The rapid growth of blockchain, cryptocurrency, non-fungible tokens (NFTs), and smart contracts has resulted in a surge of legal disputes, so blockchain and the future of arbitration are intrinsically linked.
As these new technologies become increasingly widespread, the need for effective and efficient dispute resolution becomes more pressing.
The recent FTX Trading Ltd. bankruptcy and the resulting disputes, lawsuits, and enforcement actions are just the tips of the iceberg.
As these new technologies evolve and gain widespread adoption, so too does the number of legal disputes. But what makes these disputes unique and challenging? And how can arbitrators successfully navigate this complex landscape?
What is blockchain?
A blockchain is a decentralized digital ledger that records transactions across a network of computers.
It was created as the underlying technology for the cryptocurrency, Bitcoin, but has since been adapted for various other uses.
A blockchain operates as a chain of blocks, where each block contains a set of transactions. Once a block is added to the blockchain, the information it contains is incredibly difficult to alter or remove, making it a highly secure and trustworthy option for applications like financial transactions and digital identity management.
In a blockchain network, no central authority controls the information stored on the blockchain.
Instead, the network is maintained by a decentralized network of computers or nodes, which work together to validate transactions and add new blocks to the blockchain.
This decentralized architecture helps ensure the integrity and security of the information stored on the blockchain, making it a more trustworthy option than centralized systems.
By distributing the responsibility of maintaining the network across a network of computers, there is no single point of failure, making it more secure against cyber attacks and other malicious activities.
What are NFTs?
NFTs are digital assets that represent ownership of a unique item or piece of content, such as digital artwork, music, video, or even tweets.
Unlike cryptocurrencies, such as Bitcoin, which are fungible and represent equal units of value, NFTs are unique and irreplaceable, and their ownership and authenticity can be verified through blockchain technology.
Because NFTs are stored on a blockchain, they offer a way for creators to sell their digital creations as one-of-a-kind, verifiable collectibles. This allows them to capture value in their work that might otherwise be lost in the digital world.
While still a relatively new concept, NFTs are already being used in various creative and commercial applications, attracting significant attention and investment.
What are Smart Contracts?
Smart contracts are digital programs that automatically execute the terms of a contract when specific conditions are met.
They are self-executing, meaning that they do not require any human intervention to enforce the terms of the agreement.
This makes smart contracts incredibly useful in various industries, as they can automate complex processes, reduce the risk of fraud, and increase transparency and efficiency.
Arbitration in the Context of New Technologies
Arbitrators are faced with resolving disputes arising from the use of blockchain, cryptocurrency, NFTs, and smart contracts, which means that blockchain and the future of arbitration will evolve.
These cases often raise legal questions familiar to the arbitration community, such as investor claims, shareholder disputes, IP violations, fraud, misrepresentation, and bankruptcy proceedings.
However, these new technologies also present unique circumstances and issues requiring innovative dispute-resolution approaches.
The Ambiguity of Digital Tokens
One of the critical challenges of resolving disputes in the world of blockchain and cryptocurrency is the ambiguity surrounding the status of digital tokens.
Are they securities like stocks, bonds, or ordinary assets with intrinsic value? This ambiguity extends to disputes over entitlement to tokens, control over project wallets, and misrepresentation claims in the context of crypto funds.
The Need for Rapid Adaptation
Adopting new technologies can create gold-rush-type circumstances with rapid growth and new players constantly entering the market.
This focus on rapid expansion and market share, combined with the steep learning curve of new technology and the danger posed by bad actors and technical glitches, creates a breeding ground for disputes.
Blockchain and the future of arbitration will change rapidly and arbitrators need to adapt to this reality.
The Volatility of the Market
The size and volatility of the crypto and NFT markets make them unique.
The sudden creation of a multitrillion-dollar market and its rapid decline has affected many professional and individual investors, making it challenging to value companies and establish and quantify loss.
Decentralized, Cross-Border Transactions
The decentralized, cross-border nature of blockchain transactions raises new legal questions.
Determining the location of an entity, its assets, and its counterparty becomes much harder when transactions are anonymous and spread across multiple jurisdictions.
The Path Forward for Arbitrators
As the tidal wave of legal disputes continues to crash down on the blockchain and cryptocurrency world, arbitrators must be prepared to navigate this novel landscape.
The keys to success will be a deep understanding of the technology, a clear appreciation of the unique circumstances and issues presented by crypto, NFTs, and smart contracts, and the ability to apply existing laws and regulations in new and innovative ways.
Arbitrators who can navigate this complex landscape will be well-positioned to meet the demands of the rapidly evolving world of blockchain and cryptocurrency.
Blockchain and the future of arbitration will be shaped by those that keep ahead of the curve in a rapidly evolving technological landscape.
Can your business benefit from Online Dispute Resolution?
You can shield your business from threats by signing up for our ODR Program. You can also recover debt without going to court.
Brief has helped businesses across the United States recover debts that were not worth the cost of traditional litigation or arbitration if not for online dispute resolution.
Satisfied participants include electronic commerce sites, factors, banks, MCA, and other lenders.
Brief also handles quiet title, warranty claims, declaratory relief actions, and other types of monetary disputes.
Our screened network of Ejudges spreads across all 50 states and each case is matched to jurisdiction and subject matter expertise of the Ejudge.
You can request a demo from our homepage or call one of our arbitration consultants today on tel: +12134443794 . Alternatively, drop us an email at [email protected] to book an obligation-free consultation.
Brief is a market-leading online arbitration platform in the United States. Our 100 percent online alternative dispute resolution platform helps businesses protect their contracts and agreements through online arbitration. Follow us on LinkedIn or Facebook for updates and news about online arbitration and more.
*Brief cannot and will not give legal advice on any matters, financial or not.