Service by NFT permitted by the English Courts broader implications for use of digital assets

In a legal first, the English High Court has allowed service of legal proceedings by non-fungible token (NFT) in D'Aloia v Person Unknown & Others [2022] EWHC 1723 (Ch). In addition to highlighting the English courts' willingness to react and adapt to developing technologies, the case shows that NFTs can be used for purposes other than demonstrating proof of ownership.

The case

Mr D'Aloia claimed to be the victim of fraud perpetrated by the persons unknown who were behind the website www.tda-finan.com; he was scammed into transferring cryptocurrency to the web platform. He commenced proceedings in the English courts against these persons unknown but, due to his inability to identify the prospective defendants, he was unable to serve the relevant legal documents by the usual methods of service. He therefore asked the court to allow service by email and by NFT.

The court allowed service by NFT. The Judge could see no objection to it and was persuaded by the advantage of the approach; "it is likely to lead to a greater prospect of those who are behind the tda-finan website being put on notice of the making of this order, and the commencement of these proceedings".

Implications for use of digital assets

This is the first decision of its kind outside of the United States and demonstrates the English courts' willingness to react and adapt to developing technologies. It is now well established that the courts are likely to accept cryptocurrency as a third 'form' of property (in AA v Unknown Persons [2019] EWHC 3556 (Comm)). The Law Commission is currently consulting over the formalisation of that third form of property as a "data object".

To date, widespread understanding and use of NFTs has been largely confined to the concept of art-ownership. However, the use of NFTs is evolving in the digital assets space. For example: securing personal data and sharing KYC information; granting licenses to access or use certain websites or platforms; for unique assets in gaming; for certain financial records whose authenticity and provenance needs to be ensured and various other use cases. This decision further demonstrates that NFTs can be used for purposes other than proving ownership and adds to the numerous alternative uses of NFTs that have been popularised in recent years.

One popular alternative use is among the concept of "virtual land" in the metaverse, where NFTs serve as proof of ownership (like a land deed). Similarly, NFTs can be used in virtual marketplaces; online places to trade web assets. This is not limited to trading digital artwork but extends to the sale and purchase of virtual fashion and other digital assets. Some businesses have also begun to operate what is known as an 'access by NFT hold' model. This is where a customer or client can only access certain features or services of a business if they hold a specific type of NFT in a designated wallet. These examples give a flavour of the myriad ways in which NFTs have been used in the context of the metaverse.

Ultimately, the decision in D'Aloia is further evidence of the acceptance of NFTs as a mainstream tool of commerce and law.

Cases referred to: D'Aloia v Person Unknown & Others [2022] EWHC 1723 (Ch)

Authors: James Levy (Partner), Bradley Rice (Partner), Max De Tommaso (Solicitor) and Adéla Mackie (Trainee)