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The past few years have seen a steady uptick in cryptocurrency trading and investment. Despite the recent dip in value, crypto assets are continuing to gain in popularity. The rapid expansion of the market has led to an increase in the number of disputes concerning these assets, a trend that the recent decrease in value will likely contribute to.
Crypto disputes arise in various contexts. They may concern claims for breach of contract after a trading platform's algorithm malfunctioned, causing transactions to be made at an incorrect market rate, claims alleging misrepresentation of the nature and lasting value of crypto assets, or claims relating to the inadequate performance rendered by market makers.
While crypto claims take many forms, the types of actions concerned are not uncommon. But what makes crypto disputes unique is that they concern assets that are inconsistently regulated, inadequately understood, and highly volatile, and cases sometimes have unfamiliar or complex fact patterns. The status of crypto assets is still largely uncertain in national laws and inconsistently regulated across legal systems. Currently, there is no general crypto regulation at an EU level, meaning that the recognition of crypto assets as property and their treatment varies considerably across European countries. This creates difficulties for claimants. If a case is governed by laws that are not open to new technological developments, the claimant must formulate the issue in a way that is compatible with the legal regime. This uncertainty is exacerbated by the cross-border nature of crypto claims, which is a natural consequence of a decentralised international market.
The valuation of claims is another hurdle unique to crypto disputes. Due to the rapidly fluctuating value of digital assets, the relevant date for calculating damages is crucial. Whether that date is when the breach occurs or when an award is rendered, the difference may be significant. Another challenge is that crypto claims may arise out of a complex fact pattern, such as a malfunctioning algorithm or security breach. This presents challenges for all parties, as understanding and working with the facts requires extensive technological knowledge.
The common theme in the challenges outlined above is that crypto cases require a flexible, business-forward approach and considerable expertise. Arbitration has proved to be an ideal dispute resolution method for claims with a cross-border element. By opting for arbitration, parties can mitigate the risk of national courts adopting a critical attitude towards crypto, and have access to a neutral forum, regardless of their nationalities. Expertise is another concern addressed by arbitration. As long as blockchain technology remains a niche technical and legal area, generalist national courts will be limited in their capacity to handle these cases compared to specialised arbitration professionals. Finally, the crypto trade offers a high level of anonymity, a quality that prospective claimants and respondents may be keen to maintain. Arbitration offers a private and confidential resolution of these sensitive disputes.
Crypto activities, and hence crypto claims, are on the rise. The crypto industry presents unique risks, risks that can be managed by being mindful of the characteristics and challenges presented by crypto assets, such as their uncertain and inconsistent legal treatment. By opting for arbitration, parties can ensure that their dispute will be handled by a body that possesses the requisite legal and technical expertise to navigate the complex field of crypto technology, and that their claims will be treated confidentially and flexibly.
authors: Leon Kopecký, Sebastian Lukic