Self-Enforcing Online Dispute Resolution: Lessons From Bitcoin

Oxford Journal of Legal Studies Advance Access published December 8, 2015
Oxford Journal of Legal Studies, (2015), pp. 1–35

doi:10.1093/ojls/gqv036
Self-Enforcing Online Dispute Resolution:

Lessons from Bitcoin
Pietro Ortolani*
Downloaded from http://ojls.oxfordjournals.org/ at Universiteitsbibliotheek Utrecht on March 22, 2016

Abstract—The enforcement of outcomes in online dispute resolution (ODR) is a
delicate problem. Since disputes arising out of e-commerce transactions are
typically low in value, the traditional channels of coercive enforcement are often not
a viable option. The article argues that the Bitcoin system can be used as a source
of inspiration to devise new models of self-enforcement. The article describes the
legal framework of ODR and argues that the goal of self-enforcement can be
attained through the use of technology. It then describes the relevant features of the
Bitcoin system, underlining its potential as a new forum for the expression of
private autonomy. It then investigates the features of Bitcoin adjudication, before
arguing that Bitcoin must be regarded as an original and self-contained system of
dispute resolution, whose characteristics can be used to theorise new models of
self-enforcement. Next, it compares four alternative models of self-enforcement,
two of which take Bitcoin adjudication as an example. Finally, it puts forth
recommendations for all actors involved in the implementation of self-enforcing
ODR mechanisms and argues that different models should be left free to compete.
Keywords: online dispute resolution, enforcement, Bitcoin, cryptocurrencies,

arbitration
1. Introduction
No system of dispute resolution can function effectively if the outcome of the
procedure is not enforceable. In the context of online dispute resolution
(ODR), the problem of prompt enforceability is particularly delicate: since
disputes arising out of e-commerce transactions are typically low in value, the
costly and complex mechanisms of court enforcement are often not a viable
option. For this reason, it is necessary to implement systems of self-
enforcement of outcomes of ODR procedures: cost-effective channels of
private enforcement must be established, so as to ensure the efficiency of ODR
without relying on the support of state courts and enforcement authorities.
* Senior Research Fellow, Max Planck Institute Luxembourg for International, European and Regulatory
Procedural Law. PhD, LUISS Guido Carli University, Rome. Email: pietro.ortolani@mpi.lu. I wish to thank
Tony Cole and Vincent Richard for their useful comments.
ß The Author 2015. Published by Oxford University Press.
All rights reserved. For permissions, please e-mail: journals.permissions@oup.com
2 Oxford Journal of Legal Studies
This article argues that the Bitcoin system can be used as a source of
inspiration to devise new models of self-enforcement of ODR outcomes. In
Section 2, the article will describe the legal framework of ODR, with specific
reference to EU law and the regulatory efforts currently being undertaken by
the United Nations Commission on International Trade Law (UNCITRAL).
In addition, a comparative overview of ODR schemes existing at national level
will be provided, and their effectiveness in providing users with satisfactory
instruments of dispute resolution will be assessed. Against this background, it
will be argued that the goal of self-enforcement can be attained through the use

of technology. In this context, both direct and indirect mechanisms of self-
enforcement will be scrutinised.
Section 3 will offer a brief overview of the Bitcoin system, underlining how
Bitcoin is not only a peer-to-peer electronic cash system, but also a new forum
for the expression of private autonomy. Subsequently, Section 4 will describe
how Bitcoin users have spontaneously exploited the potential of the protocol to
implement self-enforcing ODR systems, such as Bitcoin adjudication. In light
of the previous findings, Section 5 will contend that Bitcoin adjudication
cannot be encompassed within any of the traditional descriptions of arbitration,
but must rather be regarded as an original and self-contained system of dispute
resolution, whose characteristics can be used to theorise new models of self-
enforcement.
Section 6 will compare four alternative models of self-enforcement of the
outcome of ODR procedures. The first two models have been proposed by the
UNCITRAL Secretariat in the context of the drafting of the ODR procedural
rules: one of them (the chargeback-based model) relies on chargebacks
operated by payment intermediaries, whilst the other (the escrow-based model)
utilises escrow accounts. The article will argue that two alternative models can
be devised, taking Bitcoin adjudication as an example. The first alternative
model (the stateless-currency-based model) relies on the use of stateless
currencies and aims at minimising the costs of enforcement. The second
alternative model (the preauthorisation-based model) implements a mechanism
which resembles Bitcoin adjudication but hinges on trust-based payment
intermediaries, through the use of credit card preauthorisations.
Section 7 will put forth recommendations for all actors involved in the
implementation of self-enforcing ODR mechanisms. Furthermore, it will argue
that different models of self-enforcement should be left free to compete in the
ODR market. Given the different costs associated with these models, it is
possible that one of them will end up prevailing over the others; alternatively,
the competition among the different models may reveal the purpose-specificity
of each of them. The article will conclude that, in either case, the creation of a
plurality of competing models of self-enforcement will be beneficial for the
users of ODR services.
Self-Enforcing Online Dispute Resolution: Lessons from Bitcoin 3
2. The Need for Self-enforcement in Online Dispute Resolution

