Author: Yash Rupeshkumar, NMIMS School of Law Bengaluru

With the growing trend of cryptocurrencies and blockchain technologies, there has been an increase in the number of crypto-related disputes. However, given the decentralised and cross border nature of crypto, solving these disputes through traditional means like arbitration or litigation has its limitations However using forms of Alternative Dispute Resolution could be more time saving and cost effective. In the current scenario Blockchain technology is being used in ADR to give it the modern touch.

Keywords 

Cryptocurrencies,  Disputes , litigation , cross border ,Technology

 Arbitration has played an important role in blockchain-related disputes. There is even a “blockchain arbitration”, where blockchain technology is integrated into the ADR itself. We can thus distinguish between two approaches: “on-chain” and “off-chain” arbitration.

Off-chain arbitration is more akin to traditional arbitration proceedings as it does not provide for automatic enforcement of the award. Off-chain arbitration can be facilitated by arbitration rules specifically designed for blockchain and smart contracts. For example, in Poland, the first arbitration court for blockchain has been set up within the Chamber of Commerce for Blockchain and New Technologies.

On-chain arbitration essentially involves the use of technological solutions whereby the equivalent of a traditional arbitral award is automatically enforced by the smart contract. From this point of view, blockchain technology and smart contracts could give rise to a new Lex Cryptographia. Today, there are already a number of platforms offering “on-chain” arbitration services (e.g. Kleros, Juris, Confideal, Mattereum and CodeLegit, etc.).

Although arbitration has played an important role in the resolution of blockchain-related disputes, many obstacles remain to be overcome. Indeed, the enforcement of awards, the determination of the arbitral seat, potential security flaws in arbitral platforms, and the modality of appointing arbitrators, constitute important challenges for the future of blockchain-related dispute resolution.

Given these difficulties, and at this stage, it seems more prudent to prefer hybrid solutions combining “off-chain” and “on-chain” arbitration. This is the solution that a Mexican court decision of May 28, 2021, seems to be guiding us towards. In fact, for the first time, the Mexican court admitted the enforcement of an arbitral award which was governed not by the arbitrator’s judgment alone, but by a technological tool designed for decentralized dispute resolution: the Kleros protocol. What is interesting about this case is the concealment of blockchain arbitration by incorporating the blockchain award into a traditional award. Although this cannot be interpreted as a general rule, it paves the way for hybrid solutions compatible with the traditional arbitration framework.

Consequently, the implementation of an effective blockchain-related dispute resolution mechanism is a fundamental step towards securing crypto transactions and enabling the evolution of the crypto economy. In this respect, ADR, and in particular international arbitration, appears to be the optimal and most compatible solution considering the characteristics of blockchain. However, it should not be forgotten that grey areas remain in relation to  several legal points and the use of blockchain also presents very different realities, particularly in terms of the chain of responsibility. Lawyers and clients alike must therefore remain vigilant in the face of this growing technology: we need to stay at the forefront of technological and legal innovation while remaining attentive to new types of emerging risks.

In general, the solution to possible disputes in blockchain cannot include some kind of prepackaged solution. It is a technology that plays by its own rules: it is spread out, anonymous, and does not care for borders-you cannot handle your conflicts the old-fashioned way. This is where alternative dispute resolution or ADR comes in. In ADR, the participants can adapt the process to really fit the situation. For example, participants often get to bring the tech-savvy people into the discussions, which allows for flexibility and retains more control compared to a typical courtroom context. Consider mediation and arbitration. Mediation is often the best-suited process to fix smart contract messes, especially when the root issue is buried in the code and logic writing it. Mediation is also a great resolution process when the quarrel crosses borders, but in that situation, you would expect arbitration to kick in. 

