–Abhay Raj & Shruti Avinash[1]
Blockchain technology and cryptocurrencies, with their decentralised structures and global reach, have reshaped economic interactions but also introduced complex legal challenges that demand tailored dispute resolution mechanisms. Arbitration, valued for its flexibility and confidentiality, has emerged as a preferred method for resolving blockchain-related disputes, yet it often struggles with enforcement and regulatory inconsistencies. This article critically examines the effectiveness of arbitration in addressing crypto and blockchain disputes, focusing on India while drawing insights from jurisdictions that have developed structured approaches, including the United Arab Emirates, Singapore, the United Kingdom, and the United States. By analysing regulatory frameworks such as the UAE’s Virtual Asset Regulatory Authority, Singapore’s Payment Services Act, the UK’s Financial Conduct Authority guidelines, and U.S. case law on digital assets, this article highlights key lessons for India. Additionally, it explores hybrid dispute resolution models that blend arbitration with litigation and online dispute resolution (“ODR”), aiming to develop more robust mechanisms that align with the evolving complexities of blockchain governance.
CHALLENGES IN BLOCKCHAIN DISPUTE RESOLUTION
Unique Attributes of Blockchain Transactions
Blockchain transactions present unique challenges for traditional arbitration, primarily due to the pseudonymous nature of participants and the decentralised structure of cryptocurrencies. The anonymity of parties makes it difficult to identify responsible entities, while the lack of clarity on jurisdictional boundaries complicates the application of legal frameworks. Platforms like Binance and Bybit, with their complex corporate structures, often blur lines of responsibility between different entities, further entrenching these issues.
Additionally, the rise of smart contracts, which execute autonomously based on pre-programmed code, introduces complexities in interpreting, executing, and enforcing agreements. The extreme volatility of crypto assets means that arbitration awards can quickly become irrelevant or outdated, undermining their effectiveness. With many arbitrators and judicial bodies unfamiliar with blockchain technology, traditional dispute resolution mechanisms struggle to adapt, highlighting the urgent need for more tailored approaches in the crypto space.
Arbitration – A Failed Method for Dispute Resolution
Theoretically, arbitration is well-suited for resolving blockchain disputes due to its inherent flexibility, confidentiality, and the cross-border enforceability of awards under international frameworks. The ability to appoint arbitrators with expertise in blockchain technology and smart contracts ensures that complex technical issues are addressed by informed professionals.
However, as noted by practitioners like Panchamiya, these theoretical strengths often falter in practice. They argue that the pseudonymous nature of blockchain participants creates significant enforcement challenges, particularly in cases involving fraudsters or decentralised autonomous organisations, where identifying and holding responsible parties accountable is exceedingly difficult. This challenge is further compounded by the varying regulatory landscapes across jurisdictions, with some countries imposing strict regulations or outright bans on crypto assets. Such regulatory disparities add complexity to legal actions and the enforcement of arbitration awards, particularly when damages are ordered in cryptocurrency or fiat currency.
ODR Platforms – A Failed Method for Dispute Resolution
Emerging ODR platforms like Kleros and Aragon Court seek to overcome the limitations of traditional arbitration by harnessing blockchain technology and decentralised principles. These platforms use juror pools incentivised through game-theoretic mechanisms, where participants stake tokens to serve as decision-makers. Outcomes are rewarded or penalised based on alignment with majority rulings, providing a decentralised yet structured method for resolving disputes.
Although these systems have shown promise in resolving small-scale disputes, they face significant drawbacks. One major concern is the lack of legal expertise among jurors, which can lead to inconsistent and unpredictable outcomes, particularly in cases involving intricate contractual or technical issues. Moreover, ODR platforms typically incentivise jurors based on majority decisions, which undermines impartiality by encouraging jurors to align with the majority view rather than issuing an independent, fair verdict. This creates a situation where jurors may prioritise consensus over justice, especially in more complex cases.