A. The Legal Framework of Online Dispute Resolution
(i) The European perspective: the ADR Directive and the ODR Regulation
The European Union has recently adopted two important legal instruments
concerning the alternative dispute resolution (ADR) of consumer disputes:
Directive 2013/11/EU1 (ADR Directive) and Regulation 524/20132 (ODR
Regulation). The deadline for the implementation of the ADR Directive was 9

July 2015,3 whilst the ODR Regulation will apply from 9 January 2016.4
Ensuring access to simple, efficient, fast and low-cost dispute resolution is
regarded as an important goal in both online and offline consumer transac-
tions, especially in cross-border scenarios;5 to this end, the ADR Directive sets
forth a body of general rules that are applicable both to online and offline
disputes, whilst the ODR Regulation implements an EU ODR platform for
consumers and businesses trading electronically.6 The creation of such
platform is consistent with the purposes of the single market,7 as it enhances
consumer confidence and facilitates e-commerce transactions.8
The ADR Directive regulates the implementation and functioning of
consumer ADR systems and applies only if the ADR procedure is initiated
by a consumer.9 Interestingly, the Directive applies not only to cases where the
ADR entity proposes a solution or brings the parties together with the aim of
facilitating an amicable solution, but also in scenarios where the entity imposes
a solution on the parties.10 In other words, the Directive regulates both non-
binding and binding ADR mechanisms; however, Member States are free to
determine whether ADR entities established in their territories are to have the
power to impose a solution or can only propose one.11 Furthermore, the
1
Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative
dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/
EC (Directive on consumer ADR) [2013] OJ L165/63.
2
Regulation (EU) No 524/2013 of the European Parliament and of the Council of 21 May 2013 on online
dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/
EC (Regulation on consumer ODR) [2013] OJ L165/1. On 1 July 2015, Commission Implementing Regulation
(EU) 2015/1051 [2015] OJ L171/1 was adopted. The implementing regulation lays down the modalities for the
filing of complaints, the exercise of the functions of the ODR platform and the cooperation between the ODR
contact points.
3
Directive 2013/11/EU, art 25(1).
4
Regulation 524/2013, art 22(2).
5
Directive 2013/11/EU, recital 4.
6
These instruments aim not only at regulating consumer ADR and ODR, but also at raising consumer
awareness on the possibility of obtaining redress outside of state courts: European Commission, ‘Communication
by the European Commission on Alternative Dispute Resolution for Consumer Disputes in the Single Market’
COM (2011) 791 final.
7
Regulation 524/2013, recital 6.
8
AM Parra, ‘Directiva 2013/11 (ADR) y Reglamento 524/2013 (ODR): una apuesta europea por la solución
alternativa de litigios y en pro del comercio electrónico transfronterizo’ (2013) 18 Spain Arbit Rev 37.
9
Directive 2013/11/EU, art 2(2)(g).
10
11
Directive imposes two additional limitations to the possibility of implementing
binding ADR systems: first, an agreement between a consumer and a trader to
submit complaints to an ADR is not binding on the consumer if it was
concluded before the dispute had arisen and if it has the effect of depriving the
consumer of his right to bring an action before state courts, as is the case for
arbitration.12 Secondly, the solution imposed by the ADR procedure is only
binding on the parties if they were informed of its binding nature in advance
and specifically accepted this.13
Traders are not mandatorily required to submit to ADR procedures, but they

