Blockchain, Crypto, Smart Contracts, Metaverse, Artificial Intelligence, International Arbitration - Crypto Disputes Resolution

While his practice in the field of blockchain crypto disputes focuses on the resolution of disputes off-chain by means of international arbitration, including serving as arbitrator in blockchain and crypto disputes, Christophe Dugué displays a strong interest on existing and future dispute resolution alternatives.

In addition to his experience as arbitrator in blockchain/crypto disputes, Christophe is a regular speaker in conferences on the topics of the impact of new technologies on dispute resolution and the relevance of international arbitration to resolve blockchain and crypto disputes.

Conferences as speaker on the place of international arbitration in the context of the emergence of dispute resolution on-chain and artificial intelligence include:

• Assas Lab’ Incubateur (University Paris 2), workshop held on 17 July 2023 on Harnessing the Power of Traditional Mediation and Blockchain Arbitration, participant

• ICC and UAB (Union of Arab Banks), joint conference held in Paris on 26 May 2023 on The Use of Arbitration and ADRs to provide efficient and innovative access to justice in the international banking and trade sectors, speaker in the panel on An increasingly digitalised financial sector: The suitability of arbitration and ADR to resolve emerging disputes

• Paris Arbitration Week 2023 - CMAP, conference held on 30 March 2023, speaker on Blockchain, Crypto, Smart Contracts, Artificial Intelligence, an opportunity for International Arbitration?

  Replay: https://www.youtube.com/watch?v=c__su3R38T0

• Assas Lab’ Incubateur (University Paris 2), conference held on 8 March 2023 on New Trends in Technology and Law: Law in Times of Disruption / AI vs. Humans: Partners or Competitors?, speaker on The Place of International Arbitration vs. On-chain Dispute Resolution and Artificial Intelligence

• Société de Législation Comparée, conference held on 10 May 2022 on Cryptocurrencies: A Refuge for Countries under Economic Sanctions?, speaker on International Arbitration Proceedings in the Context of Cryptocurrencies Transactions

Blockchain, Crypto, Smart Contracts, Metaverse, Artificial Intelligence.

What about International Arbitration?

The emergence of the blockchain and its use for smart-contracts (which in turn are used for Decentralized Finance-DeFi), crypto (coins, stable coins, crypto-currencies, tokens, Non Fungible Tokens-NFTs), and metaverse, as well as the development of Artificial Intelligence (in the sense of an object, not as a scientific field) are leading to the emergence of new types of disputes and possibly of new modes of dispute resolution.

Two main questions arise on the current and future place of International Arbitration with the emergence of new methods of dispute resolution and the emergence of new technologies.

First question:

What are the disputes and disputes resolution methods of the blockchain and crypto eco systems?

• What are the types of blockchain/crypto disputes?
• What are the available dispute resolution methods?

Second question:

What dispute resolution method is best suited for the resolution of blockchain/crypto disputes?

• Blockchain Dispute Resolution on-chain by use of the blockchain or off-chain through International Arbitration? In other words, the competition between on-chain dispute resolution (for example Kleros) and off-chain dispute resolution, i.e., International Arbitration.
• Artificial Intelligence (AI) and/or International Arbitration (IA) Dispute Resolution?  IA or AI or IA and AI? Can AI replace AI, or can AI be used in the context of international arbitration? Is there still room left for International Arbitration?

On-chain and Off-chain Dispute Resolution Methods for Blockchain and Crypto Transactions

When it comes to determining the best way to resolve a blockchain dispute, several on-chain and off-chain modes can be considered.

Regarding disputes between blockchain users and exchange platforms who are most of the time located in any part of the world, recourse to the national jurisdictions of a given State is not the most suitable solution and recourse to alternatives is preferred.

Alternative blockchain dispute resolution methods to court proceedings can be divided into two sub-categories, on-chain modes, and off-chain modes.

Off-chain Dispute Resolution: State Courts Are Not the Preferred Option

While the parties are free to select or prefer state courts, these courts do not appear to be the best suited mode of dispute resolution in an international context, both for a subjective reason (State courts are only familiar to one of the parties) and objective reasons (costs, length and unpredictable deadlines, difficulties for an enforcement abroad).

Subjective reasons for refusing to resort to State courts: lack of familiarity for one of the parties

The subjective reason is that the advantages of state courts are also a disadvantage in the presence of two parties of different nationalities. State courts are familiar to at least one of the parties, but only familiar to one of the parties. This imbalance entails that the parties do not start their dispute on an equal footing before the State courts of the other party; hence the need to rely on a neutral judge, which is one of the reasons why international arbitration developed.

