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Uncertainty and dispute resolution for blockchain and smart contract institutions

Published online by Cambridge University Press:  10 March 2021

Bronwyn E. Howell*
Affiliation:
School of Management, Victoria University of Wellington, Wellington, New Zealand and Institute for Technology and Network Economics
Petrus H. Potgieter
Affiliation:
Department of Decision Sciences, University of South Africa, Pretoria, South Africa and Institute for Network and Technology Economics
*Corresponding
*Corresponding author. Email: bronwyn.howell@vuw.ac.nz

Abstract

Smart contracts have been proposed as a means of revolutionizing transacting between human actors and contributing to blockchain platforms substituting for many current institutions. However, the technical nature of blockchain platforms and smart contracts requires levels of certainty and foresight sufficient for contracts to be complete. We examine the technical and economic characteristics of blockchains and smart contracts to identify sources of uncertainty that may pose challenges to the ability of these technologies to displace existing institutional arrangements, in particular, the courts and other arbitration arrangements. Despite the development of alternative automated blockchain institutions such as the Kleros dispute resolution system, the case for smart contracts and blockchain applications to supplant real-world institutions remains weak. Inherent incompleteness due to limits to information availability, human cognition, and communication means that traditional contract governance institutions will continue to complement blockchain smart contract governance arrangements. The more complex and unique the transaction, the higher the value at risk, the harder to anticipate and precisely specify contingencies and measure and observe outcomes. Furthermore, the longer the time frame between agreement and execution, the less likely it is that smart contracting will be more efficient than traditional contracting.

Type
Research Article
Copyright
Copyright © Millennium Economics Ltd 2021

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