Author: Yuvraj Singh 4th year Institute of Law Nirma University
Introduction
The exponential growth of digital assets and cryptocurrencies has fundamentally transformed the global financial landscape, creating unprecedented opportunities and challenges for dispute resolution mechanisms. As virtual currencies evolve from experimental technologies to mainstream financial instruments, traditional legal frameworks struggle to accommodate the unique characteristics of blockchain-based assets and smart contracts. Digital asset arbitration has emerged as a preferred mechanism for resolving disputes in this rapidly evolving sector, offering advantages such as technical expertise, cross-border enforceability, and confidentiality.The complexity of cryptocurrency disputes stems from their decentralized nature, pseudonymous transactions, and regulatory uncertainty across jurisdictions. These characteristics necessitate specialized dispute resolution mechanisms that can address both the technical intricacies of blockchain technology and the evolving regulatory landscape. International arbitration, with its flexibility and global enforceability under frameworks such as the New York Convention and UNCITRAL Model Law, has become the cornerstone for resolving complex digital asset conflicts.
The Legal Framework for Digital Asset Arbitration
Recognition of Digital Assets as Property
Courts across common law jurisdictions have increasingly recognized digital assets as property capable of being subject to arbitration. In England, the Law Commission’s guidance confirms crypto as “property” under existing legal frameworks, enabling courts to grant proprietary remedies such as freezing orders and injunctions. Similarly, Singapore’s High Court has confirmed that cryptocurrencies could qualify as property and that injunctive relief can be granted accordingly.
The Property (Digital Assets etc) Bill in the UK is expected to provide further clarity on the legal status of digital assets, strengthening the foundation for arbitration in this sector. This legislative development aligns with the global trend of recognizing digital assets as legitimate subjects for dispute resolution mechanisms.
International Arbitration Frameworks
The New York Convention and UNCITRAL Model Law provide the primary legal infrastructure for enforcing digital asset arbitration awards globally. Recent analysis demonstrates that blockchain arbitral awards fulfill the requirements under both frameworks, with courts increasingly willing to recognize and enforce such decisions. The Mexican Kleros case represents a landmark decision where courts enforced an arbitral award relying on a blockchain arbitration protocol, establishing important precedent for hybrid arbitration models.
Regulatory Landscape and Classification Challenges
The Howey Test and Securities Classification
In the United States, the Securities and Exchange Commission (SEC) applies the Howey Test to determine whether digital assets qualify as securities. The test examines four criteria: (1) investment of money, (2) common enterprise, (3) expectation of profits, and (4) reliance on efforts of others. The application of this test to cryptocurrencies remains contentious, with courts making case-by-case determinations.
The SEC v. Ripple case illustrates this complexity, where the court ruled that XRP sales to institutional investors constituted securities offerings, while retail exchange transactions did not meet the Howey Test criteria. This decision highlights the nuanced approach required in digital asset classification and its implications for arbitration proceedings.
Indian Regulatory Framework
India’s approach to cryptocurrency regulation has evolved significantly following the Internet and Mobile Association of India (IAMAI) v. Reserve Bank of India case. The Supreme Court’s 2020 decision struck down the RBI’s banking prohibition on virtual currency services, recognizing the constitutional right to conduct cryptocurrency businesses under Article 19(1)(g).
The Finance Act 2022 introduced Section 115BBH, imposing a 30% tax rate on virtual digital asset transactions. This provision treats all cryptocurrency gains uniformly, regardless of whether they constitute business income or capital gains, and prohibits loss set-offs against other income categories. Additionally, Section 194S mandates 1% Tax Deducted at Source (TDS) on crypto transactions exceeding specified thresholds.
European Union’s MiCA Regulation
The Markets in Crypto-Assets (MiCA) Regulation represents the world’s first comprehensive regulatory framework for digital assets at a regional level. Fully implemented since December 2024, MiCA provides harmonized licensing requirements across all 27 EU member states and establishes clear definitions for various crypto-asset categories.
