Login | December 26, 2024
How do you serve an anonymous crypto wallet in bankruptcy court?
RICHARD WEINER
Technology for Lawyers
Published: November 22, 2024
Unique problems in the intersection of law and technology have to beget unique solutions. That is, if a court wants parties to be able to effect service on an anonymous wallet.
Problem: In re Celsius Network LLC, Case No. 22-10964 (MG) (Bankr. S.D.N.Y. Oct. 24, 2024) involved trying to trace allegedly fraudulent transfers tied to the collapse and subsequent bankruptcy action of the $3 billion cryptocurrency platform Celsius.
These potentially fraudulent transfers took place through anonymous crypto wallets. The bankruptcy court, the post-effective date debtors and the litigation administrator needed to serve various notices on the owners of these digital wallets in an attempt to discover the nature of these transactions to, hopefully, claw back bankruptcy estate assets from them.
But the owners could not be identified. Could not be found.
As we have been reporting since the beginning of the use of blockchains—if you want to create anonymous transfers of values, the blockchain allows you to do that. And the blockchain can’t be unwound. Once a transfer or smart contract happens, it’s there permanently-- unlike a paper transfer or even a banking transfer.
In this case, every kind of detective work that is effective in the pre-blockchain world was not effective in opening up the identity of the blockchain users.
So what’s a court to do?
If you said “airdrop the notices and links to the anonymous wallets” you would be correct.
Based on the declarations of experts at a blockchain consultancy group submitted by the litigation master (and under NY and federal law), the master was allowed an alternative service of process by the court, as long as certain restrictions were followed, based on the court’s finding that traditional service of process was impossible.
So the master created NFTs to effect service, which the court held was akin to service by email. Each NFT contained a link to a service of process website that had the notices on it, and each contained a link to the website of the case itself.
And then the NFTs were airdropped into the digital wallet, and service was considered effected.
And that’s life in the digital age, folks. If all of those terms seemed obscure to you, well, ya better get hip to them.
Thanks for the analysis from the folks at Baker McKenzie.