From cointelegraph by Yohan Yun

Hong Kong courts can now serve tokenized legal notices on the blockchain against anonymous owners of illicit wallet addresses.

A court injunction order seen by Cointelegraph showed two wallet addresses on Tron that received tokenized legal notices to freeze their assets. 

Though previous cases in jurisdictions like the US and UK have showcased courts’ adaptability to novel methods, Hong Kong’s latest tokenized notices differentiate it by preventing ignorance as a defense.

“It will be in violation of criminal law if a transaction follows through, and if centralized exchanges are involved, they would likely be hesitant to engage with these wallets due to their statutory [Anti-Money Laundering and know your blockchain] obligations,” Joshua Chu, cybersecurity consultant at Macro Systems, the tech provider for the tokenized legal notices, told Cointelegraph.

Two Tron wallets identified as defendants in Hong Kong penal notice. Source: High Court of Hong Kong

Traditionally, the most common method of serving legal documents is in-person service, where documents are physically handed to the recipient. Some jurisdictions also allow documents to be sent via registered mail, email or fax under certain conditions. In instances where recipients cannot be located, notices have been published in newspapers or online.

“Prior to this, serving court documents on wallet holders has been challenging, if not impossible under existing procedural requirements,” Moses Park, counsel for the plaintiff in the Hong Kong case, told Cointelegraph.

The court injunction allowed for the placement of a digital police tape around the 2.65 million USDT the victim lost in an online scam. Still, by the time the tokenized court orders landed on the suspicious wallets, the suspects had already moved a chunk of the assets, eventually transferring them to exchanges.

At the time of writing, there was about 1 million USDT left in the wallets.

Chu said the remainder was “being dealt with separately” and declined further comment.

Tech hesitation holding back adoption

Tron is among the most used chains among illicit actors. It accounted for almost half of illicit transactions in 2023. Macro Systems has also tested its technology on other networks outside of Tron, including Ethereum and Polygon. 

Chu said it is also theoretically possible with Bitcoin, and intends to continue developing the technology to expand into other networks in 2025.

Legal notice visualized. Source: Tronscan

Still, awareness among victims lags, as they’re usually unfamiliar with the opportunities presented by novel technologies. Thousands of victims in Hong Kong’s largest crypto scam, the JPEX case, have yet to pursue legal actions for their losses.

Since 2023, there have been four court orders against blockchain addresses in Hong Kong, according to records of D-Law, an online archive of legal proceedings.

Still, awareness among victims lags, as they’re usually unfamiliar with the opportunities presented by novel technologies. Thousands of victims in Hong Kong’s largest crypto scam, the JPEX case, have yet to pursue legal actions for their losses.

Since 2023, there have been four court orders against blockchain addresses in Hong Kong, according to records of D-Law, an online archive of legal proceedings.

Cases against wallet addresses including the latest involving tokenized legal notices. Source: D-Law

“Blockchain’s application in legal contexts is still niche. Many legal practitioners, judges and institutions are unfamiliar with its mechanics, benefits or practical implementation, slowing adoption,” Laurenth Alba, business development lead at Rome Protocol and legal consultant, told Cointelegraph.

“Airdropping [non-fungible tokens] (NFTs) or tokenized documents requires technical expertise and investment. For many cases, this complexity may not seem justified unless anonymity or cross-border challenges make traditional methods impractical. 

Legal precedents in the UK

Hong Kong’s legal system is similar to that of the UK due to over 150 years of British colonial rule that ended in 1997.

The UK has also embraced innovative legal practices involving blockchain technology. 

For instance, in the 2023 case of Osbourne v Persons Unknown & Ors, fintech consultant Lavinia Osbourne fell victim to a cyber theft when two of her NFTs from the “Boss Beauties” collection were unlawfully transferred from her crypto wallet. 

Seeking legal recourse, Osbourne turned to the High Court of England and Wales, which recognized NFTs as property under English law. The court granted an injunction to freeze the assets and prevent further unauthorized transactions. It then permitted legal documents to be served to the unidentified defendants via NFTs.

This innovative approach followed a precedent set in the 2022 case of D’Aloia v Persons Unknown & Others. 

In this case, online gambling firm founder Fabrizio D’Aloia was deceived by individuals operating a fraudulent online brokerage. 

The High Court approved the service of legal documents via an NFT airdropped directly into the defendants’ wallets and recognized the potential liability of cryptocurrency exchanges as constructive trustees of the misappropriated assets.

Courtrooms are adapting to digital justice

Like Hong Kong and the UK, the US also operates under a common law legal system inherited from England. However, there are notable differences due to its federal structure and constitutional framework.

The world’s largest economy has also witnessed cases where blockchain technology has served legal documents. 

One notable example is LCX AG v. John Doe Nos. 1-25. The New York Supreme Court allowed the plaintiff to serve legal papers on anonymous defendants by airdropping a unique NFT into the defendants’ cryptocurrency wallets. This method included a link to a website containing the legal documents, ensuring the defendants were notified despite their anonymity.

While previous examples in major economies like the US and UK demonstrate courts’ adaptability to modern methods, Chu said their use of NFTs presented unique challenges of their own, such as the ability of defendants to simply send them away. 

The records remain as blockchain is immutable, but it does add another layer of complexity to the case.

“Additionally, enforcing legal actions on pseudonymous parties or frozen assets requires a more cohesive legal framework,” Alba said.

She added:

“Global jurisdictional complexities and the lack of standardized protocols make enforcement difficult, highlighting the need for collaboration between legal systems and blockchain technology.”

Alba also said that the absence of clear, uniform guidelines on using blockchain for legal notifications may create hesitation among courts and lawmakers in the US.

Despite this, Chu noted that Macro System’s tech isn’t bound to Hong Kong and sees the regulatory trend in the US heading toward consumer protections, pointing to a Consumer Financial Protection Bureau proposal that intends to hold wallet developers accountable for onchain fraud.

“The exciting part about this case is that it’s no longer theoretical,” Chu said. “We’ve shown that injunctions can be issued and enforced.”