On 2nd June 2022, the Supreme Court of the State of New York in America took an unprecedented step, and may well have given us a glimpse in the future of legal action involving cryptocurrency disputes.
This burgeoning industry is understandably controversial as it remains relatively volatile and something of a mystery to many, but there is no questioning that the concepts of blockchain, cryptocurrency investments, NFTs and so on have taken off in recent years, and it shows no signs of slowing down… In fact, the International Data Corporation estimated the annual blockchain spending to be £4.7 billion in 2021, and forecast that number to almost triple to £13.5 billion in just three years, by 2024.
I am sure that many readers have heard their fair share of horror stories, from the British IT worker who lost 7,500 Bitcoins when accidentally binning an old hard drive in 2013 (worth nearly £17,000 at the time of writing in July 2022) to the monumental backfiring of Bitcoin Day on 7th September 2021. Bitcoin Day was intended to celebrate El Salvador’s adoption of Bitcoin as legal tender, but resulted in a crash that cost the digital assets market $400 billion in one day, triggered largely by El Salvador’s president (unwisely!) tweeting about a glitch and inadvertently inciting a panic sale worldwide.
However; despite this, it seems that these investments are here to stay, and while individuals can ignore them if they are not interested, the legal system does not have that privilege. The law has to catch up to ensure that the people are protected, that we have options if there are any issues or disputes where we may have been misled or defrauded, and that there are consequences for those who would illicitly take advantage of this new and complex marketplace to benefit at the expense of others. This is particularly crucial as privacy is an inherent component of these electronic transactions, and many millions have already been lost to anonymous hackers who have exploited security weaknesses in blockchain services.
In fact, this case stems from a January 2022 incident where almost $8 million was stolen from a cryptocurrency exchange company. The majority of those funds were traced to two cryptocurrency wallets and frozen, but the identity of the hacker(s) remained unknown.
The New York Supreme Court took a crucial first step by facilitating the service of legal papers to a cryptocurrency wallet, as a unique Service Token was created and “airdropped” to the wallet address with a hyperlink to the legal papers and order specifying it “shall constitute good and sufficient service for the purposes of jurisdiction under NY law on the person or persons controlling the [Wallet] Address”.
The Claimant still faces an uphill battle in attempting to identify and seek repayment from the hacker even if they are able to obtain an Order confirming that they are due the return of these funds, but providing for service is a vital first development. Without adequate service, the Claimant would be unable to bring a claim effectively at all, as they would not be able to prove that the other party has been served with the initial Court documents. To be clear, this option should only be used where the traditional means of service under the procedural rules are exhausted or impossible due to an unknown Defendant, but it is a relief to see that this US Court has been proactive in allowing effective service in these circumstances, and hopefully other jurisdictions will soon follow behind!
If you require advice in relation to any blockchain or cryptocurrency disputes, please contact Farleys’ litigation team on 0845 287 0939 or contact us by email.