocurrency wallet addresses, the hacker’s identity is still a mystery. In order to serve as stand-in names until the perpetrator’s real identity was discovered, LCX filed suit against “John Doe Nos. 1-25”

It appears that a court in the United States has never before permitted the delivery of legal documents by tokenized airdrop. It is clear that this is a landmark decision that, in the long run, could result in significant changes to the permitted methods of service under the Rules of Civil Procedure, particularly as the use of blockchain technology becomes more prevalent and is better understood by the business and legal communities. The decision also shows another possible application for non-fungible tokens, or “NFTs,” whose usefulness has frequently been questioned by opponents of cryptocurrency.

It is unclear if courts in other jurisdictions will use this substitute method of serving. To be clear, service through such means should only be used when all other options have been exhausted or are impracticable due to the defendant’s genuine identity being unknown (as it was here). However, this appears to be a workable way of service in cases of virtual theft of cryptocurrencies and other crypto assets where the traditional procedures fail or fall short because to a lack of identifying information.