Free Market Dispute Resolution on EOS:
Identifying Arbitrators & Arbitration Forums On-Chain via {regforum} & {regarbitrator}

Published in

EOS New York

14 min readAug 22, 2018

Introduction

Blockchains are designed to execute objective and deterministic contracts. Arbitrators are designed to be oracles for subjective evaluation of non-deterministic contracts. EOS combines these two concepts with the goal of minimizing the opportunity for dispute, maximizing the quality and transparency of evidence of agreement, and creating the technical tools to allow human intervention to correct bugs in execution or violations of subjective agreements.
In this sense, EOS is the first contracting platform focusing on formalizing, automating, and clarifying agreements among consenting well-intentioned adults. This is far broader and more powerful than blindingly enforcing bug-ridden contracts without any respect to the intention of the parties.
Source: “Decentralized Blockchain Governance”
by Dan Larimer: Source

Arbitration, a method of alternative dispute resolution, is a very exciting prospect for the EOS mainnet. It offers businesses and individuals an opportunity to take advantage of doing business on the EOS blockchain and have the confidence that they have means to resolve disputes should they need them. No blockchain to date has been able to achieve a dispute resolution framework on-chain. As it currently stands within the EOS ecosystem, there is only one arbitration forum for parties to a dispute to leverage: the EOS Core Arbitration Forum (ECAF). ECAF is the default forum for arbitration on EOS and is named in the Constitution. There is currently no other option available to EOS token-holders. But ECAF’s rules for dispute resolution may not be compatible for every type of contract agreement that may form between EOS token-holders.

In order to allow EOS token-holders the freedom to issue agreements and resolve disputes as they see fit on the EOS blockchain, we seek to introduce a standard method of identifying arbitration forums and arbitrators on-chain through the use of two distinct functions contained in a Smart Contract/Ricardian pair(s) on EOS. At the same time, we propose a minimum standard of deliverables and service for both arbitration forums and arbitrators offering their services within the EOS ecosystem. The structure we propose is specifically designed to be opt-in, voluntary, consent driven, and moderated by free-market forces.

Arbitration: How It Works

In our EOS Constitution we aim to deploy arbitration. Arbitration is a form of dispute resolution meant to be a streamlined and cost-effective alternative to traditional court systems. International arbitration has been internationally recognized by 159 countries per the “New York Convention” which originally occurred in 1958 under the authority of the United Nations. The text of this agreement has been translated into dozens of languages here.

Arbitration Forum

An arbitration forum or association is an organization that administers arbitration proceedings. These organizations are distinctly different from arbitrators because the forum does not actually arbitrate or write arbitral awards (essentially the rulings that are the result of arbitration). Their job is to maintain a set of rules for dispute resolution (RDR), maintain a database of qualified arbitrators to match-make with the needs of the claimants, assist in the administrative tasks from claim filing to close, and act as a hub of communication between the arbitrator and the claimants.

Arbitrators

An arbitrator is a professional that works to increase communication between two sides of a dispute. They are private individuals or groups who offer their own unique experience and areas of expertise to resolve these disputes. It is not required that an arbitrator be a member of an arbitration association so long as both parties to a dispute consent to that arbitrator.

What is “Arbitrable”?

For a dispute to be “arbitrable”, or able to be arbitrated, there must be essentially two pieces of information that are agreed to in the contract between parties at the point at which it is signed:

1. The defined scope of what is arbitrable within the contract.

2. The jurisdiction and rules under which arbitration will occur in case of a dispute.

This is why ECAF is named within the EOS Constitution accompanied by the phrase,

“All disputes arising out of or in connection with this Constitution shall be finally settled under the Rules of Dispute Resolution of the EOS Core Arbitration Forum by one or more arbitrators appointed in accordance with the said Rules.” (Source)

The Process of Arbitration

According to sources procured by the American Bar Association, arbitration typically takes 7 months on average but can be longer or shorter. The process typically follows this structure.

