NFT court orders could become a norm in crypto-related litigation: Lawyers

Despite whether the defendant sees the court notice, getting served by NFT ‘limits what the defendant’ can do with the funds according to legal experts.

Non-fungible tokens (NFTs) are becoming an increasingly popular solution to serving defendants in blockchain-based crimes that would otherwise be unreachable, according to crypto lawyers.

The last year has seen an increase in litigation delivered over NFTs in cases where those accused of blockchain crime wereuncontactable through traditional methods of communication.

In November 2022, the United States District Court for the Southern District of Florida granted a United States law firm The Crypto Lawyers its request for its client to serve a defendant via NFT.

While the defendant's identity was unknown, the plaintiff accused the defendant of stealing cryptocurrency to the approximate value of $958,648.41.

After the plaintiff presented a declaration from a crypto investigator to the court confirming the stolen cryptocurrency transactions, the judge accepted the request to serve this defendant via NFT as it was deemed to be a “reasonably calculated” way to give notice.

Agustin Barbara, managing partner of The Crypto Lawyers told Cointelegraph that serving a defendant via NFT is a powerful tool for blockchain crime, where it is “virtually impossible to identify bad actors.”

Barbara explained that summoning an unknown identity through NFT is done through the transfer of the NFT into the defendant’s blockchain wallet address where the stolen assets are held.

He noted that this method is a way of reaching the accused when other traditional methods such as email or post are not viable due to the identity being unknown.

Barbara explained that the content of an NFT court notice would usually contain the notice of the legal action with summons language, a hyperlink to a designated website containing the notice and copies of the summons, complaint, and all filings and orders in action.

Michael Bacina, digital asset lawyer at Australian law firm Piper Alderman, stated that while the “wallet may not be used by the defendant,” and therefore the summons notification may not come to the defendant’s attention, it can drastically limit activity on the wallet and other wallets that have recently interacted with it.

Bacina suggested that it stamps that wallet address with a black mark, which means all other wallet addresses that have made recent transactions with that address could be considered suspicious and affect their activity too. He noted:

Businesses may not wish to accept transactions where a wallet is too close to a wallet which is accused of being involved in litigation.

Bacina added that the advantage of the “open nature of public blockchains” means that it is easy to see if a wallet is in use, and proves to be a good way of knowing if the NFT serving has potentially been seen.

Other court orders have been served through NFTs in 2022.

An international law firm served a restraining order via NFT in June 2022, where it only took an hour between the asset recovery team airdropping the NFT to the wallet address and 1.3M $USDC (USDC) frozen on the chain.

That same month saw U.K. law firm Giambrone & Partners announced it had become the first law firm in the U.K. and Europe to obtain permission to a High Court judge to serve document proceedings via an NFT.

Death and self-custody: How to pass on your crypto when you die

5-dollar wrench attack

Crypto lawyers suggest including highly detailed instructions in one’s will and appointing a crypto-savvy next-of-kin, among other suggestions.

The average crypto investor probably isn’t planning on dying of old age anytime soon, but that doesn’t mean they shouldn’t have a plan in place to pass on their crypto in the event they meet an unlikely demise, lawyers warn.

Speaking to Cointelegraph, Dubai-based crypto lawyer Irina Heaver believes that “billions” worth of Bitcoin (BTC) has been lost due to a lack of proper death-related planning by hodlers.

She noted that many families have been unable to access their loved one’s crypto assets due to private keys being taken to the grave, and emphasized the importance of discussing crypto assets with family and including them in their will.

Heaver said that the typical crypto investor is a “male millennial” between the ages of 27 to 42, which is the age range where arranging one’s financial affairs in case of death is the “last thing” to come up in conversation.

However, the lawyer believes it is “essential” to confirm that the administrator of one’s will is proficient in using cold and hot wallets in order to properly distribute one’s holdings.

Digital asset lawyer Liam Hennessy, partner at Australian law firm Gadens, believes that crypto investors should know that the “vanilla first step” to safeguarding their families’ future is to prepare a will — but they should also be mindful that crypto is a complicated asset and that the will needs to include really specific instructions on where the crypto is and how the keys are accessed.

Heaver has observed “huge problems” in the process of inheriting crypto, including a case where a family approached her asking for help in accessing a deceased loved one’s crypto assets.

Digital asset lawyer Krish Gosai, managing partner of Gosai law, believes that it is especially important to inform beneficiaries about crypto due to the lack of understanding surrounding digital assets.

Gosai believes it’s important to inform the executor of the will or loved ones about the existence of crypto assets but advised against sharing sensitive login information or seed phrases, saying it isn’t necessary.

He suggested that, if necessary, the seed phrase could be split among four family members.

Tax implications

Inheriting crypto can also be complex due to the differences in tax structures among jurisdictions.

Heaver added that in some jurisdictions, there are inheritance taxes. For example, in the United Kingdom, crypto assets will be “liable” for inheritance tax on the death of the holder and capital gains tax on a valid disposal.

In Australia, there is no inheritance tax, but Heaver noted that there is a capital gains tax if one disposes of an asset inherited from a deceased estate.

She noted there are then jurisdictions where there are no taxes, like the United Arab Emerites.

Digital asset lawyer Liam Hennessy, partner at Gadens, added that realizing digital assets at the best price can be another complication, due to factors such as price fluctuations and smart execution protocols.

Digital Asset Lawyer