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From Courtrooms to Crypto: The Rise of Blockchain in the Legal System

From Courtrooms to Crypto: The Rise of Blockchain in the Legal System
By Anja Prosch
Anja Prosch

4 Min

May 11, 2023

Is blockchain technology truly reliable or just overhyped? How can Non-Fungible Token (NFT) collectors expand the use of this technology in innovative ways? And with the rising popularity of cryptocurrency as an investment asset, what are its legal implications and challenges?

These are just some pressing issues that have come to the forefront of courts’ attention in recent years. As lawsuits involving crypto-assets continue to increase, courts are grappling with traceability and effective service methods, among other concerns. But what if blockchain technology could provide a solution? Some courts have already authorized the use of blockchain for the service of process, an unexpected and groundbreaking development in the world of NFTs and blockchain.

In this article, we’ll delve deeper into the most relevant cases that are marking the evolution in the legal field by allowing the use of blockchain for legal services and notifications and exploring its implications and challenges.

The Growing Trend of Blockchain in the Jurisdictional System

Recent legal cases have highlighted the growing trend of using blockchain technology in the jurisdictional system. But this is not an entirely new concept. For over a decade, courts worldwide have allowed substitute or alternative notifications to traditional methods, including using social media platforms such as Facebook, Whatsapp, or Twitter. Courts in eight countries, including the United Kingdom and several U.S. jurisdictions, have approved such services.

In June 2022, the LCX case set a precedent. It was the first case in the U.S., where a court ever authorized the service of process of legal documents via tokenized airdrop. The New York Supreme Court allowed a restraining order to be filed via NFT against a hacker whose identity is still unknown. 

The U.K. has also followed U.S. footsteps in embracing the use of blockchain for legal services. In the case of Binance Holdings, the High Court of England and Wales, for the first time, recognized the use of blockchain technology and ruled that a party can use NFT to serve proceedings on an anonymous defendant in action to recover stolen cryptocurrency.

Kate Gee, counsel at Signature Litigation, commented: “First, by finding of a good arguable case against the defendant cryptocurrency exchanges for liability as constructive trustee, the judgment brings with it wide potential implications for this and future claims. 

Second, for the first time outside of the U.S., the claimant secured permission to serve proceedings by transfer of a non-fungible token on the blockchain. In a space where cases are often brought against “persons unknown”, whose contact details are unidentifiable or have been deactivated, this breaks down one of the practical barriers to bringing a claim. It brings with it potential wider application – opening the door to service of other legal proceedings by DLT."

From Courtrooms to Crypto: The Rise of Blockchain in the Legal System

The SpartacusDAO Case

In the latest case involving SpartacusDAO, a U.S. federal judge upheld his decision to freeze $35 million worth of cryptocurrencies after serving notice on the defendant via NFT. The court, after several unsuccessful attempts to communicate with Spartacus, and once connected his pseudonym to the real identity of Wei Wu, decided to join the Discord channel to reach and notify him of the restraining order.

Despite being deleted immediately and resulting in the lawyer’s ban from the platform, the court still recognizes the NFT as a valid notice. Further, the fact that it was ignored and removed from Discord must be considered “contempt to the court”. 

Final Thoughts

The above-mentioned cases have shown that NFTs can break down barriers to filing an appeal, enable tamper-free disclosure of documents, and even facilitate dispute resolution on smart contract platforms. 

However, there are also challenges to consider: when is the notice considered effectively delivered? Is it at the moment of transmission or when the recipient interacts with the token? Additionally, NFTs raise concerns about trust, especially given the prevalence of phishing attempts in the blockchain community. It remains to be seen whether NFTs will be an effective means of serving court documents, particularly when wallet owners are hesitant to interact with unknown sources. 

Traditional forms of service will not disappear anytime soon. However, as we move toward a more technologically advanced future, it’s worth wondering: 

Could the legal system keep up with the rapid pace of technological innovation? Will we one day see entire trials conducted via NFTs and smart contracts? And if so, what implications would this have for the principles of justice and fairness? It’s a controversial question that prompts us to reflect on the role of technology in shaping the legal landscape of tomorrow.