For high-value or complex disputes, the absence of procedural rigor, institutional oversight, and enforceability significantly limits the practical utility of these platforms. Critics like Panchamiya, Chevalier and Schmitz argue that while ODR may align with blockchain’s decentralised ethos, it falls short of providing the institutional strength and reliability necessary to handle larger, more complex disputes effectively. These concerns highlight the need for a more balanced approach that incorporates the strengths of traditional dispute resolution mechanisms, such as arbitration and litigation, alongside the innovative potential of ODR.
Litigation – A Failed Method for Dispute Resolution
Given the shortcomings of both arbitration and ODR platforms, scholars may advocate for litigation as the preferable option for resolving blockchain disputes. Litigation offers complementary strengths, especially in jurisdictions that recognise crypto assets as “property.” Courts possess powerful tools for asset recovery, such as freezing orders and proprietary injunctions. This was exemplified in Fetch.ai Ltd v Persons Unknown, where the English courts granted injunctions to trace misappropriated crypto assets. Similarly, the Singapore High Court’s ruling in CLM v CLN and others highlighted the critical role of interim measures in preventing asset dissipation.
However, litigation is not without its challenges. Its public nature may deter parties seeking confidentiality, and cross-border enforcement remains a persistent issue. In India, for instance, the lack of specific procedural rules for crypto-related cases has led to inconsistent judicial outcomes, further discouraging stakeholders from viewing litigation as a reliable and effective option.
PROPOSING A HYBRID APPROACH TO BLOCKCHAIN DISPUTE RESOLUTION
The limitations of arbitration, ODR, and litigation as standalone solutions highlight the need for a hybrid approach to effectively resolve blockchain-related disputes. Arbitration, while flexible and confidential, often struggles with enforcement challenges and jurisdictional ambiguities. Similarly, ODR platforms, though aligned with blockchain’s decentralised ethos, frequently lack the expertise and procedural safeguards needed for complex disputes. Litigation, despite offering powerful tools like freezing orders and proprietary injunctions, is hindered by its public nature and inconsistent cross-border enforcement.
To address these gaps, a hybrid model must integrate the strengths of arbitration, courts, and online dispute resolution (ODR) while mitigating their weaknesses. Arbitration clauses should be drafted with greater clarity, explicitly defining governing laws, counterparties, and enforcement mechanisms to provide certainty in blockchain-related disputes, particularly in India, where regulatory uncertainty adds complexity. A well-crafted clause could specify that disputes be resolved under the rules of an institution like the Mumbai Centre for International Arbitration (MCIA), with the seat of arbitration in India and governing law aligned with the Information Technology Act, 2000, and relevant RBI or SEBI regulations. Given the technical nature of blockchain, arbitrators should have expertise in digital assets, and proceedings should allow blockchain-based evidence and smart contract executions as admissible proof. At the same time, ODR platforms must evolve with expert panels and procedural safeguards to ensure neutrality and competence, while courts refine tools for fraud prevention and cross-border asset recovery, enabling them to effectively tackle crypto-related enforcement challenges.
Harmonised international standards are essential to ensure the recognition and enforcement of blockchain-related decisions across jurisdictions. A promising innovation lies in embedding arbitration agreements directly within smart contracts. By enabling automated enforcement of awards, this approach can bridge the gap between traditional dispute resolution mechanisms and blockchain technology, streamlining processes and offering a tailored solution for the crypto space.
The Future of Blockchain Arbitration: Balancing Innovation with Practicality
The future of blockchain arbitration depends on innovations that address its inherent limitations. Dincer’s concept of Lex Cryptographia—a self-contained legal framework rooted in blockchain principles—presents a compelling vision for resolving disputes within the ecosystem. Embedding arbitration mechanisms directly into smart contracts could automate dispute resolution processes, offering unprecedented efficiency. For instance, a smart contract governing a token sale could include coded arbitration clauses that activate in the event of a breach, automatically appointing pre-selected arbitrators and executing their decisions without human intervention.
However, as scholars such as Chevalier and Schmitz have cautioned, this technological efficiency must not come at the expense of fairness. Procedural safeguards must remain integral to ensure transparency and equitable outcomes. Moreover, Lex Cryptographia’s reliance on decentralised enforcement mechanisms raises potential conflicts with traditional judicial systems, particularly regarding enforceability. These challenges highlight the need for a harmonised approach that blends the innovative potential of blockchain technology with the procedural integrity of established legal systems.
