Employability of Blockchain Technology in International Commercial Arbitration

Aditi Richa Tiwary and Rahul Sharma*

Abstract

Blockchain technology can be readily observed to creep in the commercial transactions being carried out globally. However, owing to the excessive association of blockchain technology with virtual currency, the independent identity of blockchain technology is perceived in a rather restricted manner. The present work addresses all the misconceptions associated with blockchain technology and attempts to unravel the potential which such technology carries in order to augment the efficacy of international commercial arbitral process.

Introduction

International arbitration, being the most dynamic, accommodative, and inclusive system of alternative dispute resolution, cannot be observed in isolation to the technological advancements taking place globally. With the advancement in technology, there exists a wide range of available enhancements that can be associated with the international arbitral process to enhance its viability. Primary of these technological advancements is the blockchain technology, owing to its universality and uniformity of operation globally, regardless of territorial constraints..

The massive employability of blockchain technology can be found in financial markets, where companies can be increasingly observed to invest in millions to accommodate this technology in order to augment their efficacy.

However, in case of international arbitration, this employability is highly compromised because of the associated misconceptions. Primary misconception is that the privacy and data security of the arbitral process will be at threat, if such a technology is resorted to.

Owing to such enigma, the scope of employability of blockchain technology and consequential enhancement of efficacy of arbitration is observed to be restricted. The viability of blockchain, however we argue is absolutely different and this technology is potent enough to contribute to the efficacy of international arbitral process. The technology is scientifically tested, and has enough legal backing to get accommodation in international commercial arbitration.

Understanding blockchains

Most of the criticisms against employability of blockchain in arbitral process stem from the limited understanding of blockchain technology, which is a result of the dominance of cryptocurrency exchanges operating internationally. The extravagance of cryptocurrency is so widespread, that it has led to comprehension of blockchain technology as a mere enabler of cryptocurrency transactions. For example, Bitcoin, one of world’s largest and most trusted cryptocurrency exchanges explains blockchain as a ‘public record of Bitcoin transactions in a chronological order’.  Further, Coinbase, an internationally acclaimed cryptocurrency exchange, operating in 102 countries, defines blockchain as a  “list of transactions which anyone can view and verify’.

Although there is no technical flaw in the definitions above, these reflect a limited perspective of blockchain. This is primarily because of two reasons; firstly, that blockchain technology is not limited to merely being an enabler of operations relating to digital currencies. Secondly, shared and public accessibility, as the above definitions reflect, is only one out of many features of blockchain. This can be easily opted out as per the needs of a particular data transaction system and the system can be transformed into a privately accessible system, which ensures data confidentiality, privacy and security of information.

Blockchain technology, in simplest terms, effectuates digital data transactions and can be employed in a multitude of information exchange systems to store data, to record data transactions, and execute the consequential actions automatically. The privacy and security of data, which are core essentials of arbitral process, are not compromised by the use of blockchain technology. Further, blockchain technology operates like blocks that are chained to one another, to propel the process for which it is employed. Therefore, once a final block or final input is received, an automatic action of execution is carried out by the system, to complete the process. A simple example of this can be that of share markets. Although not all share markets function on blockchain technology, these are apt examples for the cause of such explanation. Once an investment is done, the investor automatically gains the associated monetary value of shares after the ascertainment of prices by stock exchange. There is no way for the investor to interfere in this process after the investment is given effect to. Similarly, in blockchain technology, once the final input is given, the procedure is automated thereafter, and there is no scope of interference by users. This ensures that the process is carried out till completion and there is no halt in execution.

Therefore, blockchain technology is flexible enough to accommodate the features which are desired by any data transaction system, augmenting reasons for its employability.

Implementation of blockchain technology in international commercial arbitral process – “On – chain arbitration”

Arbitral process involves considerable documentation in the form of claims, counterclaims, statement of defense, reply to the counterclaims, joinder, rejoinder etc. In case of blockchains, all  these submissions can be made online. This ensures that the communication is preserved and it remains confidential. Furthermore, the procedural orders and communication of the tribunal will be automatically recorded which can be accessed by the parties as well as their representatives. Such an intensive record keeping system will reduce the probability of arbitrariness of award, as every consideration and denial of arbitrators will be available as a matter of record.

A resort to blockchain technology inevitably needs evidences to be presented in electronic form and physical evidences to be converted to electronic form. In international arbitration, the system which enables the existence and recording of electronic evidences is the Chain of Custody (CoC) system, which records the order of custody, control, transfer, analysis and physical or electronic evidence. CoC contains perilous steps during the investigation and the procedure of submitting the evidence in court/tribunal. Each and every individual is responsible for the evidence taken by him/her. Any sign of change in evidence would prove it to be invaluable at the time presented in court/tribunal. CoC helps show where the possible evidence might lie, where it came from, who created it, and the type of equipment that was used. Thereafter, the evidences are uploaded to the blockchain to make them tamper-proof as the copies of evidences are stored as a distributed ledger so as to preserve the purity of evidences when submitted in the court. Further, in cases of witness examination, cross-examination and recording of oral evidence, integrated video conferencing suites are used and the same are recorded and then stored on blockchain. Such a process ensures procedural integrity, transparency and security of data.