MiCA’s framework regulates crypto-asset service providers (CASPs) and introduces passporting rights that allow licensed entities to operate across the entire EU. The regulation specifically addresses asset-referenced tokens (ARTs) and e-money tokens (EMTs) while maintaining flexibility for emerging digital asset categories.
Types of Digital Asset Disputes in Arbitration
Fraud and Recovery Claims
Cryptocurrency fraud and recovery disputes constitute a significant portion of digital asset arbitration cases. These proceedings typically involve blockchain analytics and transaction tracing to identify illicit transfers and recover stolen assets. Arbitrators can award monetary compensation or order token re-transfers, subject to respondents’ wallet control and cooperation.
The pseudonymous nature of blockchain transactions creates unique enforcement challenges, particularly when dealing with fraudsters or decentralized autonomous organizations (DAOs). Courts have developed specialized tools, including proprietary injunctions and freezing orders, to address these challenges.
Smart Contract and DeFi Protocol Disputes
Decentralized Finance (DeFi) disputes often involve code errors, oracle failures, or governance vote controversies. Arbitration tribunals must review smart contract source code, developer communications, and on-chain governance records to assess liability. Awards may include code patches, protocol pausing, or financial compensation for faulty deployments.
The Fantom Foundation Ltd v. Multichain Foundation Ltd case in Singapore exemplifies the complexity of cryptocurrency valuation in dispute resolution. The court addressed challenges in assessing market value and determining reference dates for highly volatile digital assets.
Exchange and Platform Liability
Crypto exchange disputes frequently arise from trading controversies, margin calls, platform outages, and user agreement violations. Major exchanges like Binance incorporate arbitration clauses specifying institutions such as the Hong Kong International Arbitration Centre (HKIAC). These clauses demonstrate how arbitration provides a structured environment for resolving cross-border disputes involving global stakeholders.
The 2024 WazirX cyberattack, resulting in approximately $234 million in losses, illustrates the scale of potential exchange-related disputes. Such incidents underscore the importance of robust dispute resolution mechanisms and clear liability frameworks for digital asset platforms.
Enforcement Challenges and Solutions
Jurisdictional Complications
Digital asset arbitration faces unique jurisdictional challenges due to the borderless nature of blockchain networks. The choice of arbitral seat versus governing law can create complications when neutral seats apply unfamiliar blockchain regulations. Additionally, public policy considerations in jurisdictions with cryptocurrency bans can impede award enforcement.
The Payward Inc v. Chechetkin case in England demonstrates how public policy grounds can prevent arbitration award enforcement. The English Commercial Court refused enforcement because the arbitrator failed to consider applicable consumer rights and financial services laws, highlighting the importance of regulatory compliance in digital asset arbitrations.
Blockchain-Specific Enforcement Mechanisms
Blockchain arbitration platforms like Kleros represent innovative approaches to decentralized dispute resolution. These systems use game-theoretic mechanisms and token-based incentives to encourage honest decision-making by crowdsourced jurors. However, critics note limitations including lack of legal expertise among jurors and absence of institutional oversight.
The hybrid model adopted in the Mexican Kleros case provides a potential solution, combining on-chain dispute resolution with traditional arbitral procedures. This approach allows parties to benefit from blockchain efficiency while maintaining legal enforceability through conventional arbitration frameworks.
Emerging Technologies and Future Developments
Artificial Intelligence in Dispute Detection
AI algorithms are increasingly employed to identify suspicious cryptocurrency transactions and money laundering patterns. Multi-model frameworks combining Generative Adversarial Networks (GANs), LSTM, and Autoencoder-Based Anomaly Detection demonstrate significant improvements in detecting illicit blockchain activities. These technologies enhance the evidentiary foundation for arbitration proceedings involving financial crimes.
Regulatory Technology (RegTech) Solutions
The integration of RegTech solutions with blockchain arbitration platforms offers promising developments for automated compliance monitoring and dispute prevention. Smart contracts can incorporate dispute resolution clauses that automatically trigger arbitration mechanisms when specified conditions are met.