must inform consumers about ADR entities and the ODR platform, even when
they have not opted in.14 Furthermore, the ADR Directive expressly states that
they ‘should be encouraged as far as possible to participate in ADR
procedures’;15 hence, Member States can make the participation of traders
in ADR procedures mandatory or subject to incentives or sanctions, or make
their outcome binding on traders.16
The ADR Directive sets forth a ‘backbone’ of minimum guarantees and
procedural standards for ADR procedures. ADR entities must perform their
tasks in a manner that is ‘fair, practical and proportionate to both the
consumer and the trader, on the basis of an objective assessment of the
circumstances in which the complaint is made and with due regard to
the rights of the parties’.17 Furthermore, they have the duty to publish clear
and easily understandable information concerning the types of rules that may
be used as a basis for the dispute resolution.18
When a complaint is filed, the ADR entity must notify the parties to the
dispute as soon as it has received all the documents containing the relevant
information relating to it;19 the parties must be given the possibility, within a
reasonable period of time, of expressing their point of view, of being provided
with the arguments, evidence, documents and facts put forward by the other
party, any statements made and opinions given by experts, and of being able to
comment on them.20 At the end of the procedure, the parties must be notified
of the outcome of the ADR procedure in writing or on a durable medium, and
given a statement of the grounds on which the outcome is based.21
The ODR Regulation complements the ADR Directive by implementing a
more detailed framework for the resolution of e-commerce disputes. The
12
Directive 2013/11/EU, recital 43 and art 10(1).
13
Directive 2013/11/EU, recital 43 and art 10(2).
14
Regulation 524/2013, arts 13 and 14.
15
Directive 2013/11/EU, recital 49 and art 1.
16
However, when enacting the Directive, Member States must ensure that the incentives towards ADR
procedures do not curtail the right of access to the judicial system, as provided for in art 47 of the Charter of
Fundamental Rights of the European Union.
17
Directive 2013/11/EU, recital 31.
18
Directive 2013/11/EU, art 7(1)(i).
19
Directive 2013/11/EU, art 8(d).
20
Directive 2013/11/EU, art 9(1)(a).
21
Directive 2013/11/EU, art 9(1)(c).
Regulation envisages a European online platform, which will work as a hub:
rather than resolving disputes itself, the platform will refer complaints to the
competent ADR entity. The Regulation will apply not only to disputes initiated
by consumers, but also to procedures commenced by a trader against a
consumer, inasmuch as the legislation of the Member State where the
consumer is habitually resident allows for such disputes to be resolved through
the intervention of an ADR entity.22
Complainants will be able to fill in an electronic form. Upon receipt of a
fully completed complaint form, the ODR platform will transmit it to the

respondent party together with a notice that the parties have to agree on an
ADR entity in order for the complaint to be transmitted to it. The ODR
Regulation then aims at identifying the ADR entity which will be entrusted
with the task of resolving the dispute.23 If the parties agree on an ADR entity,
the ODR portal will transmit the complaint to it;24 where the parties fail to
agree on an ADR entity within 30 days of the submission of the complaint (or
the ADR entity refuses to deal with the dispute), the complaint will not be
processed further.25
(ii) The transnational perspective: UNCITRAL online dispute