Objective reasons for refusing to resort to State courts: costs, length and enforcement issues

The objective reasons are in particular: (i) the costs, because if State justice can in certain States be relatively inexpensive (with the exclusion of legal fees) the cost can be excessive for low stakes and access to justice the subject of thresholds, (ii) length, with a procedural schedule not controlled by the parties (multiple dismissals, distant hearing dates, appeal procedure, even cassation, etc.), (iii) enforcement difficulties, as enforcement of a court decision may turn out to be uncertain when it comes to enforcing a decision abroad (with the “benefit” of additional costs and delays).

In addition, most of the judges do not have a lot of time to devote to each case and may lack familiarity with certain business sectors. Finally, a legal proceeding is not suitable for anonymous (or anonymized) parties.

On-Chain Dispute Resolution Protocols Do Not Compete with International Arbitration

The use of dispute resolution protocols on the blockchain is one of the on-chain modes: the resolution of blockchain disputes by the blockchain, by using a "dispute resolution protocol" whose implementation is agreed at the outset  between the parties.

Such an emerging dispute resolution mode, such as the one offered by Kleros, aims to give a Yes or No answer to a simple question that is disputed by the parties to a blockchain transaction. The advantages of such a mechanism lies in its speed and effectiveness since the "enforcement" of the decision is carried out by a smart contract.

The decision is obtained after a procedure which cannot be assimilated to arbitration and does not give rise to an arbitration award. It is rather a simple response (neither given in law nor reasoned) to a simple question, which means that it does not legally put an end to the dispute, because the decision obtained is not the equivalent of an arbitration award (or a judgment). It is at most a simple contractual agreement for the performance of a contractual undertaking with the help of a third party. It follows that the dissatisfied party remains entitled to seize a court (or, as the case may be, an arbitral tribunal).

However, as a practical matter, given the low stakes, the simplicity of the questions and above all the self-execution by a smart contract of the solution so obtained, the probability of a continuation of the dispute appears almost non-existent.

International arbitration and on-chain dispute resolution protocols are not of the same nature.

International arbitration results in an arbitral award that puts an end to a dispute and is a decision made by an arbitral tribunal deciding at law, on simple or complex factual and legal disputes issues. On-chain protocols merely provide an answer to a simple question, which is often a question of fact, that calls for a yes or no answer, after a cursory review of a limited number of elements, without reasons being given and without the need for any legal background.

In sum, on-chain dispute resolution protocols such as Kleros are not the equivalent or a substitute for arbitration but a contractually agreed method of performance of the contract.

The Use of Metaverse

The resolution of disputes by use of a metaverse platform, although it is eminently innovative in its form, does not appear as a new method of dispute resolution.

Such a tool is already implemented. On March 30, 2023, the Dubai International Arbitration Centre (DIAC) announced the launch of its metaverse platform for dispute resolution, a tool which is intended to provide a virtual reality space where parties can participate together and simultaneously in arbitration proceedings. from anywhere in the world, thus eliminating the need for physical transportation for participants.

It is not a distinct dispute resolution method but remains a classic arbitration, the conduct of which will involve the metaverse, with the advantage of saving time and reducing costs.

Thus, the parties, their counsel, any experts and witnesses, as well as the arbitrators will indeed participate in an international arbitration, with the particularity of using a mode of communication and "virtual" meeting to meet together at a distance in a "virtual” open environment where these people will be able to interact as they would if they were physically present in the same place.

In addition to its use for holding hearings, it is also possible to envisage that the metaverse technology be used in an arbitration procedure to carry out the visit of an industrial installation or the visit of a construction site allowing all participant to better understand the underlying asset that is the subject of the dispute without the need to travel, which allows a substantial saving of time and costs which are often the reasons why such a visit is not organized.

International Arbitration Is the Preferred Option for the Resolution of Blockchain and Crypto Disputes

The decentralized nature of blockchain and related applications and cryptos and the ensuing cross-border nature of crypto disputes explain why investors tend to trust arbitration. The fact is that the terms and conditions of many platforms expressly provide for the use of arbitration.

However, this does not mean that the arbitration award may be expressed in cryptocurrencies; indeed, in such a case, difficulties of execution could arise both because cryptocurrencies are not currencies and because of restrictions or prohibition of cryptocurrencies by certain countries that might render the enforcement of the award impossible in those jurisdictions.

Crypto Disputes Are International by Nature

Cryptos are decentralized (i.e., control and decision-making power are distributed among multiple entities or individuals); they are recorded on the blockchain, a ledger made of a series of nodes located on computers worldwide, so that the corresponding digital assets have no specific location, can be instantaneously transferred elsewhere and are “everything, everywhere, all at once”. Users come from various jurisdictions and can be anonymized or pseudonymized. Exchanges do not have a legal presence or assets in the same jurisdiction as the users, and sometimes are not easily identifiable either. Therefore, a crypto dispute is more than likely to be a cross-border dispute, with the possible application of a set of various laws, a situation that is common in the context of international arbitration.

