Blockchain technology and its applications are filtering into mainstream industries. This technology has the potential to create widespread efficiency savings, including in the context of contract execution and dispute resolution.

As a result, we should expect to see changes in how disputes arise and how they are resolved. However, arbitration is well-placed to cater for a new breed of disputes, as long as its practitioners are prepared to evolve rapidly to meet their clients’ developing needs. New dispute resolution procedures must seek to preserve the efficiency gains made through the use of blockchain, even when disputes arise. This may require arbitration procedures that narrow the scope of disputes at an early stage (e.g. to focus on a particular failed step in the blockchain), permit the gathering of evidence on the blockchain and, subsequently, full resolution of digital world disputes – and enforcement of their outcome – through virtual platforms.

However, in developing protocols and smart contracts for ‘blockchain arbitration’, it is important to remember that a smart contract is merely a piece of software code. In order for parties operating on the blockchain to be able to enforce their arbitration agreements, the relevant smart contracts must be anchored within a valid legal framework.

Parties who disregard these questions due to the so-called self-executing nature of these digital ‘contracts’ will increase their legal risk, and likely encounter the very real world problems of increased uncertainty and exacerbated cost in determining how and by whom disputes will be resolved. This in turn could delay the global adoption of blockchain applications more widely.

The solution, at this stage at least, may be for parties to enter into smart agreements, entered into in compliance with traditional principles of contract formation, which provide for all those clauses which are capable of self-enforcement to be implemented on the blockchain but ensure that the underlying rights and obligations are nonetheless enforceable in the real world too, if anything goes wrong.

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