resolution rules
At its 43rd session (New York, 21 June–9 July 2010), UNCITRAL agreed that
a working group (the UNCITRAL Working Group III on Online Dispute
Resolution) be established to work in the field of ODR, with the purpose of
developing a body of procedural rules.26 Such rules, currently under elabor-
ation, have a distinctive transnational approach: they aim at ensuring a fair and
transparent dispute resolution process to be managed by ODR service
providers irrespective of the nationality of the disputing parties. Given their
nature of generic contractual rules, the parties to an e-commerce relation will
be bound by them inasmuch as they voluntarily provide for their application.
Notwithstanding the transnational approach of the UNCITRAL project, the
Working Group wishes to ensure consistency between the procedural rules and
the EU legal framework. To this end, the circumstance that not all EU
Member States allow for pre-dispute consumer arbitration agreements is taken
into account. At the end of its 26th session, the Working Group adopted a two-
track approach: a first set of rules (track I) will be applicable if the dispute
22
Regulation 524/2013, art 2(2).
23
Art 9(4) of Regulation 524/2013 governs the information exchange process that should lead to the
identification of the appropriate ADR entity.
24
Regulation 524/2013, art 9(6). It must be noted that, in some cases, the trader may be obliged by national
law to use a specific ADR entity, or have committed to do so.
25
Regulation 524/2013, art 9(8). It must be noted that, although it may be mandatory under national law for
a trader to adhere to an ADR scheme (such as the Financial Ombudsman Service in the UK), this does not
create any automatic obligation to submit to an ADR mechanism within the context of the EU ODR platform.
26
‘Report of the United Nations Commission on International Trade Law, forty-third session (21 June–9 July
2010)’, A/65/17, 47–51.
involves a consumer from a Member State where pre-dispute arbitration
agreements are considered binding on all parties, whilst a second set of rules
(track II) will come into play if the consumer is from a Member State where
pre-dispute arbitration agreements are not binding or can be invalidated by the
economically weaker party.27
The two tracks have a fundamental difference: track I is a three-stage
procedure, whilst track II has two stages only. In the first phase of track I,
negotiation between the parties will be attempted. If the parties fail to settle
their dispute by way of negotiation, a facilitated settlement stage assisted by a

neutral third party will commence. If the facilitated settlement also proves
unsuccessful, the dispute will be referred to arbitration and the outcome will be
binding on the parties.28 Track II analogously has a negotiation and a
facilitated settlement stage, but misses the binding arbitration phase: at the end
of the facilitated settlement, the third neutral party will formulate a recom-
mendation concerning the resolution of the dispute, but the parties will be free
to disregard it and bring a claim before the competent state court.29
(iii) The national perspective: a comparative overview of attempts

to implement ODR schemes
Attempts to implement ODR schemes have been made in several jurisdictions.
Before analysing specific examples of national ODR schemes, one preliminary
observation must be made: the geographical constraints of the scope of
application of national laws are structurally incompatible with the increasingly
international nature of electronic commercial relations. For this reason,
national ODR schemes are unlikely to affirm themselves as a comprehensive
vehicle for the resolution of e-commerce disputes. Nonetheless, some useful
lessons can be drawn from the study of such experiences. To this end, this
article will take into account three different national attempts to implement
ODR mechanisms.
An interesting example in this regard is the Austrian Internet Ombudsman,30
an ODR scheme for consumer disputes. The scheme is available to consumers
27
‘Report of Working Group III (Online Dispute Resolution) on the work of its twenty-sixth session (Vienna,
5–9 November 2012)’, A/CN.9/762.
28
‘Online dispute resolution for cross-border electronic commerce transactions: draft procedural rules—note
by the Secretariat’, A/CN.9/WG.III/WP.133.
29
‘Online dispute resolution for cross-border electronic commerce transactions: draft procedural rules (Track
II)—note by the Secretariat’, A/CN.9/WG.III/WP.130. In both tracks, self-enforcement can play a fundamental
role in ensuring the effectiveness of ODR: in the case of arbitration, it will be possible to enforce the award
without relying on traditional judicial enforcement channels. In the case of facilitated settlement, self-
enforcement mechanisms can ensure that the terms of the agreement are complied with by the parties. The need
for self-enforcement will be described in further detail in Section 2.B. The importance of complementing indirect
incentives with direct mechanisms of self-enforcement is underlined by P Cortés, ‘Online Dispute Resolution for
Consumers—Online Dispute Resolution Methods for Settling Business to Consumer Conflicts’ in MS Abdel
Wahab, E Katsh and D Rainey (eds), Online Dispute Resolution (Eleven 2012) 151, 162.
30
‘Internet Ombudsman—Kostenlose Beratung und Streitschlichtung für Online-KonsumentInnen in
Österreich’ <www.ombudsmann.at/> accessed 2 July 2015. The Ombudsman is publicly funded by the
Austrian Institute for Applied Telecommunication (Österreichisches Institut für Angewandte
residing in Austria, for complaints related to a transaction concluded on the
internet with a seller registered in an EU Member State. This two-tier
procedure is free of charge and does not require mandatory legal representa-
tion. In the first phase, negotiation is attempted. If the negotiation fails, a
formal mediation process is conducted. At the end of the second stage, the
Ombudsman formulates a recommendation. The procedure is not mandatory:
consumers submit to it by filing a complaint, whilst businesses are free to
decide whether to participate or not.31
Another noteworthy attempt to encourage the resolution of disputes through