Filing and Initiation: An arbitration case begins when one party submits a Demand for Arbitration to an arbitration forum. The other party (the respondent) is notified by the forum and a deadline is set for a response.
Arbitrator Selection: The forum works with the parties to identify and select an arbitration based on the criteria determined by the parties.
Preliminary Hearing: The arbitrator conducts a preliminary hearing with the parties, to discuss the issues in the case and procedural matters, such as witnesses, depositions, sharing information, and other matters.
Information Exchange and Preparation: The parties then prepare for presentations and exchange information.
Hearings: At the hearing, both parties may present testimony and evidence to the arbitrator. Unless the case is very complex, this is usually the only hearing before the arbitrator.
Post-Hearing Submissions: After the hearing, both parties may present additional documentation, as allowed by the arbitrator.
The Award: Finally, the arbitrator closes the record on the case and issues a decision, including an award, if applicable.

Source

The Blockchain Contract

The ability to make and enforce contracts and resolve disputes is fundamental if markets are to function properly. Good enforcement procedures enhance predictability in commercial relationships and reduce uncertainty by assuring investors that their contractual rights will be upheld promptly.

Source: “Contract enforcement and dispute resolution”, The Organisation for Economic Co-operation and Development (OECD)

The Smart Contract, pioneered by Ethereum, allows for the automatic execution of a previously determined agreement. Members of the Ethereum community have attempted to instruct parties to an agreement to include specialized clauses within their smart contracts which will allow for binding dispute resolution off-chain. However, the risk with this approach to dispute resolution is that it may introduce state courts into disputes of property on the blockchain.

In EOS, where high-throughput and a robust development environment enables a sandbox full of possibilities, contracts of many types will become more complex and scale upward in frequency. As a result, the increased frequency by which property changes hands also increases the likelihood of a dispute. Smart Contracts alone may not obviate ultimate human enforcement of a contract because, in certain cases, specific provisions of a contract may not be possible to instantiate into code as a Smart Contract requires. For this reason EOS has elected the use of the Ricardian contract. Where Smart Contracts control the execution of an agreement, a Ricardian contract, or human readable and machine parsable contract (i.e. read by both human and machine), controls the issuance and intent of an agreement. Through the use of the hash of the Ricardian contract, the intent of an agreement can be connected to its smart contract execution, all on-chain.

But even with the addition of a Ricardian contract, the issue in both EOS and Ethereum is that even if an arbitrator were to issue an arbitral award there is no reliable way to ensure that the award can be enforced if the award debtor (loser) refuses to comply. Even if a state court were to compel the enforcement of an arbitral award which includes blockchain based property, it would not be difficult for the award debtor to avoid compliance. Lastly, the state would not be able to appeal to the blockchain to compel award enforcement because, while individual network participants may fall within jurisdiction of the state, the decentralized nature of EOS prevents a single outside authority from exerting influence over chain consensus. This makes a contract difficult to enforce.

So what do we do?

We are proposing a system level means for EOS Block Producers to recognize both the authority and identity of (1) arbitration associations and (2) arbitrators for the purpose of dispute resolution proceedings involving property on the blockchain. We furthermore propose language that describes the nature of arbitration on EOS through opt-in consent and moderated by free-market forces.

Proposed Constitutional Language for Arbitration On-chain

The following language was written using the Federal Arbitration Act of the United States as a guide.

This portion will formally recognize The New York Convention of 1958 allowing all foreign arbitral awards to be recognized if award author is registered on-chain.

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, shall be recognized by all members of this blockchain {chain_id} where the author of any such arbitral award is duly registered on-chain {chain_id} via {regarbitrator}

This portion states that valid arbitration is binding.

Any on-chain provision included in any on-chain transaction or an on-chain smart contract evidencing a transaction involving EOS blockchain based property to settle by arbitration a controversy thereafter arising out of such on-chain smart contract or on-chain transaction, or the refusal to perform the whole or any part thereof, or an agreement on-chain to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable.

This portion makes it clear that agreements must specify a forum and/or arbitrator for arbitration to be available to parties to a dispute.

If any controversy or claim arising out of or relating to such an on-chain agreement provision, on-chain transaction, or on-chain smart contract or on-chain Ricardian contract be made for a method of naming or appointing an arbitrator or arbitrators through {regforum} or {regarbitrator}, such method shall be followed. Only upon the application of either party to the controversy {regforum} or {regarbitrator} shall act under the said agreement with force and effect.