Towards a Cohesive Regulatory and Arbitration Framework for Blockchain Disputes
Globally, jurisdictions have begun adapting to the unique challenges posed by crypto disputes, providing valuable lessons for India. The United Arab Emirates, emerging as a global hub for cryptocurrencies, demonstrates a forward-thinking approach. Regulatory bodies like the Virtual Asset Regulatory Authority have introduced guidelines that seamlessly incorporate arbitration into crypto governance frameworks. Additionally, the Abu Dhabi Global Market and the Dubai International Financial Centre have established mechanisms that facilitate blockchain arbitration, showcasing how proactive and robust regulatory infrastructures can effectively address the complexities of emerging technologies.
Additionally, Vietnam offers further lessons: while cryptocurrencies are not recognised as legal tender, disputes involving blockchain transactions are addressed through arbitration and litigation. Notable cases like Case No. 22/2017/HC-ST underline the importance of clear regulatory definitions, offering a potential roadmap for India to clarify the legal status of cryptocurrencies and establish effective dispute-resolution mechanisms.
Arbitration’s adaptability is particularly crucial in addressing cross-border disputes, where jurisdictional conflicts are common. Binance, for example, currently relies on arbitration clauses (Clause 32.1, Terms of Use, 03 June 2024) through the Hong Kong International Arbitration Centre, showcasing how arbitration can provide a neutral forum for resolving disputes involving global stakeholders. This approach allows for a streamlined process and ensures that parties from different jurisdictions can resolve their disputes in an impartial and structured environment. However, these clauses also reveal the limitations of arbitration, particularly in enforcing awards against pseudonymous or non-cooperative parties. The challenge becomes even more pronounced when assets are held in jurisdictions that do not recognise or enforce the arbitral process, raising concerns about the practical efficacy of arbitration in certain cross-border contexts. This underscores the need for innovative solutions to enhance the enforceability and reach of arbitration in the evolving landscape of international disputes.
INDIA’S REGULATORY LANDSCAPE FOR CRYPTOCURRENCIES
India’s regulatory framework for cryptocurrencies is marked by uncertainty and an evolving legal landscape. Initially, the Reserve Bank of India imposed a blanket ban on cryptocurrency transactions in 2018. This ban, however, was overturned by the Supreme Court in the landmark case of Internet and Mobile Association of India v Reserve Bank of India, providing temporary relief to crypto stakeholders. Despite this significant ruling, subsequent regulatory measures have failed to establish a comprehensive framework for cryptocurrency governance.
The Finance Act, 2022 introduced taxation for virtual digital assets, signalling the government’s recognition of the crypto market’s existence, but it stopped short of clarifying their legal status. This piecemeal approach has left crypto businesses and users navigating an ambiguous regulatory environment, impacting investor confidence and long-term growth prospects in the sector.
The interplay between public policy and arbitration is equally significant, particularly in India, where landmark cases like Renusagar Power Co. Ltd. v General Electric Co. and ONGC Ltd. v Saw Pipes Ltd. have shaped the concept of public policy. When it comes to cryptocurrencies, public policy considerations can influence the enforceability of arbitration awards. For example, if cryptocurrencies are deemed illegal under Indian law, awards involving such transactions risk being set aside for violating public policy. To address these challenges, arbitration agreements must explicitly account for potential conflicts with local laws, ensuring awards remain enforceable while navigating the evolving legal landscape of blockchain technology.
India’s fragmented regulatory landscape highlights the urgent need for integrative approaches to foster trust and stability in its rapidly growing cryptocurrency sector. Hybrid dispute resolution models can play a pivotal role in bridging regulatory gaps. For instance, regulators could adopt frameworks that blend arbitration with court oversight, ensuring enforceable outcomes while retaining the flexibility required by blockchain stakeholders. Collaborative efforts between the Securities and Exchange Board of India and the Reserve Bank of India could further support the establishment of specialised tribunals for crypto disputes, harmonising financial regulations with modern arbitration practices.