the use of technology is the Dutch website Rechtwijzer.32 The scope of
application of this system is particularly broad: it covers not only consumer
issues, but also other types of disputes, such as family, tenancy and
employment cases. Rechtwijzer provides legal advice to the parties by adopting
an integrative approach: the website asks the users a series of questions, aimed
at identifying areas of agreement between the parties and triggering construct-
ive dialogue.33 Rather than offering a fully formed solution, the website works
as a source of support and information for the parties, improving communi-
cation and encouraging the formation of an agreement.
In the United Kingdom, the Civil Justice Council set up an Online Dispute
Resolution Advisory Group, with the purpose of implementing online schemes
for the resolution of low-value civil claims. The Advisory Group suggested the
establishment of a new online court service, known as HM Online Court
(HMOC).34 The proposed HMOC would be an integrated three-tier service.
At the first stage, the HMOC would help users to evaluate their problems and
understand the available options. The first stage would be free of charge and its
purpose would be to prevent the dispute from escalating further by providing
the parties with reliable legal information concerning their entitlements.35 At
the second stage, an online facilitation would be attempted: mediation and
other ADR techniques would be employed to encourage an agreement between
the parties.36 If no agreement can be found, an adjudicative procedure would
Telekommunikation), the Federal Ministry for Social Services and Consumer Protection (Bundesministerium für
Soziales und Konsumentenschutz) and the Federal Work Commission (Bundesarbeitskammer).
31
Businesses, however, can express their a priori consent, thus submitting to the procedure before any specific
complaint has been filed by consumers.
32
Rechtwijzer <http://rechtwijzer.nl> accessed 3 July 2015. The platform is implemented by the Dutch Legal
Aid Board (Raad voor Rechtsbijstand).
33
For an assessment of the effectiveness of Rechtwijzer in mediating conflicts see EA Bickel, MAJ van Dijk
and E Giebels, ‘Online Legal Advice and Conflict Support: A Dutch Experience’ <www.hiil.org/data/
sitemanagement/media/Online%20legal%20advice%20and%20conflict%20support_UTwente.pdf> accessed 2
July 2015.
34
Civil Justice Council, ‘Online Dispute Resolution for Low Value Civil Claims—Online Dispute Resolution
Advisory Board’ <www.judiciary.gov.uk/wp-content/uploads/2015/02/Online-Dispute-Resolution-Final-Web-
Version1.pdf> accessed 2 July 2015.
35
ibid 19.
36
ibid 19–20.
be conducted at stage three by members of the Judiciary (online judges). The
decisions of the online judges would be binding and enforceable, like
traditional court judgments.37 Both the second and the third stage of the
HMOC procedure would entail a court fee.
In conclusion, several jurisdictions have made attempts to implement ODR
mechanisms. The procedural patterns can vary: in some cases (like the
Austrian Internet Ombudsman) the platform only aims at facilitating a
settlement, whilst in other cases (like the British proposal for the HMOC)
the final stage resembles traditional court proceedings. However, one common

flaw can be identified in all of the above attempts: after the end of the ODR
procedure, the systems do not provide for any device of self-enforcement. In
other words, if one of the parties refuses to comply with the settlement
agreement, the other party has no choice but to institute court proceedings.
Similarly, in the case of adjudicative ODR, if the unsuccessful party does not
comply with the decision, the prevailing party will need to resort to traditional
channels of court litigation38 or enforcement.39 The absence of effective
devices of self-enforcement has been rightly pointed out as one of the reasons
‘why ODR has not yet taken off’.40
In the next section, it will be argued that ODR schemes can establish
themselves as appropriate venues for the resolution of online disputes if the
goal of self-enforcement is attained.
B. The Need for Self-enforcement as an Example of Legal Darwinism

