What are the types of cryptocurrency and blockchain disputes in arbitration?

1. Introduction: The New Judicial Needs of the Digital Economy

Cryptocurrencies, blockchain technology, smart contracts, and decentralized finance (DeFi) applications have radically transformed not only financial systems but also the types of legal relationships and disputes in recent years. The cross-border nature of these digital assets, their anonymous structure, and transaction mechanisms not foreseen by classical legal rules have led to the inadequacy of state justice in many cases.

While classical judicial processes prove insufficient in resolving disputes arising from these new structures due to issues of time, jurisdiction, technical knowledge, and recognition/enforcement, arbitration stands out with its advantages such as flexibility, expertise, and international enforceability. In this context, arbitration is poised to become the "judiciary of the digital age" for both investors and technology developers.

2. Types of Disputes in Crypto Assets

Disputes in the cryptocurrency markets vary widely. The main types of disputes are as follows:

• Transaction cancellations, insufficient balances, or fund blocks can occur between crypto exchanges and users
• ICO (Initial Coin Offering) scams involve the failure to fulfill token promises.
• smart contract errors or malicious coding,
• Copyright infringement and authenticity issues in NFT (non-fungible token) sales,
• in DAOs (decentralized autonomous organizations),
• Liquidity issues and contract breaches are common problems in DeFi protocols
• The debate over who is responsible for the damages following wallet hacks

Many of these disputes present difficulties for traditional courts to resolve due to the technical infrastructure, cross-border transaction structure, and anonymous user profiles.

3. Reasons Why Arbitration is Preferred in the Crypto Ecosystem

Here are the main reasons why international arbitration is gaining prominence in crypto and blockchain-based disputes:

3.1. International Performance Capability

Arbitration awards are easily enforceable in countries party to the New York Convention. This provides a significant advantage for capital elements that move across borders, such as crypto assets.

3.2. Technical Expertise

The parties can select arbitrators based on their technical expertise. Arbitrators who are familiar with the intricacies of blockchain technology facilitate the resolution of disputes.

3.3. Flexibility and Speed

The parties can determine the venue, language, duration, and procedures of the proceedings. Decisions can be made much faster and at less cost than in courts.

3.4. Privacy

Crypto transactions generally involve a high degree of confidentiality. The principle of confidentiality in arbitration allows parties to resolve disputes without publicly disclosing their trade secrets.

4. Arbitration Clause in Smart Contracts

Smart contracts are digital agreements written in a programming language that automatically execute when certain conditions are met, replacing classical textual contracts. However, to be subject to arbitration, they need to have an "off-chain" legal status.

The method for resolving disputes arising from a smart contract that does not include an arbitration clause is unclear. Therefore:

• The arbitration institution (e.g., ICC, SIAC) should be clearly stated
• The seat of arbitration and the applicable law must be determined
• The intention to arbitrate must be put in writing with an additional document to the smart contract.

5. Arbitration Institutions and Crypto-Friendly Approaches

Some arbitration centers have developed specialized solutions for crypto and blockchain disputes:

• ICC (International Chamber of Commerce): Offers flexible arbitration rules for crypto investors.
• LCIA (London Court of International Arbitration): Distinguished by its technologically advanced pool of arbitrators.
• SIAC (Singapore International Arbitration Centre): Has published guidelines for the cryptocurrency sector.
• SVAMC (Silicon Valley Arbitration & Mediation Center): Particularly preferred in start-up and Web3 projects.
• JAMS and AAA have developed early resolution methods for smart contract disputes.

In addition , on-chain arbitration mechanisms such as Kleros and Aragon Court are being developed

6. On-Chain Arbitration Models

DAO structures on the blockchain establish "voting-based" decision-making mechanisms without the need for traditional courts. In these systems:

• Participants resolve the dispute by voting
• The decision is directly reflected in the smart contract
• Decentralized structures enable faster processing.

However, the recognition of these systems by classical law is still limited. Their enforceability may be restricted in legal systems like Türkiye's.

7. Legal and Technical Challenges

7.1. Party Identification

Users on the blockchain are anonymous. How will the true identity of a party be determined in the arbitration process?

7.2. Evidential Value

The crypto transaction chain is immutable, but proving that a transaction was made by a specific person may not always be possible.

7.3. Code Interpretation

If the arbitration panel makes a decision without the ability to read software and interpret the code's intent, it can compromise fairness.

7.4. Enforcement Issues

Seizing crypto assets can become nearly impossible due to the unknown nature of wallet passwords or decentralization.

8. Points to Consider When Drafting an Arbitration Clause

When adding arbitration clauses to crypto contracts, the following points should be clearly stated:

• Arbitration venue: London, Singapore, Paris, etc.
• Applicable law: English Law, Swiss Law, etc.
• Number of referees and appointment method
• Language of the hearing (English, French, etc.)
• Expertise requirement appropriate to the technical nature of the type of dispute
• Provision regarding the presentability of chain of evidence

9. Recognition and Enforcement of Arbitration Awards

Arbitration decisions in cryptocurrency cases, if rendered in accordance with the New York Convention, are recognized and enforceable in over 160 countries. However:

• Some states may refuse enforcement on grounds of public order because they do not recognize the cryptography.
• Crypto assets are difficult to locate.
• Technical access to wallets is restricted.

Therefore, before arbitration, the country where the decision will be enforced must be chosen correctly.

10. Conclusion and Recommendations

Crypto and blockchain-based systems are transforming classical legal systems. As an inevitable consequence of this transformation, dispute resolution methods must also evolve. International arbitration, with its technically knowledgeable arbitrators, flexible process structure, and cross-border enforcement capability, is the strongest component of this evolution.

However, for arbitration to be effective in the crypto space:

• Arbitration clauses specifically written for contracts should be integrated
• Arbitration institutions should expand their pool of technical experts
• National legal systems should begin to recognize, albeit to a limited extent, chain of command decisions
• Lawyers and developers should prepare for this field through multidisciplinary training.

Crypto arbitration is no longer a matter of the future; it is a necessary practice today, and working with an experienced lawyer in this field is of paramount importance.

Trainee Instructor Esmanur AKTAŞ