Cryptocurrency related arbitration on the rise in 2024

Cryptocurrency (crypto) related disputes are on the rise around the world, as many crypto businesses include arbitration agreements in their contracts due to the conceptual and practical advantages of arbitration over domestic litigation. 

The types of crypto-related disputes commonly seen in arbitration involve a wide range of matters. They could arise in the sale of cryptocurrency or non-fungible tokens (NFT) and as a result of breaches in the contract with crypto platform or civil fraud. They could also relate to investment disputes; supply of services disputes; sale of goods; fraud and miss-selling; outstanding debts; and intellectual property, or more technically on the crypto transaction itself.

However, technology and data specialist Jennifer Wu of Pinsent Masons said that parties involved in these types of cases could expect to encounter various challenges. This is because where there is a blockchain transaction, new legal issues are likely to be considered and tested. Some of the key issues include what law applies to a blockchain transaction in the absence of a governing law clause, and whether a binding dispute resolution clause can be embedded in a smart contract.

The fact that certain countries have banned crypto assets or heavily regulated their use adds additional complexity for parties seeking to bring a legal action involving crypto assets or enforcing an award relating to crypto which orders the payment of damages in either fiat currency or in cryptocurrency.

On the procedural aspects, it is also more complicated to identify the correct counterparty to the arbitration, secure interim measures over crypto assets, and reach the appropriate valuation of such assets and quantify loss. Identification of the wrongdoer has also proven difficult in some cases.

Class actions can be anticipated in some circumstances, such as where a crypto exchange experiences an outage. The boundaries of joinder and consolidation will be tested in these cases and whether these can be brought will depend on the jurisdiction.

“We foresee increased specialist experts in this area, as a result of the need to have expertise in blockchain and a good understanding of crypto and crypto exchanges, in order to assist the tribunal to understand the facts,” said Wu.