In order to be effective, binding ODR mechanisms must result in self-enforcing
outcomes. Low-value electronic commerce transactions constitute a hostile
environment for the traditional model of alternative dispute resolution, where
the final outcome can be recognised and enforced by state court and state
enforcement authorities. The costs and complexity of court enforcement
proceedings are disproportionate to the values in dispute; for this reason, the
paradigm of cooperation between ADR service providers and state entities
proves to be inadequate in the context of e-commerce.41 In addition, many
e-commerce contracts are international in nature:42 resorting to traditional
37
ibid 20.
38
In the case of non-binding arbitration.
39
In the case of binding adjudication resulting in the creation of an enforceable title: see, for example, the
decisions of online judges in the HMOC system (n 37).
40
P Cortes and AR Lodder, ‘Consumer Dispute Resolution Goes Online: Reflections on the Evolution of
European Law for Out-of-Court Redress’ (2014) 21(1) MJ 14.
41
At its 22nd session, the UNCITRAL Working Group III considered that a need existed to address
mechanisms that were simpler than the enforcement mechanism provided by the 1958 New York Convention on
the Recognition and Enforcement of Foreign Arbitral Awards, given that the treaty-based recognition and
enforcement system is not adequate for low-value, high volume transactions: A/CN.9/716, paras 43 and 98.
42
P Virilio, La bombe informatique (Galilée 1998) 69–70 introduced the notion of ‘social teleproximity’,
alluding to the fact that electronic social contacts are only based on common interests, rather than geographical
proximity.
mechanisms of cross-border enforcement, such as the circulation of arbitral
awards under the 1958 New York Convention, would generate additional costs
and complications, which are radically incompatible with the characteristics of
low-value e-commerce disputes.43 From this point of view, mechanisms of self-
enforcement can be seen an example of ‘legal Darwinism’: in order to survive
in the environment of e-commerce, ODR systems must develop private
mechanisms of enforcement which do not rely on any support from state courts
and authorities.
The need for self-enforcement has been expressly acknowledged in the

context of UNCITRAL: in the words of the Secretariat, only ODR systems
including an in-built enforcement mechanism can provide ‘a ‘‘one-stop shop’’
for parties seeking to resolve a dispute’.44 This is true not only in cases where
the outcome of the ODR procedure is directly binding on the parties, but also
when the parties have voluntarily accepted the outcome of the proposal which
has been made at the end of the procedure. By way of example, if the
merchant has agreed to pay the money back to the purchaser but fails to
comply with such settlement agreement, the need arises to enforce it without
resorting to the coercive apparatus of the state. Hence, the success of both
European and transnational regulatory efforts depends not only on the
adequacy of the procedural architecture, but also on the possibility of private
enforcement of the outcome. For this reason, the enforcement stage has
fundamental consequences on the attainment of the goals of speed and
effectiveness enucleated in article 1 of the ADR Directive. The current reality
of ODR offers some fundamental insights into how self-enforcement can be
implemented.
C. Self-enforcement of Decisions Concerning the Allocation of Resources

through Technology
Some already existing ODR mechanisms effectively use technology in order to
attain the goal of self-enforcement of decisions. The Internet Corporation for
Assigned Names and Numbers (ICANN) is a typical example in this regard.
ICANN resolves disputes concerning the ownership of domain names by
applying a body of rules elaborated by the institution itself, the Uniform
Domain Name Dispute Resolution Policy (UDRP).45 Decisions rendered
under ICANN’s UDRP are self-enforced: once the dispute resolution proced-
ure has established which of the parties is entitled to own the domain, ICANN
43
G Kaufmann-Kohler and T Schultz, Online Dispute Resolution: Challenges for Contemporary Justice (Kluwer
2004) 70–2.
44
A/CN.9/WG.III/WP.124, para 10.
45
ICANN Uniform Domain Name Dispute Resolution Policy <www.icann.org/resources/pages/policy-2012-
02-25-en>. For a detailed critical assessment of ICANN’s UDRP see J Hörnle, Cross-border Internet Dispute
Resolution (CUP 2009) 186–214.
simply associates the domain name with the IP address of the prevailing
party.46
Consumer ODR systems should adopt the model of ICANN self-enforcing
decisions as an example, because of a striking similarity: the ICANN UDRP
and the rules governing e-commerce contracts both relate to the distribution
of resources between the parties.47 In the case of ICANN, the rules set forth
in the UDRP determine which of the disputing parties has the right to have
its IP address associated with a certain domain name. Analogously, in the case
of basic e-commerce disputes, substantive rules determine the conditions

