Smart Contract Photo: Shutterstock

 

Blockchain technology is undoubtedly on the rise. Be it for currency, supply chain, real estate, energy or even democracy, blockchains will soon permeate most business and consumer transactions. With every action, however, there is an equal and opposite reaction. In the legal community, the “action” of this new technology surely will feed an equal and opposite reaction: litigation. It is a matter of when, not if, blockchain-related disputes will begin to heavily populate the ADR dockets. The question exists: Are neutrals ready?

We often conflate the word “smart” with user-friendly, consumer technology. A “smart” phone enables us to video call our loved ones from thousands of miles away at the touch of a button. A “smart” watch conducts a biometric scan and tells you exactly how many calories you burned during your morning spin class. A “smart” home portal seamlessly connects ordinary appliances to the internet, wherein a few simple voice prompts turns the television to your favorite channel, sets the thermostat, and begins cooking your dinner, simultaneously.

By contrast, a “smart” contract does not simplify the process of arbitrating commercial contract disputes—instead, it makes the process even more complicated. After all, a smart contract is not actually a written agreement between two or more parties. Rather, a smart contract is a series of self-executing computer code.

To illustrate the difference, consider a simple transaction between Buyer and Seller for 100 red widgets. Traditionally, the parties would execute a paper agreement reading, in part, “Seller shall deliver to Buyer one-hundred (100) red widgets.” A smart contract for the same transaction would read, “function transferFrom(address _SELLER, address _BUYER, uint256 _100) public returns (bool success) require(_100 <= allowance[_SELLER] [msg.sender]); allowance[_SELLER][msg.sender] -= _100; _transfer(_SELLER, _BUYER, _100); return true;”. In either case, Seller would then gather the inventory of 100 red widgets, package it securely, and deliver it to Buyer in exchange for an agreed upon payment stated in a separate clause or code. If any dispute arises in the traditional paper transaction, the neutral readily can refer to the language of the written agreement to resolve the dispute. Indeed, applying the “plain language” of the agreement “as written” is the historical first step in resolving a contractual dispute between the parties to a contract. If there are any issues in the smart contract transaction, however, the neutral will need to understand and interpret the underlying computer code and the effect of its self-executing nature to come to an appropriate resolution. Thus, even “run-of-the-mill” contract disputes involving smart contract transactions will involve a lot of technical baggage the neutral must be able to unpack in order to efficiently resolve disputes. In effect, the neutral must be bilingual, fluent in both English (the law) and Computer Code (the technology).

Smart contracts are just one example of how blockchain technologies can be used. Blockchain technology, and by extension blockchain technology law, is constantly evolving and difficult for the non-expert to truly understand. Effectively mediating and arbitrating blockchain technology disputes requires neutrals to understand not just the law, but to have a certain level of technical competence that requires understanding math, coding, programming, and computer engineering. Not only must a neutral aim to master the underlying technologies, but the neutral must also recognize how these technologies impact, influence, and intersect with various business models.

A neutral’s job is to drive the dialogue and ask the probing questions that will ultimately lead to a solution. In turn, the quality of the dialogue, and the effectiveness of the questions, largely depend on the depth of the neutral’s understanding of the underlying area of law and technology. While a superficial comprehension of blockchain technology is better than no understanding, learning only the basics is not enough to provide the parties with the expert-level solution they are seeking. It is important to remember that parties appearing before a neutral expect the neutral to be an expert who has the same, if not a more advanced and in-depth, understanding of the issues as the parties themselves. For the sake of the neutral’s reputation and the reputation of ADR at large, it is imperative that parties remain confident in the process. For parties appearing on behalf of a dispute involving blockchain technology, this confidence will surely be tested. It can either be bolstered by a showing of the neutral’s expertise, or it can be shattered by a lack thereof. In the context of blockchain technology disputes, it is nearly impossible for a neutral to drive towards an efficient agreement without a mastered knowledge of the underlying technologies, from a legal, technical, and business perspective.

While the technological perspective is perhaps the most daunting, neutrals should fully embrace the challenge, and approach learning software coding as one would approach learning a foreign language. After all, coding is another language. Learning to read, write, and interpret code, like learning to read, write, and interpret another language entails more than merely memorizing terms or nouns. While excellent in setting a foundation for learning, it is naïve to think a few hours of CLE sessions or webinars will provide the requisite level of expertise for handling blockchain technology disputes. Individuals spend months at a minimum, and a lifetime at a maximum, learning a second language. Attorneys spend three years in law school, and the rest of their careers, perfecting their craft. Neutrals should find a happy medium between the two—learning and perfecting a fundamental understanding of blockchain technologies—in order to successfully resolve the inevitable disputes that will arise from them.

Blockchain technology soon will become the new normal in consumer and business transactions. The law, and those who help facilitate its interpretation and application, must be ready to adapt if ADR is to continue to provide timely and efficient solutions to legal disputes.

 

Daniel Garrie is a Neutral with JAMS, where he serves as an E-Discovery Special Master, Forensic Neutral, and Arbitrator with a focus on complex software and business litigation, privacy and data breach matters, trade secret theft, copyright and patent litigation disputes. Garrie is also the Senior Partner & Co-Founder for Law & Forensics, a consulting firm that specializes in e-discovery, software, computer forensics, and cybersecurity.