Blockchain technology is implemented in the commercial arbitral process by way of on – chain arbitration, wherein the contract is drafted in the conventional written form, and the process of arbitration is carried out in a blockchain. In this method, the cryptocurrency accounts of both, the Applicant and the Respondent are chained in private block chains.

Private blockchains cannot be accessed by everyone and the data transactions are managed by a single entity. Data is confidential and authorization of users is necessary to access data transactions or to create data. Further, the encryption is decoded only after authorization is verified, which makes the identity of users a significant necessity when it comes to accessing information. Cyber security and data confidentiality are therefore maintained simultaneously, in case of private blockchains, and once the commercial award is declared, the amount is automatically transferred from the account of the Award Debtor to the Award Creditor. This also prevents the delay in execution of the arbitral awards, as the arbitrators provide an input of the sum of award, and thereafter the process is automatically executed.

As far as the legality of blockchain arbitration in concerned, the UNCITRAL Model Law, which is the most widely accepted model law for arbitration across the major jurisdictions, lays down explicit provisions which facilitate the process of accommodation of blockchain technology in international arbitration. The UNCITRAL Electronic Model Law on Electronic Commerce (1996) and the UNCITRAL Convention on the Use of Electronic Communications in International Contracts (2007) are the major legal instruments facilitating blockchain contracts. Particularly, Articles 6 and 18 of the 2007 Convention assert the validity of on – chain arbitration by allowing for the provision of electronic data records and electronic transactions in the arbitration process, thereby providing legal recognition to on- chain arbitrations.

Upkeep of data security and privacy – Core Benefits of the Arbitral Process

Security and privacy of data are primary concerns in the conventional arbitral process. In fact, as a specific case representing the flaws of international arbitration, in July 2015, the website of the Permanent Court of Arbitration was hacked during an important hearing of maritime border arbitration between China and Philippines, in the international arbitration of Republic of Philippines v. People’s Republic of China.  Because of this, the confidentiality of such a significant matter was highly compromised, owing to the weak safeguards availed by the conventional record keeping systems. Even international arbitration institutes and firms are prone to such attacks, especially with regard to the private information recorded during international arbitral proceedings. These issues of data security and privacy can be readily resolved if private blockchains are resorted to.

As far as the credibility of blockchain technology in resolving such issues is concerned, the World Economic Forum in its 2015 survey recognised that by 2025-27, about 10% of the global GDP will be stored in blockchains, owing to its efficient attributes of data security management, and  by 2025, even taxes are strongly probable to be collected by employing blockchain technology. Moreover, World Trade Organisation, in its research published in 2018 described at length about the opportunities that lie ahead in future, owing to the efficacy associated with the safeguard mechanisms of blockchains. Therefore, as far as the issues of data confidentiality, security and efficacy are concerned, the employability of blockchain technology in international arbitral process would prove to be of utmost significance, thereby contributing to augment its viability.

Conclusion

Globally, blockchain technology is being readily resorted to as an effective means of data storage, management, distribution and transfer. Blockchain technology has immense potential to enhance the efficacy of arbitral proceedings, especially owing to its mechanism of encryption, which helps to secure data. The reliability on blockchain can be explained in the words of Bernard Marr, who says, “It is clear that data held on a blockchain is by its nature highly secure, thanks to the cryptography which is inherent in its filing system. What this means is that blockchains are ideal for storing the highly sensitive, personal data which, when smartly processed, can unlock so much value and convenience in our lives.” The governing function of blockchains is to ensure the safety and security of data in any system. This highly robust security enhances the efficiency of the arbitral proceedings by enhancing the privacy and security of data in various procedures of arbitration as explained. An accommodation of blockchain technology in international commercial arbitration would assist in an increase in the efficacy of the international commercial arbitral process. When backed by blockchain technology, the arbitral process would substantially augment the viability of digital arbitration, by removing the obstructions of data privacy infringement and security threats. Further, the issues of execution of arbitral awards would also be sufficiently addressed when blockchain technology would be resorted to, as explained Therefore, an apt resort to blockchain technology would certainly contribute to enhance the viability, security and efficacy of the international arbitral process owing to its promising features.


* The authors are students of Dharmashastra National Law University, Jabalpur and Law College, Uttaranchal University, Dehradun respectively.


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