This portion defines what is “on-chain”

“On-chain”, as herein defined, means any transaction which is cryptographically validated by an elected Block Producer, or any smart contract or Ricardian contract code which can be viewed, audited, and verified as existing on the EOS mainnet blockchain in the last irreversible block.

The regarbitrator agreement serves to create a database of professionals who offer their services for on-chain dispute resolution as well as a method for these professionals to be identified by the EOS blockchain and Block Producers. Inspiration for this language comes directly from American Bar Association Code of Ethics for Arbitrators in Commercial Disputes.

The intent of the {{ regarbitrator }} action is to register an account as a valid candidate for arbitrating the resolution of an agreement pertaining to property on the EOS Mainnet Blockchain {{ chain_id }}.

I, {{arbitrator}}, hereby nominate myself for consideration as a valid arbitrator for dispute resolution services deriving from on-chain disputes.

If {{arbitrator}} is selected to provide dispute resolution services by consenting parties, I will sign all messages with {{arbitrator key}} and I hereby attest that I will keep this key secret and secure.

If {{arbitrator}} is unable to perform obligations under this contract I will resign my position by resubmitting this contract with the null arbitrator key.

I, {{arbitrator}} hereby agree to only use {{arbitrator_key}} to sign messages if accompanied by the cryptographic hash of the set of rules for dispute resolution used to resolve the dispute and to only communicate on-chain directly with {regforum} for which I am associated.

I, {{arbitrator}} agree to maintain the following information on {{chain_id}} which can be accessed by any EOS member;
(1) Location
(2) Fee Schedule (If independent)
(3) Area(s) of Expertise
(4) Language(s)
(5) EOS Account Name

I, {{arbitrator}} agree that I can serve impartially;
(1) that I can serve independently from the parties, potential witnesses,
and the other arbitrators;
(2) that I am competent to serve; and
(3) that I can be available to commence the arbitration in accordance with
the requirements of the proceeding and thereafter to devote the time and
attention to its completion that the parties are reasonably entitled to expect.

I {{ arbitrator }} will avoid entering into any business, professional, or personal relationship, or acquire any financial or personal interest, which is likely to affect impartiality or which might reasonably create the appearance of partiality.

For a reasonable period of time after the decision of a case, I {{ arbitrator }} will avoid entering into any such relationship, or acquire any such interest, in circumstances which might reasonably create the appearance that I have been influenced in the arbitration by the anticipation or expectation of the relationship or interest.

I, {{ arbitrator }} will conduct myself in a way that is fair to all parties and will not be swayed by outside pressure, public clamor, and fear of criticism or self-interest. I will avoid conduct and statements that give the appearance of partiality toward or against any party.

{{ arbitrator }} authority is derived from the EOS Constitution. I will neither exceed that authority nor do less than is required to exercise that authority completely. Where the agreement of the parties sets forth procedures of a specific on-chain forum to be followed in conducting the arbitration or refers to rules to be followed, it is the obligation of the arbitrator to comply with such procedures or rules so long as they do not conflict with the ratified EOS Constitution. An arbitrator has no ethical obligation to comply with any agreement, procedures or rules that are unlawful or that, in the arbitrator’s judgment, would be inconsistent with the EOS Constitution.

I, {{ arbitrator }} will conduct the arbitration process so as to advance the fair and efficient resolution of the matters submitted for decision. I will make all reasonable efforts to prevent delaying tactics, harassment of parties or other participants, or other abuse or disruption of the arbitration process.

The ethical obligations of {{ arbitrator }} begin upon acceptance of an agreement to arbitrate a dispute and continue throughout all stages of the proceeding. In addition, as set forth in this contract, certain ethical obligations begin as soon as a person is requested to serve as an arbitrator and certain ethical obligations continue after the decision in the proceeding has been given to the parties.

Once I, {{ arbitrator }} have accepted an agreement to arbitrate a dispute, I will not withdraw or abandon the position unless compelled to do so by unanticipated circumstances that would render it impossible or impracticable to continue. For where I am to be compensated for my services, I may withdraw if the parties fail or refuse to provide for payment of the compensation as agreed.

