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Uncertainty and dispute resolution for blockchain and smart contract institutions

journal contribution
posted on 10.04.2022, 23:15 by Bronwyn HowellBronwyn Howell, PH Potgieter
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.

History

Preferred citation

Howell, B. E. & Potgieter, P. H. (2021). Uncertainty and dispute resolution for blockchain and smart contract institutions. Journal of Institutional Economics, 17(4), 545-559. https://doi.org/10.1017/S1744137421000138

Journal title

Journal of Institutional Economics

Volume

17

Issue

4

Publication date

01/08/2021

Pagination

545-559

Publisher

Cambridge University Press (CUP)

Publication status

Published

Online publication date

10/03/2021

ISSN

1744-1374

eISSN

1744-1382

Article number

PII S1744137421000138

Language

en