under which a sum of money (the price of the item of service which the
transaction refers to) should be definitively transferred to the merchant or
paid back to the purchaser. Before analysing the example of ICANN in
further detail, one caveat must be made: it is possible that e-commerce
transactions, even when low in value, give rise to complex disputes, including
claims for additional compensation, moral damages etc. In such cases, more
sophisticated substantive rules could come into play. However, most e-
commerce disputes are simple in nature: typically, the purchaser will
complain that the items have not been received, or the services have not
been provided. Such cases are governed by simple substantive rules
concerning the allocation of resources between the parties; within this
context, a meaningful parallel with ICANN can be drawn.
The example of ICANN demonstrates that decisions ruling on the
distribution of resources can be self-enforced if a private enforcement
authority48 has the option coercively to transfer the disputed resources from
one party to the other without requiring any support from state courts. In the
case of ICANN, this result is achieved by way of attribution of the domain
name. In the scenario of e-commerce, different self-enforcement options have
been proposed.49 Some of the proposed options can be qualified as indirect
mechanisms of enforcement, as they aim at encouraging voluntary compliance
by creating incentives. Conversely, other options aim at enforcing the outcome
of the ODR procedure directly and automatically.50
46
ICANN UDRP (n 45) para 3(1)(c); DJB Svantesson, ‘Borders On, or Borders Around—The Future of the
Internet’ (2006) 16 Alb LJ Sci & Tech 343, 358–9.
47
T Schultz, ‘Private Legal Systems: What Cyberspace Might Teach Legal Theorists’ (2007) 10 Yale J L &
Tech 151, 185.
48
Such private enforcement authority could be the dispute resolution service provider itself or a distinct legal
entity. In the case of ICANN, for example, the dispute resolution process is not managed by ICANN, which only
enforces the outcomes. Such difference, however, has no influence on the self-enforcing nature of the decision, as
in both cases the ruling can be executed without the need to resort to state enforcement authorities.
49
See, for example, MS Donahey, ‘The UDRP Model Applied to Online Consumer Transactions’ (2003)
(20) 5 J Int’l Arb 475.
50
Mechanisms of direct and indirect enforcement are discussed in detail by Kaufmann-Kohler and Schultz (n
43) 225–34.
D. Mechanisms of Indirect Self-enforcement
Voluntary compliance with the outcome of ODR proceedings can be effectively
encouraged by implementing systems which indicate the trustworthiness
of e-commerce merchants. Ratings and trustmarks are both indicators of
reliability which can be used for the purpose of indirect enforcement of ODR
outcomes.
Ratings are quality evaluations, which purchasers are invited to render after
having concluded an e-commerce transaction. Online marketplaces, such as
eBay, employ user ratings as a way to measure the reliability of sellers.51

Ratings can constitute an important incentive towards compliance with the
outcome of ODR procedures: purchasers who have participated in an ODR
procedure could be invited to provide feedback concerning the attitude of the
merchant at the end of the procedure and non-compliant parties would receive
negative feedback and thus be regarded as untrustworthy.52
Trustmarks are labels of quality, which certify a specific quality of a
merchant; unlike ratings, however, they are not granted by users, but by a
centralised authority. ODR service providers could attribute such labels to
merchants who submit to a dispute resolution procedure and spontaneously
comply with the outcome; conversely, in case of non-compliance, the trustmark
could be denied or revoked. This way, purchasers would be able to assess the
trustworthiness of merchants and select the ones which voluntarily comply with
the outcomes of ODR procedures, thus limiting the need for coercive
enforcement.53
E. Mechanisms of Direct Self-enforcement

