A Twitter thread went semi-viral recently (and has been since deleted) where an apparent 15-year old computing wizard earned over $17 million through the use of automated computer programs (“bots”) to game recently hyped NFT drops (Murakami Flowers and Otherside land). While we are in a space where technological innovation is celebrated, the use of bots is a hotly debated issue. So let’s talk about the legality of bot usage and where “code is law” and “law is law” intersect.
As a disclaimer, while I use @reshadeth as an exemplar to explain this abstract topic, I am not his attorney nor do I represent any of the projects he purchased through the bot methods laid out in his Twitter thread. Laws differ widely based on jurisdiction, so nothing I say should be considered legal advice.
Initial Warning to Similar Savvy Individuals
If you are somebody like @reshadeth who makes millions through gaming drop mechanics or otherwise duplicitous means, here is a word of advice: shut up and enjoy your riches quietly and anonymously. Growing up in the age of social media and email, people have started putting entirely too much in writing which should be limited to oral conversations or kept quiet altogether.
I have been involved in multi-billion dollar intellectual property lawsuits. Without fail, the exhibits which are given the most attention are emails and social media posts. These often otherwise innocuous and offhand statements look terrible when read by a jury or arbitrator. Before putting anything in writing, stop, consider how it will look if you or your company is sued later, and reassess if what you are typing out really needs to be said.
If @reshadeth had quietly amassed his fortune and not put out his Twitter thread, he would have $17 million, a few less social media followers, and be virtually unknown in the space. Now, he has gained a few more Twitter followers, still has $17 million (for now), but also has a target on his back. This bravado may be a flaw of youth, or it may be greed as he hopes to segue his success into selling his bot services to others. Either way, putting everything he did in writing is a short-sighted and unnecessarily risky.
Use of Third-Party KYC Accounts
One of the things @reshadeth did to mint Otherworld land in mass, was purchase KYC’ed wallets. For those living under a rock for the past few days, only wallets which had previously registered Know Your Customer (KYC) verifications were eligible to mint Otherworld land.
KYC is a process used by many in the finance and banking world to verify the identity of individuals buying, transferring, and selling assets on their platforms. Many laws in the United States require platforms collect such information from their users. This is generally done for tax reporting purposes and to otherwise prevent financial fraud. Cryptocurrency exchanges which allowed anonymous transactions in their early stages now often require users provide KYC information to utilize their platforms. This has lead to a cottage industry where individuals register and sell KYC’ed (AKA “verified”) accounts on platforms like Coinbase and Binance.
However, in addition to violating those platforms’ terms and conditions (explained below), using somebody else’s identity to engage in financial transactions is very illegal. Identity theft, a crime in most (if not all) states, is typically defined as when somebody “knowingly and with the intent to deceive or defraud obtains, possesses, transfers, uses, or attempts to obtain, transfer or use, one or more means of identification not lawfully issued for his or her use.” See RSMo. §570.223. @reshadeth’s actions check all the boxes. He (1) knowingly; (2) with intent to deceive; (3) used identifications not lawfully issued to him.
The purchase and use of KYC wallets also very likely would fit under fraud, wire fraud (because this was done online), money laundering, and various other criminal statutes. It turns out, people have been doing shady shit long before the internet and KYC cryptocurrency wallets existed, and the government has enacted broadly worded criminal statutes which those actions fit under. While I only mention US laws in this post, these types of actions are illegal in some way, shape, or form in virtually every jurisdiction.
What @reshadeth did took incredible intelligence. While the scale of his KYC account usage was higher than most, he was hardly the only one to do it. But generally, when you do something which violates the laws of virtually every country in existence, you don’t want to brag about it on Twitter and provide the identities of all your co-conspirators.
Terms and Conditions
NFTs are great, because the blockchain is the ultimate proof of ownership and provenance. But is ownership of a block of code alone enough? For some projects, such as sartoshi’s MF’ers project, it is. For most projects, though, people are buying for additional utility. We have meme’d “devs, do something!” because we expect NFT ownership comes with other benefits. A video game developed, or access to exclusive events, or gated discords, or some other added benefit along with the .jpg.
This access for added benefits is usually governed by the rules found in projects’ Terms and Conditions. These projects can’t take away your ownership of the NFT coded into the blockchain. But they can change NFT’s image so what was an NFT image of a monkey is now a middle finger emoji. They can refuse to allow access to added benefits for NFTs which were purchased or otherwise obtained through illicit means. They can remove NFTs from their collections on OpenSea. In sum, while nobody can ever take away the chain of code in your wallet, they can take away everything about that chain of code which makes it valuable to others. At that point, you have the same rights as a person who right-click saved your NFT image, namely, none.
Do I think either Yuga Labs or Takashi Murakami are going to do that for the assets @reshadeth acquired? No. I do not know if the Murakami Flowers raffle which @reshadeth gamed even had terms and conditions, and I think the backlash Yuga Labs would face from its other holders would exceed any benefit to their project. But I wouldn’t say the same if @reshadeth gamed a RTFKT (owned by Nike) drop. Nor do I believe even major players like Yuga Labs will continue their current laissez faire enforcement of their Terms and Conditions.
While terms and conditions are primarily used in the industry now to protect developers and projects from consumer protection liability, in the very near future they are going to be enforced to prevent what the projects deem to be “bad actors” from retaining the benefits of ownership. Openly flouting those terms and conditions puts your ownership benefits at risks, so weigh the pro-and cons before doing so. Or, simply do not buy into projects with such terms if you are looking for a more decentralized asset.
In the early days of blockchain technology and NFTs, the term “code is law” was thrown around because if something was done within the parameters of the asset’s code that is what ruled the day. That was before the DOJ started prosecuting rug pullers and class actions against exchange exploiters were things. As these technologies and assets reach the mainstream, law will still be what rules the day. Especially as more sophisticated businesses enter the space with experience using the courts to protect their assets. At the very minimum, if you do find a way to game the system, just enjoy your riches quietly instead of flexing it online. The potential cons vastly outweigh the pros.
If you have any questions or would like me to write about anything else, let me know on either of my twitter pages! As always, I am an attorney, I am not your attorney. For legal advice, you should always consult (and pay for) an attorney.