6/29/2022
Cryptocurrencies have increased their value in an unprecedented way during the past few years. In 2019, the total amount of cryptocurrencies in circulation in the market was equivalent to USD 215 billion. Two years later, such amount soare to USD 2.5 trillion, which represents an increase of over 1000%.
There are two main reasons behind such growth: the first one is related to cryptocurrencies’ potential to ease the accumulation and circulation of money, free from any third-party interference. The second one is related to the blockchain technology, which allows the storage of data of every transaction involving cryptocurrencies, in addition to guaranteeing their authenticity and integrity.
Blockchain also enabled the development of controlling mechanisms over crypto transactions, amongst which smart contracts stand out. Smart contracts are self-executing commands, written in computer language, that obey the formula “if this – then that”.
Many argue that smart contracts, due to their nature, would virtually eliminate the judicialization of operations carried out in the digital environment, given that breach of obligations would be impossible.
Such assumption, however, is based on the premise that all transactions would run smoothly and all contractual risks, consequences, adverse effects, rights and obligations could be regulated and settled by means of the mere application of computer formulas, which is obviously not the case.
There are numerous controversies that may arise within the digital environment which require the intervention of a human third-party to be settled, including, but not limited to, the following: validity of smart contracts; encoding errors; and termination based on lack of or deficient consent.
In such cases, there is no doubt that arbitration is the best dispute resolution means that the parties can resort to, especially due to its many advantages, amongst which it is worth highlighting:
- The possibility for the parties to elect a neutral jurisdiction to settle crypto disputes;
- The freedom of choice of the applicable Law, enabling the application of adequate and specific set of rules, such as the “Digital Dispute Resolution Rules” enacted by the UK;
- An easier path for awards to be recognized and enforced in several jurisdictions. The New York Convention has been adopted by more than 157 countries;
- The possibility for the parties to appoint qualified arbitrators, according to their knowledge over tech disputes;
- Confidentiality of all aspects of the proceedings;
- Flexibility of the proceedings, which allows the rules of evidence production and other procedural aspects to be taylor-made by the parties;
Interestingly the benefits are mutual. Blockchain, for instance, facilitates payments and deposits between the parties and arbitral institutions, minimizing risks of default. Moreover, blockchain may serve as a database for documents, submissions and awards, preserving their confidentiality and protecting them against any modifications. This is definitately a win-win combination which is here to stay.
Coauthors: Felipe Lima Matthes, Silvia Rodrigues Pachikoski and Tonico Monteiro da Silva
