While NFT restraining orders and court proceedings are the airdrop nobody wants, they may be useful for fighting crypto scams and blockchain crime.
NFTs are finally evolving beyond “expensive JPEG” status, and are now seeing their first uses in representing lawsuits and court summons in response to cryptocurrency scams and hacks. Blockchain-based non-fungible tokens (NFTs) have been around for years, but despite their ability to represent “literally anything” they still haven’t been able to shake their public image as overhyped, overpriced, collectible JPEG tokens. However, that is beginning to change thanks (oddly enough) to crime.
Blockchain wouldn’t be what it is without the myriad scams, pump and dumps, fake projects, protocol hacks, and smart contract bug exploits that have netted losses in the hundreds of millions, as criminals are usually the first to utilize powerful new technologies for nefarious purposes. While crime hasn’t been the majority of crypto, it has always been a major issue haunting the industry. Fortunately, due to the transparent nature of public blockchains and the existence of blockchain analytics firms, it is now extremely difficult to liquidate stolen NFTs and crypto. Still, that doesn’t stop scammers and hackers from trying, and governments know they need to catch up. At least two courts have now stepped up to lead the way.
According to Giambrone Law, on June 24 the UK High Court of England and Wales granted an order to deliver court proceedings via NFT airdrop to an anonymous person(s) operating a maliciously cloned brokerage site, as well as requiring five cryptocurrency exchanges operating in the UK to comply with returning the victim’s misappropriated cryptocurrency. This decision occurred within weeks of the New York Supreme Court’s decision to airdrop an NFT restraining order into the wallet responsible for an $8M hack against the LCX exchange, which was reported by Lexology on July 6. These are examples of how NFT advantages and innovation can involve more than just speculative image files, and Lexology’s article supports the assertion that this may become a normal method for serving legal proceedings for blockchain crime.
Criminal Records For Criminal Wallets
A much more useful property of NFTs is their ability to be readily checked for in a wallet, such as the restraining order served in the LCX case that alerts exchanges to that wallet’s past activities. Airdropping non-transferable NFTs into wallets that were used in hacks and scams would allow exchanges, Web3 apps, and even some smart contracts to check for criminal history at the protocol level, and thus reject deposits and interactions without human intervention. While crypto transfers cannot be stopped, NFTs can be automatically airdropped into wallets that receive stolen crypto, marking every new wallet it passes through. An NFT could represent a list of crypto scams and crimes its wallet was involved in, and if the wallet owner’s identity is ever discovered then the NFT’s records could be used as evidence. Because the blockchain never forgets, those NFTs could be useful for making life difficult for scammers and hackers.
This is not without its disadvantages, though. Realistically, a court proceedings NFT will not obligate someone to appear in court to face judgment for their on-chain crimes if they are still anonymous, and it will likely cause them to just create a new wallet and never use the marked wallet again, leaving the funds sitting in blockchain limbo forever. Also, a blockchain-savvy criminal who adheres to operational security practices could still use a mixer service to slowly launder their stolen crypto and liquidate it over time through exchanges that don’t enforce KYC/AML regulations, but the process to cash out their crypto would still be very long, difficult, and risky.
All in all, this is a big step forward for NFTs, as it shows a government’s willingness to exert an on-chain legal presence utilizing some very powerful properties that NFTs possess, and hopefully it will demonstrate one way this technology can be used to fight crime on the blockchain. There is a lot that can be done using NFTs’ ability to represent anything, and these applications are barely scratching the surface of a powerful technology that can do so much more than represent collectible JPEGs.