International Arbitration Is Widely Used for the Resolution of Blockchain/Crypto Disputes

Crypto exchange platforms (centralized or decentralized intermediaries) provide a wide variety of services (exchange functions, broker functions, custody, and clearing, staking and lending functions). The high stakes, complexity of transactions, and volatility of crypto can result in significant losses. As the stakeholders are most of the time located in different countries, international arbitration appears to be the most suitable mode of dispute resolution in this field of activity (with the caveat that when deemed a consumer dispute, it might raise the issue of non-arbitrability. As regards France, where the contract entered into with the platform contains an arbitration clause providing for mandatory arbitration, the latter may be invalidated by the French courts on the basis of article R212-2 10° of the French Consumer Code).

The fact is that the use of arbitration is a reality in blockchain contracts and has already been implemented. The reason is probably that it has many advantages and is suitable for this new field.

International Arbitration Is a Reality for Blockchain Disputes

International arbitration is chosen by the parties and crypto disputes already gave rise to a number of international arbitration proceedings.

Why would users of cryptocurrency exchange platforms choose arbitration to resolve a blockchain/crypto dispute?

The clear and obvious answer is that arbitration is what is provided for in the terms and conditions (or “Terms of Use”) of many of the major crypto assets trading and exchange platforms.

These trading and exchange platforms allow investors to buy, sell, trade or exchange cryptos (digital assets) and are either centralized (CEX, Centralized Exchange), or decentralized (DEX, Decentralized Exchange) which allow the same transactions to be carried out but without a central authority. Centralized crypto exchange platform (CEX) are centralized because they are run by a single entity or authority that acts as intermediary between buyers and sellers. By contrast, decentralized crypto exchange platforms (DEX) involve no intermediary; they are run by blockchain-based applications (smart contracts) on a blockchain (such as Ethereum, Solana, etc.), to support peer-to-peer trading transactions between crypto-users.

Empirical research shows that many crypto assets trading and exchange platforms provide for ICC, SIAC or HKIAC arbitration, with most of the seats in Paris, Singapore or Honk Kong that are "arbitration-friendly" and also perceived a "crypto-friendly" jurisdictions.

• ICC arbitration is selected by centralized exchange platforms such as Binance (in one of its former Terms of Use), Huobi, Decentraland (a metaverse platform).

• SIAC arbitration is selected by centralized exchange platforms such as Binance (in one of its former Terms of Use), FTX, KuCoin, Paxos Global Pte Ltd.

• HKIAC arbitration is selected by centralized exchange platforms, such as Binance (in its current Terms of Use), or decentralized exchange platforms, such as OKX and Pancake Swap.

• Other exchange platforms opt for AAA arbitration (Beaxy, Bitwise-asset management, Coinbase, Discord, Genesis, Paxful, a peer to peer exchange platform, Paxos Trust Company LLC) / CPR arbitration (Bitfinex), DIS Arbitration (WorldCoin-Tools For Humanity Corporation, for EEE users) / JAMS arbitration (Bitgo, Bitstamp, Circle, Kraken, Uniswap Labs, a decentralized exchange platform, WorldCoin-Tools For Humanity Corporation, for non EEE users) / or LCIA arbitration (Gemini, Lido).

ICC: International Chamber of Commerce / SIAC: Singapore International Arbitration Centre / HKIAC: Hong Kong International Arbitration Centre / AAA: American Arbitration Association / CPR: International Institute for Conflict Prevention and Resolution / DIS: German Arbitration Institute/Deutsche Institution für Schiedsgerichtsbarkeit  / JAMS: Judicial Arbitration and Mediation Services / LCIA: The London Court of International Arbitration 

A number of trading and exchange platforms also opt for more or less exotic jurisdictions and state courts: Austria (Bitpanda) / Belgium (Bit4You) /  Bermuda (Bittrex, BlockFi for its non-US clients) / Cyprus (eToro Europe, Kraken and FTX Europe) / England (eToro UK) / France (Binance France) / Ireland (Coinbase, for customers from the Europan Economic Area) / New Jersey (BlockFi, for its US clients) / Seychelles (eToro Seychelles) / Taiwan (Woofi).

The fact is that providing for arbitration is common practice in the crypto ecosystem and that the choice to resort to arbitration already resulted in several crypto arbitration cases.

Artificial Intelligence and/or International Arbitration?

Artificial Intelligence (AI) and/or International Arbitration (IA) Dispute Resolution?

Artificial intelligence is a technology for simulating or reproducing human intelligence by machines (using computers, Large Language Models and algorithms designed by humans) to perform tasks that were previously performed only by humans. The use of Artificial Intelligence in the context of International Arbitration raises a series of questions. 

IA or AI, or IA and AI?  / Can AI replace AI, or can AI be used in the context of International Arbitration?  / And Is there still room left for International Arbitration? 

