The arbitrability of Web3 disputes: An effective court of First World … – Lexology

This article explores the arbitrability of blockchain, cryptocurrency, NFT and metaverse disputes and considers the issue of what arbitration and its supporting ecosystem must do, in order to remain an effective forum for the resolution of such disputes.

What are blockchain, cryptocurrency, NFT and metaverse disputes?

For the sake of simplicity, we shall refer to all such disputes within this article as, Web3 disputes. Web3 disputes are disputes which are connected with the rapidly-growing range of decentralised technologies which utilise blockchain and smart contracts to record transactions, and to automate particular functions. These technologies include those powering cryptocurrencies and non-fungible tokens (NFTs), the records of transfer of which are stored on blockchains and are publicly viewable. Web3 disputes may also encompass disputes connected with the metaverse, a virtual-reality (VR) world, accessible through VR headsets, within which participants may engage with each other and interact in a computer-generated environment.

Disputes in the Web3 space may arise in a multitude of different ways and may fall within a number of categories of law (or within multiple categories). There may, for example, be disputes arising from criminal acts, such as hacks or exploits, or the theft or unauthorised movement of cryptocurrencies or NFTs. There may be tortious actions which give rise to liabilities and claims, either within or outside of the context of contractual relationships. Alternatively, disputes pertaining to Web3 may fall within the category of regulatory disputes, such as issues falling within the remit of the Securities and Exchange Commission or the Commodity Futures Trading Commission in the U.S., or within the regulatory scope of the Monetary Authority of Singapore the question of whether particular cryptocurrencies are securities, for example.

However, at the heart of a tremendous number of Web3 disputes lies private law. In most cases, given the internet-based global nature of Web3, this means private international law. While the above description of Web3 sounds and is - incredibly tech-driven, what is not always immediately apparent is that there is a raft of considerably more traditional legal contractual relationships and structures at play behind a significant amount of this technology. Those legal relationships are formed of bilateral and multilateral private contracts, most commonly written in plain language (as opposed to code), and which refer disputes between their various participants to a range of traditional forums for dispute resolution, pursuant to their chosen governing laws. It is those contracts, and the disputes which arise thereunder, which form the primary focus of this article.

How do Web3 disputes arise?

Web3 disputes may arise in a vast number of different ways the majority of which have most likely not even been contemplated yet, such is the rapid pace at which the relevant technology is developing.

Taking a few examples which have already occurred, we have seen examples of each of the following:

Are Web3 disputes arbitrable?

By and large, Web3 disputes are not only arbitrable but in many cases, arbitration would be the most suitable forum for their resolution.

The reasons for this being so are in many cases down to the very same set of fundamental reasons why arbitration is so popular as a dispute resolution forum in international contracts generally. In brief summary, such reasons include:

There already exist a very significant range of Web3-related contractual relationships which incorporate traditional arbitration agreements, and which refer disputes to arbitration under a variety of institutional rules. Some examples of such contractual relationships are set out below:

What are the limits to the arbitrability of Web3 disputes?

There are, however, limits to the use of arbitration as a dispute resolution tool in the Web3 space. We discuss a number of the relevant issues below.

These limitations give rise to the need to consider a range of factors when determining whether to refer Web3 disputes to arbitration.

How may these limits to arbitrability be mitigated?

While arbitration may be an excellent forum for the resolution of many Web3 disputes, the adoption of arbitration must still be carefully considered by the parties at the contracting stage, to ensure its suitability for the particular circumstances. The current limits of, or impediments to, the arbitrability of Web3 disputes are broad-ranging and for this reason, it is necessary to give specific consideration to the question of whether an arbitration agreement is suitable in each instance, as well as to the choice of institutional rules, and the seat of the arbitration.

How can arbitration remain the forum of choice for Web3 disputes?

There will be constant developments in the Web3 space over the coming years, both in terms of technological and legal advances. It will be critical for arbitration, and the national laws and international conventions which underpin it, to continue to adapt, in order to embrace technology as it develops and to remain relevant to, and suitable for, the resolution of Web3 disputes.

Adapting to developing technology may involve pushing the existing boundaries of international arbitration, and the fundamental norms which we associate with it. For example, could parties mutual contractual agreement as to what constitutes due process, and their submission to directly enforceable decentralised on-chain arbitration, be capable of recognition and enforcement without challenge? Could parties in the Web3 space freely agree at the contracting stage that ex parte applications for interim reliefs shall be permissible, in the context of arbitration? May we see arbitration commenced by or against pseudonymous persons who wish to retain entire anonymity, even within the confidential confines of arbitration, or against persons unknown, in the manner which court action in certain jurisdictions may be? Could we potentially see the development of Web3-specific arbitration rules within a particular metaverse, and agree to seat our arbitrations there, in an effective private bubble, removed from the complexities of conflicts of often outdated national laws, and the vagaries of public policy?

While some of these concepts may seem far-fetched and outlandish, as both technology and law continue to develop, we may see issues of this nature being considered in all seriousness in years to come. The resolution of some of these legal issues may indeed bring greater confidence to the development of Web3 projects, and ultimately aid the adoption of the underlying technology, which presently suffers from a significant degree of legal uncertainty in many jurisdictions. The resolution of issues of this nature will be necessary, in order for arbitration to remain the most relevant and effective court of First World problems.

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The arbitrability of Web3 disputes: An effective court of First World ... - Lexology

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