Blockchain arbitration, considered more time and cost efficient than traditional arbitration, uses smart contracts that automatically execute terms and decentralized platforms where disputes are decided by randomly selected jurors from a global pool. A unique feature and advantage of blockchain arbitration is how the outcomes can be automatically executed on-chain without the need for recognition/enforcement by a court. However, the current design of this mechanism has certain disadvantages which raises questions about its viability. Specifically, the expertise and impartiality of the randomly chosen, token-based jurors is a concern. Furthermore, since blockchain arbitration is conducted as a permissionless system in which all the information including parties’ claims and evidence is on a public, distributed ledger, there are no confidentiality safeguards, a highly valued feature of traditional arbitration.
In light of the above, as of now, blockchain arbitration may be considered viable for smaller, on-chain disputes. However, with the growing adoption of crypto, regulators can be expected to address and rectify these issues.