Arbitration, of course, continues to be an obligatory resolution process admissible due to instruments like the New York Convention that allows for the enforcement of results in many of the Rules-Based International Courts. Sometimes the response should be a medley of response processes. Start with negotiation, then mediate, before arbitrating, and potentially get into online dispute resolution; it is fast enough to keep up with how fast blockchains work compared to typical contract transactions that can bog you down. There are also many exciting new, fully decentralized, ways to resolve disputes. One great example is Kleros, which uses differential consensus to resolve disputes. Kleros works entirely on the blockchain through the use of smart contracts to manage their cases. Kleros brings in expert jury members within the smart contract while also publicizing the complete docket list of cases resolving in some manner. Even on-chain arbitration to the extent you bake in the preferred decision-maker for feedback loops and further protocol development processes also makes sense to include in the organizational dispute systems mentioned in this paper. However, alternative dispute resolution (ADR), particularly international arbitration, typically provides a better option for enforcement than taking a case through the court system. Although ADR represents a valuable option, it is not a panacea. Many laws and technologies may not be ready for full-scale integration of blockchain in effective new ADR processes. Finality of decision, identification, and the issue of risk-based regulation remains to be overcome. There have been, and continue to be a variety of examples that are real-world. Kleros continues to generate hype in this space with its decentralized arbitration approach, but not without issues. In India, the IT Act and DPDP Act both support, and perhaps endorse, arbitration/ADR, or at a minimum, mediation for blockchain dispute resolution. Researchers cannot agree if blockchain-ADR will be a substitute for court; in any case it does not appear that this option will prevail when the heart of the matter includes people and emotions - rather than code. Therefore, ADR can provide a flexible, expert, and enforceable option for blockchain and crypto disputes, yet the system is still evolving. Hybrid ADR and multi-layer ADR models have emerged as dominant for more complex digital and/or blockchain disputes. The debate continues to evolve in a rapidly changing environment, and platform governance strategies that consider processes for incorporating ADR are taking a prominent role in developing and resolving both today and tomorrow's disputes.

The current study proceeds in three specific ways: first, it evaluates whether, and in what way, ADR actually resolves disputes in a world of cryptocurrency and blockchain; second, it tests whether ADR is effective when evaluated against its potential incompatibility with these emerging technologies; and third, the study analyzes what authorities who operate inter- or cross-nationally are doing to understand what makes blockchain disputes so distinct, after which some ideas of improvement will be provided. The following are some of the reasons why there is a need for ADR in cryptocurrency disputes.

Alternative dispute resolution is a real lifesaver when you're tangled up in crypto disputes. The thing is, jurisdiction is a nightmare. Crypto doesn't bother with borders; transactions just happen everywhere and nowhere at once. If you try dragging a dispute into court, you fall over which country's laws even matter. Whereas courts get bogged down, ADR-just like mediation-just cuts through all that. Location? Doesn't matter. Provided that both parties consent, they can agree to meet anyplace, regardless of the location. Speed is another colossal. Crypto moves at lightning speed. You blink, you missed it. You lodge a civil lawsuit, by the time you get to the court, your issue has escalated. The minimal formalities of ADR methods allow issues to escalate. But, of course, this makes sense: people can make use of ADR to resolve disputes, because the methods are more flexible than the court system. And, as I discussed previously, all of this is much less formal and that fits with a lot of the absurd and unpredictable aspects of blockchain and digital assets. And let’s talk about complexity. Crypto disputes are more than just legal issues, they are technical problems that the vast majority of judges will have trouble understanding. The first thing to note is that if you are using arbitration, you can have a technical arbitrator who understands blockchains and digital assets, who understands the nature of the technical matter, and not simply the legal issue, and that is a significant advantage of an ADR system. Lastly, consider privacy. Although total anonymity is not always a component of the crypto space, participants still prioritize privacy. ADR is a private process. This allows both parties to have confidence when they engage in honest, unfiltered discussions without any reputational risks of being publicized or documented in a headline. People often overlook that a significant portion of crypto disputes occurs between people, teams, or projects that will interact again. Think DeFi teams, blockchain communities, etc. Mediation is a useful and respectful way for people to come together again after the dispute, not undermining their relationships. Another consideration is the law itself. Laws and rules around crypto are constantly changing, and there are not always clear and direct answers. Courts become inundated with cases, and progress slows. ADR is not affected by its timeline and can help cases move along more quickly. If the law is unclear, both parties can propose a settlement that is reasonable and fair and just continue to move forward. In essence, ADR provides the perfect model for the crypto space. It is quick, flexible, private, and allows for discussion of all of the messy, complicated issues that may arise. Mediation can assist in resolving problems when the rules and laws are not clear, and the technology is mind-bending.