Legal Precedents and Case Analysis
IAMAI v. RBI (2020): Constitutional Rights in Cryptocurrency
In March 2020, the Supreme Court of India in Internet and Mobile Association of India v. Reserve Bank of India struck down the RBI’s April 2018 circular barring regulated entities from providing services to cryptocurrency businesses, holding that it violated Article 19(1)(g) of the Constitution guaranteeing the right to practice any profession or carry on any occupation, trade, or business. A three-judge bench applied the principle of proportionality, finding that while the RBI legitimately sought to curb money laundering and protect consumers, a blanket banking prohibition was not the least restrictive means to achieve those goals. The court also reinforced due process requirements, emphasizing that regulatory authorities must provide reasoned explanations and explore less restrictive alternatives before imposing sweeping bans. Significantly, the judgment recognized that fundamental rights extend to emerging technologies and new business models, affirming that digital asset enterprises warrant constitutional protection and formal dispute resolution pathways.
Payward Inc v. Chechetkin (2023): Public Policy in Award Enforcement
In Payward Inc v. Chechetkin EWHC 1780 (Comm), the English High Court refused to enforce a U.S. arbitration award arising from a dispute on the Kraken cryptocurrency exchange, underscoring the primacy of consumer protection legislation over arbitration clauses. Mr Chechetkin, a UK-based lawyer acting outside his professional capacity, lost over £600,000 trading on Kraken and challenged the exchange’s lack of FSMA authorization under the Consumer Rights Act 2015 (CRA) and the Financial Services and Markets Act 2000 (FSMA). The arbitrator, applying California law under a JAMS clause, declined to consider UK consumer protection provisions. Mr Justice Bright held that Chechetkin qualified as a CRA consumer and that enforcing the award would contravene UK public policy because the arbitrator ignored mandatory consumer protections and unauthorized financial services rules. This decision illustrates that courts may refuse recognition when awards conflict with non-derogable statutory protections and that arbitrators must engage with applicable regulatory frameworks in digital asset disputes.
TrueCoin LLC v. Techteryx Ltd (2024): Anti-Suit Injunctions in Crypto Disputes
The Singapore High Court in TrueCoin LLC v. Techteryx Ltd SGHC 296 granted its first anti-suit injunction in a cryptocurrency dispute, reinforcing Singapore’s status as a preferred seat for digital asset arbitration. TrueCoin, a Delaware issuer of the TrueUSD stablecoin, and Techteryx, its BVI distributor, entered agreements requiring SIAC arbitration under Delaware law, but later signed an escrow instruction governed by Hong Kong law with non-exclusive jurisdiction in Hong Kong courts. When Techteryx sued TrueCoin and related parties in Hong Kong, TrueCoin applied for an anti-suit injunction in Singapore. The High Court rejected Techteryx’s comity argument, holding that enforcing the injunction would prevent duplicative proceedings, conserve judicial resources, and uphold arbitration agreements. The court also declined to defer to foreign courts absent evidence of material differences in governing law, demonstrating Singapore’s willingness to assert jurisdiction against forum-shopping tactics and to preserve the integrity of arbitration agreements in complex, cross-border digital asset disputes.
Section 115BBH of the Income Tax Act, 1961 (India)
Introduced by the Finance Act 2022, Section 115BBH establishes a comprehensive tax regime for Virtual Digital Assets (VDAs) in India, reflecting regulatory evolution post-IAMAI v. RBI. It levies a flat 30% tax plus surcharge and cess on income from VDA transfers, irrespective of classification as business income or capital gains, and allows deductions solely for acquisition cost. Critically, it prohibits set-off of VDA losses against other income, affecting parties’ risk assessments in arbitration and litigation. Section 194S mandates 1% TDS on VDA payments exceeding ₹50,000 (₹10,000 in specified cases), imposing compliance obligations on parties executing arbitration awards involving cryptocurrency transfers. These provisions directly influence dispute resolution strategies by shaping the financial consequences of arbitration outcomes in India.
