A Trade-Off in Smart Contract Arbitration: Sacrificing Arbitrators’ Anonymity for Transparency?

Abstract

The recent growth in blockchain usage has substantially affected the number of transactions executed via smart contracts. In parallel, the number of transactions will likely increase the number of disputes arising from these smart transactions. Some innovative arbitration platforms have emerged in response to the urgent need for a tailor-made dispute resolution mechanism. These platforms tend to promote the anonymity of arbitrators because of their decentralized nature and secured proceedings. Does the anonymity of arbitrators' identities and skills serve to increase the transparency in smart contract arbitration? And to what extent can the anonymity of arbitrators be sacrificed for more transparent proceedings? These are vital questions because concealing arbitrators’ identities contradicts the classical rules of traditional arbitration. As a promising dispute resolution method, smart contract arbitration should untangle such a transparency issue. However, unveiling these data may radically endanger blockchain's decentralized and anonymous nature. Therefore, a trade-off emerges in terms of transparency. This paper is the first to analyze this trade-off comprehensively. The analysis is twofold. First, the paper considers the approach of traditional arbitration to anonymity. In such orthodox justice platforms as traditional arbitration, revealing arbitrators' identities and qualifications may prevail to avert breaching impartiality, independence and lack of required qualifications. Second, the paper examines the anonymity of arbitrators’ identities and qualifications in smart contract arbitration, considering the necessities of blockchain and the requirements of being a dispute resolution mechanism. Moreover, to clarify anonymity issues in smart contract arbitration, the paper also delves into the peer review process because of (i) its similarity regarding the anonymity of parties and (ii) the reviewers’ qualification-based selection process by editors. Then, this paper proposes an innovative smart contract arbitration model that contains (i) a qualification verification process through an entity like an editor in the peer review process and other alternatives for verification, (ii) a fair experience distribution method, and (iii) a competitive incentive model. Consequently, this paper proves that revealing qualifications while keeping identities anonymous because of the decentralized nature may be a game-changer for smart contract arbitration.