In India’s cryptocurrency market, dispute resolution mechanisms vary across platforms, with exchanges like WazirX implementing specific processes to address user conflicts. WazirX, for instance, has established a Peer-to-Peer (P2P) dispute resolution system designed to ensure secure and transparent transactions. This system employs an escrow mechanism where WazirX holds the seller’s USDT (Tether) until the transaction is successfully completed and payment is confirmed by both parties. In cases where disputes arise, either party can raise a dispute after a specified period, prompting WazirX’s dispute team to intervene. The team swiftly verifies proofs of payment from both the buyer and seller, following a multi-check process to ensure accuracy. This approach aims to provide a fair and final decision to settle disputes, typically within 48 hours. Additionally, in July 2022, WazirX introduced a Payment Proof Collection feature to streamline the process of collecting evidence from buyers and sellers in case of disputes. This enhancement mandates both parties to submit proof when raising a dispute, thereby reducing the time required for resolution and enhancing the overall efficiency of the P2P transaction process.
However, the Indian cryptocurrency landscape has faced significant challenges, as exemplified by the 2024 cyberattack on WazirX, which resulted in the loss of approximately $234 million. In response, WazirX proposed a Scheme of Arrangement under the Singapore Companies Act to restructure its liabilities and provide users with a clear path to optimised recoveries. The scheme includes rebalancing remaining cryptocurrency assets to match liabilities associated with the platform and aims to distribute assets efficiently to affected users.
This regulatory ambiguity also extends to the arbitrability of crypto-related disputes under the Arbitration and Conciliation Act, 1996. As per the principles outlined in Vidya Drolia v Durga Trading Corporation, disputes that involve public interest or are classified as actions in rem are non-arbitrable. The unresolved classification of cryptocurrencies under Indian law—as property, securities, or commodities—further complicates this issue. Without clear legislative definitions, disputes involving crypto assets risk being categorised as non-arbitrable, undermining arbitration’s efficacy as a mechanism for resolving such disputes.
To address these challenges, India needs a clear regulatory framework that defines the legal status of cryptocurrencies, establishes governance guidelines, and ensures enforceability in dispute resolution. Collaboration between the RBI and SEBI is essential to classify cryptocurrencies and delineate regulatory oversight. Inspired by models like Singapore’s Payment Services Act, India could introduce licensing requirements, AML/KYC compliance, and consumer protection measures. Additionally, specialised crypto dispute resolution tribunals, integrated with arbitration and court oversight, could streamline enforcement. Incorporating blockchain-based mechanisms like smart contract arbitration could further enhance efficiency. A cohesive approach will foster trust, stability, and India’s leadership in the global crypto ecosystem.
Blockchain’s decentralised nature fundamentally reshapes the way disputes are addressed, exposing limitations in traditional dispute resolution methods. While arbitration offers flexibility and neutrality, it must evolve to address procedural and enforcement challenges inherent in the crypto ecosystem. Technological advancements, such as blockchain’s transparency and immutability, present promising avenues for enhancing arbitration, but these innovations must ensure fairness and procedural rigour to gain widespread acceptance.
The integration of arbitration, litigation, and ODR into a hybrid model represents the most viable path forward, combining the strengths of each approach to address the complexities of blockchain-related disputes. India’s evolving regulatory landscape, supported by international examples and technological innovations, can serve as a foundation for creating robust and harmonised dispute resolution frameworks. As blockchain adoption accelerates, the legal community must prioritise the development of dynamic, hybrid solutions that balance efficiency, fairness, and enforceability. By embracing these innovations, stakeholders can ensure sustainable growth and legal certainty in the rapidly expanding digital economy.
[1] Abhay Raj, an Associate at TLP Advisors and Senior Staff Editor at The Arbitration Workshop, can be reached at rajabhayuk@gmail.com. Shruti Avinash, a final-year student at NALSAR University of Law Hyderabad and Junior Editor at The Arbitration Workshop, can be contacted at shrutiavinash7@gmail.com.