New York Convention Article V: Enforcement Exceptions
Article V of the New York Convention delineates grounds for refusing recognition and enforcement of foreign arbitral awards, with particular resonance for digital asset disputes. The public policy exception under Article V(2)(b) has become a pivotal enforcement barrier when awards conflict with mandatory consumer protection or financial services laws, as seen in Payward v. Chechetkin. The arbitrability exception under Article V(2)(a) may preclude enforcement where local law deems cryptocurrency disputes non-arbitrable. Due process grounds under Article V(1)(b) further mandate that parties must have had a fair opportunity to present their case, including expert evidence on technical blockchain issues. Practitioners must anticipate these exceptions when drafting arbitration agreements and planning cross-border enforcement strategies.
UNCITRAL Model Law Articles 34 and 36
Articles 34 and 36 of the UNCITRAL Model Law mirror New York Convention enforcement frameworks within Model Law jurisdictions. Article 34 allows setting aside awards for reasons including excess of authority and public policy violations, which are particularly salient when arbitrators decide on complex blockchain technicalities or ignore regulatory mandates. Article 36 governs recognition and enforcement, importing analogous grounds to the New York Convention while enabling local procedural adaptations, such as requiring disclosure of arbitrator expertise in cryptocurrency matters. These provisions reinforce the necessity for arbitration procedures to integrate specialized knowledge and adhere to evolving national digital asset regulations.
EU MiCA Regulation: Dispute Resolution Provisions
The EU’s MiCA Regulation, fully in force since December 2024, delivers the first region-wide digital asset framework, embedding dispute resolution within regulatory architecture through Articles 76–78. Article 76 mandates robust internal complaint handling by CASPs, creating a documented precursor to arbitration. Article 77 requires accessible ADR mechanisms with binding outcomes, ensuring parties can resolve disputes affordably and efficiently across all 27 member states. Article 78 establishes out-of-court redress via compensation schemes and professional indemnity insurance, strengthening award enforceability when respondents lack sufficient assets. MiCA’s integration with EU consumer protection and AML directives ensures that arbitration clauses cannot sidestep mandatory rights, fostering legal certainty and harmonized standards for digital asset disputes throughout the Union.
Conclusion
The intersection of digital assets and arbitration represents one of the most dynamic areas of contemporary dispute resolution, reflecting the broader transformation of global financial systems through blockchain technology. The analysis demonstrates that digital asset arbitration has evolved from an experimental concept to a sophisticated dispute resolution mechanism, supported by established legal frameworks including the New York Convention and UNCITRAL Model Law.
Key findings indicate that courts increasingly recognize digital assets as property subject to arbitration, enabling proprietary remedies and cross-border enforcement. The Mexican Kleros case and subsequent developments illustrate how hybrid models can bridge on-chain innovation with traditional legal enforceability. However, enforcement challenges persist, particularly regarding jurisdictional conflicts and public policy considerations.
The regulatory landscape continues to evolve rapidly, with India’s Section 115BBH taxation framework, the EU’s comprehensive MiCA Regulation, and the ongoing application of the Howey Test in the United States creating a complex but increasingly structured environment for digital asset disputes. These developments suggest that successful arbitration in this sector requires deep understanding of both technological and regulatory complexities.
Emerging technologies including AI-driven fraud detection and RegTech solutions promise to enhance both dispute prevention and resolution capabilities. The growing acceptance of blockchain arbitration platforms indicates potential for more efficient and specialized dispute resolution mechanisms. However, the balance between innovation and legal certainty remains critical for the continued development of this field.Looking forward, the digital asset arbitration landscape will likely be shaped by several key factors: continued regulatory harmonization efforts, technological advancement in dispute resolution platforms, and the development of specialized expertise among arbitrators and legal practitioners. The success of frameworks like MiCA in providing regulatory clarity while preserving innovation incentives will be crucial for the sector’s sustainable growth.The evidence suggests that digital asset arbitration, while challenging, offers significant advantages over traditional litigation for resolving cryptocurrency disputes. Technical expertise, confidentiality, and global enforceability make arbitration particularly well-suited to the cross-border, technology-intensive nature of digital asset conflicts. As the digital economy continues to expand, robust and specialized dispute resolution mechanisms will be essential for maintaining confidence in these emerging financial systems and ensuring equitable resolution of conflicts in the evolving digital landscape.