If I, {{ arbitrator }} withdraw prior to the completion of the arbitration, whether upon my initiative or upon the request of one or more of the parties, I will take reasonable steps to protect the interests of the parties in the arbitration, including return of evidentiary materials and protection of confidentiality.

Where I, {{ arbitrator }}, are contracted directly by parties to a dispute I will communicate any award resulting from such a dispute on-chain to elected Block Producers from account ID {{ arbitrator }}. Proof of consent to arbitrate will accompany any such award.

{regforum}

The Regforum agreement serves to create a database of arbitration forums willing to do business on EOS as well as serve as a means for the EOS blockchain and Block Producers to identify them. This language was based on the American Arbitration Association and the International Center for Dispute Resolution.

The intent of the {{ regforum }} action is to register an account as a recognized organization which administers the process of arbitration of disputes on the EOS Mainnet blockchain {{chain ID}}.

{{ forum }} will provide effective, efficient, and economical methods of dispute resolution to the token-holders of the EOS Mainnet Blockchain.

{{ forum }} will administer arbitration cases but not determine the merits of a case. {{ forum }} will neither write arbitrator awards nor review the merits of their reasoning.

{{ forum }} will provide a method of judicial oversight for arbitrator impartiality.

{{ forum }} will maintain a website which will include therein a fee schedule, online case access, and an up to date set(s) of rules for dispute resolution under which {{ forum }} will administer.

{{ forum }} agree to maintain the following information on {{chain_id}} which can be accessed by any EOS member;

URL of Main Website
URL of Rules of Dispute Resolution
URL of Fee Schedule
EOS Account ID
Complete list of member {{regarbitrators}}

{{ forum }} will be responsible for the timely on-chain communication transmission to EOS elected Block Producers regarding arbitrator awards. Any award communicated will be accompanied by on-chain proof of parties’ consent to arbitrate using the rules under which the award was authored.

Arbitrators that are members of {{ forum }} roster will be bound by and signatories of the regarbitrator agreement.

Conclusion

What we accomplish through this language is the following:

Recognizing the New York Convention — create a legal basis for the honoring of foreign arbitral awards.
Recognizing UNCITRAL Model Law on International Commercial Arbitration — creates a framework standard that can be adapted by forums for arbitration on-chain.
Establish an on-chain method for identifying both arbitrators and arbitration forums as well as establishing a service-level standard/code of ethics for each.
Robust language outlining arbitration as a recognized form of dispute resolution only where agreed to by parties to an agreement — limits the power of arbitrators and arbitration associations only to those who explicitly grant them power via issued and executed contract on-chain.

Our aim with {{regarbitrator}} and {{regforum}} and the proposed arbitration language for the Constitution is to create a system where arbitrators only have as much power that members consent to give them, and that the quality of arbitrators and arbitration forums is a direct reflection of the frequency of which they are utilized (i.e. no one will opt to use a bad forum or arbitrator). We believe that this framework package will make EOS a freer and more welcoming place for all people to do business. After all, EOS is only as valuable as what we build on top of it.

Looking Ahead

With this solution we set up the framework to give authority to arbitration on EOS and we recognize arbitral awards, but how do we enforce them? We have yet to arrive at a point where an arbitral award is issued which demands the movement of property in favor of an award creditor. So far, the only experience we have had on chain is with theft or exposed keys. But, when a dispute arises from an agreement that governs significant assets, and that dispute results in an award to one of the claimants, we will need a protocol to follow that outlines the timeline or steps of enforcement.

Furthermore, we foresee issues with scaling and many claims be over amounts too low for traditional arbitration. We should also turn our attention to Online Dispute Resolution (ODR) and the advantages that automated systems like Modria can provide. If you were not already aware, The EOS Alliance has recruited experts in the field of alternative dispute resolution and ODR such as Amy Wan (Founder & CEO of Sagewise) and Colin Rule (creator of Modria, formerly the Director of ODR at eBay and PayPal). For more information on the EOS Alliance Arbitration Working Group please see here.

Note: For further reading on UNCITRAL please read: Implications of the Blockchain Technology for the UNCITRAL Works