In the event of a dispute involving crypto that you would like to mediate, this process can be straightforward. First, you need to identify a mediator. ADR (alternative dispute resolution) is a ubiquitous process with many groups offering services locally, internationally or both. In England and Wales, it is not an exhaustive list but you might consider looking at The Barrister Group or Civil Mediation Council. Both groups have directories of ADR options. Look for a mediator who has experience working with business, finance, technology or crypto disputes. This is particularly important if you are disputing across the border of different jurisdictions. Next, contact the other party and remain calm. Explain to the other party why mediation is sensible; it is an expedient, private, and far less expensive option than litigating in court. If you know the mediator then they can start off on the right foot to have the other party trust the process. The role of a mediator is to be neutral and make sure that both parties who are mediated through them can find a way forward without becoming hostile. Propose two or three names of mediators that you trust or identify a respected ADR group. If the other party agrees to mediation, the two of you can identify which mediator you will engage and move forward. Now it is time to set some guidelines; when you engage a mediator or ADR group this will happen as well. Agree on ground rules about neutrality, timing of the mediation, privacy and whether the mediation happens virtually or in person. Laying the rules of mediation out will allow both parties to remain focused on the mediation, and maintain the progress. You will need to prepare your case and put together the necessary and relevant information that supports your case.

Interestingly, there are already established arbitration rules for resolving disputes that incorporate technology, and disputes of this nature are being resolved. For instance, the 2021 Digital Dispute Resolution Rules, which expressly allows arbitral tribunals to administer digital assets—whether cryptocurrency, NFTs, or otherwise. Arbitral tribunals can transfer/alter/cancel a digital asset in dispute, and that is significant. It prevents the digital asset from disappearing altogether and provides the tribunal with the authority to enforce the determination, relative ease. The rules also resolve the issue of anonymity that is often heard in online disputes, which will require the parties to verify his/her identity with the tribunal. The means provides a legitimacy for the determination, and thus prevents challengers from engaging in an enforcement process. JAMS has even drafted rules to handle smart contracts and have kept the process simple. It calls for one expert witness to distill the contract's smart code to what that means to the tribunal. The tribunal is then able to assess the contract, the code, and the sole expert witness's testimony, without engaging other expert witnesses for additional costs. This is a simple way to discern what was actually purported by the smart contract to begin with anyway. No arbitrator has tested the new rules yet, and likely it will not be long before arbitration organizations are resolving disputes of this nature under these rules. We know disputes involving technology are going to be resolved, but we do not know which sets of rules will be employed to resolve these disputes.

What makes blockchain ideally suited to the arbitration process is the decentralized nature, immutable records, and reliance on no supremacy of authority. Traditional court systems are all based on major institutions to mediate disputes and enforce court orders. Blockchain systems work independently of that. As blockchain technology continues to permeate different paradigms like finance, supply chains, and digital identity, it is apparent new forms of disputes will arise. However, it is worth noting these do not fall into traditional legal disputes or categories, nor the dispute resolutions of those processes. At this juncture, that is where arbitration solves the issues. Arbitration is relatively adaptable, and with blockchain systems, has improved features attributed to adaptability and speed. Smart contracts and decentralized decision making means arbitration can be a relatively quicker process with greater transparency, and in some instances, could operate entirely autonomously. This is significant for individuals or companies transacting across borders, or for individuals that need to dispute issues, and do not wish to get caught up in a slow and often unaffordable court process. Naturally, many people will always choose to stay within the traditional court system. Nevertheless, the blockchain community is actively engaging in constructing, if not building an alternative, to mediate resolutions, specifically through unique tailored frameworks and agreements more attune to and reflective of the nuanced world of decentralized technology. An ecosystem is currently teasing at its entirety, avid blockchain users for instance, building on-chain arbitration platforms, decentralized autonomous organizations (DAOs) adjudicating disputes in horizontal environments, and experimental dispute resolution platforms through arbitration.

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5. Dr. Georgina Tsagas, Cryptocurrency Disputes Need Mediation: Cutting Through the Complexity (Feb. 13, 2025), https://georginatsagas.com