BLOCKCHAINS AND ODR: SMART CONTRACTS AS AN ALTERNATIVE TO ENFORCEMENT

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1 UNCITRAL EMERGENCE CONFERENCE Session I: Emerging Legal Issues in the Commercial Exploitation of Deep Seabed, Space and AI BLOCKCHAINS AND ODR: SMART CONTRACTS AS AN ALTERNATIVE TO ENFORCEMENT Riikka Koulu LL.D., research fellow Director of the Legal Tech Lab University of Helsinki Blockchains and ODR/ Riikka Koulu 13/12/2016 1

2 Internet has led to the increase of online micro disputes Blockchains and ODR/ Riikka Koulu 13/12/2016 2

3 PROBLEM #1 How do we solve these cross-border micro disputes that arise online? Blockchains and ODR/ Riikka Koulu 13/12/2016 3

4 HELSINKI Blockchains and ODR/ Riikka Koulu 13/12/2016 4

5 MACAU Blockchains and ODR/ Riikka Koulu 13/12/2016 5

6 DEFECT DEFECT Blockchains and ODR/ Riikka Koulu 13/12/2016 6

7 SOLUTION #1: ONLINE DISPUTE RESOLUTION Blockchains and ODR/ Riikka Koulu 13/12/2016 7

8 PROBLEM #2 How do we enforce these decisions reached in ODR processes? Blockchains and ODR/ Riikka Koulu 13/12/2016 8

9 SOLUTION #2 PRIVATE ENFORCEMENT Blockchains and ODR/ Riikka Koulu 13/12/2016 9

10 PROBLEMS #3 In the shadow of ebay law? (Katsh, Rifkin, Gaitenby 2000) No public precedents -> lack of transparency Due process concerns Only available for market leaders or those who have other means of accessing payment mechanisms Blockchains and ODR/ Riikka Koulu 13/12/

11 SOLUTION #3 CAN WE USE THE BLOCKCHAIN AND SMART CONTRACTS FOR DISPUTE RESOLUTION? TL;DR: probably, but it is complicated The longer version: why? Blockchains and ODR/ Riikka Koulu 13/12/

12 What is the Blockchain? Blockchains and ODR/ Riikka Koulu 13/12/

13 BLOCKCHAIN Distributed cryptography-based computation in peer-to-peer networks that functions as a decentralized public ledger Blockchains and ODR/ Riikka Koulu 13/12/

14 CHAIN OF BLOCKS Satoshi Nakamoto 2008 Blockchains and ODR/ Riikka Koulu 13/12/

15 CHAIN OF BLOCKS Summary of the previous block (HASH) is added to the next HASH TRANSACTION HASH HASH TRANSACTION HASH HASH TRANSACTION HASH Irreversible nature of the blockchain enables new tools for verification and authentication of data self-executing smart contracts Blockchains and ODR/ Riikka Koulu 13/12/

16 WEATHER BET A and B argue whether there will be snow for Christmas They decide to bet on it and place the bet on a smart contract Both pay money to the smart contract The smart contract verifies the data from external source (e.g. Meteorological Institue) And allocates the whole contract value to the winner (no separate enforcement) Dispute resolution needs these same elements: verification of data and allocation of money (link to the payment mechanism is automatic) Blockchains and ODR/ Riikka Koulu 13/12/

17 THE PROMISE Shift towards conflict prevention? A good fit with cross-border nature of these disputes Lower transaction costs for escrows and enforcement Transparency (everything on the blockchain is public) Democratisation of enforcement (because payment mechanism is builtin) PROBLEMS? Lack of feasible applications especially on the user side of legal processes (and the lack of consumer awareness) Difficulties of formal verification (need for new languages) The neoliberal dilemma: state control is limited in global general blockchains (e.g. Bitcoin) Blockchains and ODR/ Riikka Koulu 13/12/

18 CONCLUSIONS Smart contracts do not mean getting rid of disputes (disputes only change) Conflict management built on the blockchain would in any case have limited scope of application We do not know yet what this change entails (applications are not there yet) We need to rethink possible state action in regulating the use of blockchains Riikka Koulu 5/

19 THANK YOU FOR YOUR ATTENTION! Riikka Koulu 5/