The question of AI in the context of IA boils down to the alternative:

Is Artificial Intelligence a Helper or an Alter Ego?

Generative and General Artificial Intelligences Cannot Replace International Arbitration

In sum, Generative Artificial Intelligence is not that intelligent; it is a (sophisticated) tool, that uses math and statistics, and that relies only on input data, which is both a source of dependence and bias. The functions of human language are essentially thinking and communicating. Artificial Intelligence is communicating without thinking.

In addition to its "hallucinations" (artificial hallucination, confabulation, delusion, are terms that are used to express the situation where Artificial Intelligence produces a response -with certainty and the appearance of truth- that is not supported by, or even is made in contradiction with, its data), Artificial Intelligence is unable to assess the sincerity of human beings, or to exercise critical reasoning, or to take fairness into consideration. As an example, how could a Generative Artificial Intelligence properly give effect to a provision such as Article 1194 of the French Civil Code (Contracts create obligations not merely in relation to what they expressly provide, but also to all the consequences which are given to them by equity, usage or legislation) when it cannot deal with concepts such as equity, and need to analyse the context of the contract to infer the appropriate usages to be taken into account? And what if the dispute that need to be resolved has no precedent?

Generative Artificial Intelligence can therefore neither serve as a substitute for lawyers for providing legal advice, negotiating a settlement, writing briefs, witness examination, or pleadings, nor as a substitute for arbitrators for decision-making.

As for General Artificial Intelligence, its use as a judge, counsel or arbitrator would also raise the (ethical, moral, philosophical) question of its acceptability. In any event the use of an Artificial Intelligence in lieu of a judge or arbitrator would question basic justice requirements and human rights such as the right to a fair trial and to a human judge. 

Artificial Intelligence Is Already Used in Aid for International Arbitration 

Both Metaverse and Generative Artificial Intelligence cannot replace judges or arbitrators, but they can provide useful tools for all participants involved in International Arbitration proceedings.

International Arbitration is constantly evolving to adapt to the needs of all participants as is demonstrated by the constant update of most arbitration rules, international arbitration practitioners and arbitral institutions strive at keeping at the forefront of the latest technologies.

In addition to the launch of a metaverse dispute resolution platform by the Dubai International Arbitration Centre (announced on 30 march 2023), international arbitration also uses artificial intelligence, blockchain, cloud and other recent technological developments. The Online Dispute Resolution platform eBRAM, for example, explains that it "has developed its platform leveraging latest technologies including artificial intelligence, blockchain, cloud and soft robotics" which allows the parties to maximise efficiency and reduce costs of their arbitration, and "ensure a user-friendly balance between technology and human touch". All these technologies are used at all stages of the proceedings, including conventional meetings and hearings that can be arranged via the platform and video-conferencing, as well as AI Machine Translation Services.

Artificial Intelligence Must Be Reliable Before it Can Be Used in Aid for International Arbitration

Artificial Intelligence is already used by a number of law firms, for example in connection with knowledge management, legal research or document analysis. It is a toolbox that can certainly provide valuable assistance for the performance of repetitive tasks and the analysis of voluminous data, and as such it can be very useful in a number of arbitration cases.

However, Artificial Intelligence must be improved before it can be trusted and its use is more widely accepted and disseminated in the field of dispute resolution, and in particular International Arbitration.

Artificial Intelligence based tools must prove their reliability, must be properly trained with accurate data that are relevant in a legal context, display the source of their assertions, and must be exempt of bias. It is a tool created by humans, and therefore, it may reflect the limitations and biases of its creators and the data on which it is trained.

In addition to the hallucinations of Artificial Intelligence which bar its use in the context of dispute resolution, a major drawback of Artificial Intelligence is that it is an instrument can have the effect of a massive replication and dissemination of biases, voluntarily or inadvertently introduced human biases, not to mention the addition of its own biases.

The fact is that Artificial Intelligence does not understand, and merely replicates what it gets in the first place. The GPT AI is not trained to answer questions but to develop texts; it generates plausible texts with words that go well together, it creates a credible sequence of words. That is not proper legal work.

In addition, because Artificial Intelligence is a machine that is alien to critical thinking, and to concepts such as fairness, morals, due process (to name a few that are at the crux of justice), it is quite difficult to assess if and when Artificial Intelligence is ripe for playing a trustworthy role in International Arbitration.

On the use of a Generative AI to write a memo, its use in international arbitration and its limitations, see the LinkedIn posts (also posted in the blog below):

Can AI replace lawyers in International Arbitration? Or be used in International Arbitration - A [guided] interview of a generative AI 

Can AI replace lawyers in International Arbitration? [Part II] - Bard says: NO (on 16 July 2023)

Artificial Intelligence: am I right to be worried? The choice is ours.