Although indirect self-enforcement plays an important role in encouraging
voluntary compliance with the outcome of ODR procedures, it is indispensable
to complement such mechanisms with the possibility of direct and automatic
self-enforcement, for three reasons.
First, ratings and trustmarks can constitute sufficient incentives for profes-
sional sellers operating on electronic markets; however, e-commerce transac-
tions are increasingly conducted by occasional sellers, who may be uninterested
in their reputation in the marketplace.54
51
On the positive effects of feedbacks on consumer confidence see C Burke Robertson, ‘Regulating Electronic
Legal Support Across State and National Boundaries’ (2014) 47 Akron L Rev 37, 46–7.
52
Schultz, ‘Private Legal Systems’ (n 47) 162.
53
Hörnle (n 45) 227 correctly points out how trustmarks can only work if they effectively distinguish one
product (or one merchant) from another: to this end, raising consumer awareness is an indispensable prerequisite
for the feasibility of this method of indirect enforcement.
54
On the one hand, it must be acknowledged that sellers operating in marketplaces like eBay are unlikely to
be able to conclude a significant number of transactions in the absence of a high percentage of positive feedback.
On the other hand, it should also be considered that direct self-enforcement constitutes an additional incentive
towards voluntary compliance, which meaningfully complements the nudging effect of ratings and trustmarks,
rather than substituting it.
Secondly, it is possible that even in the presence of ratings or trustmarks a
minority of merchants in bad faith will fraudulently conclude transactions and
ignore the ensuing contractual obligations (such as the obligation to ship the
goods, or to provide the services). In this case, indirect instruments of self-
enforcement may be useful to prevent repeat bad faith behaviour as prospective
buyers will be effectively warned, but they will not protect buyers who have
already concluded the transaction and made the payment without receiving the
goods or services.
Thirdly, the possibility of direct enforcement will constitute an additional

incentive for the parties to respect their contractual obligations, as each of
them will be aware that, in case of violation of such obligations, an ODR
procedure will be commenced and the relative outcome will automatically be
enforced.55
In order to enforce the outcome of an ODR procedure concerning an e-
commerce transaction directly, it is necessary to control the financial flows
arising out of the transaction and transfer the disputed sum of money to the
party entitled to it. It has been argued that this objective of direct self-
enforcement could be reached by way of collaboration with payment
providers.56
Payment services already contemplate the possibility of reversing the
payment if the transaction is disputed. The process whereby the payment
intermediary reimburses a transaction is generally referred to as ‘chargeback’. If
the purchaser requests a chargeback, the payment intermediary investigates the
reasons why the charge has been disputed and determines whether the money
must be transferred back to the purchaser.57
Chargebacks could be used to enforce the outcome of an ODR procedure:
the ODR service provider could instruct the payment intermediary to operate
the chargeback when the outcome of the procedure requires that the money be
transferred back to the purchaser. However, reliance on chargebacks is only
one of the possible ways to attain the goal of self-enforcement of ODR
outcomes. This article will discuss the pros and cons of different models of
ODR direct self-enforcement. Some of these models draw directly from the
55
By way of comparison, empirical evidence demonstrates that the international enforceability of arbitral
awards is one of the main reasons why arbitration is preferred to other methods of resolution of cross-border
disputes: Queen Mary School of International Arbitration, ‘Corporate Choices in International Arbitration—
Industry Perspectives’ (2013) 8 <www.pwc.com/gx/en/arbitration-dispute-resolution/assets/pwc-international-
arbitration-study.pdf> accessed 3 July 2015.
56
P Cortés and FE de la Rosa, ‘Building a Global Redress System for Low-Value Cross-Border Disputes’
(2013) 62 ICLQ 407, 431; LM Ponte, ‘Boosting Consumer Confidence in e-Business: Recommendations for
Establishing Fair and Effective Dispute Resolution Programs for B2C Online Transactions’ (2002) 12 Alb LJ Sci
& Tech 441, 491.
57
The grounds for chargeback are regulated by most payment intermediaries: see ‘Chargeback Management
Guidelines for Visa Merchants’ section 3 <http://usa.visa.com/download/merchants/chargeback-management-
guidelines-for-visa-merchants.pdf> accessed 3 July 2015; ‘MasterCard Chargeback Guide’ (30 October 2014)
<www.mastercard.com/us/merchant/pdf/TB_CB_Manual.pdf> accessed 3 July 2015. For an overview of some of
the most common reasons to request a chargeback see KV Tu, ‘Regulating the New Cashless World’ (2013) 65
Ala L Rev 77, 121.
experience of Bitcoin, which offers interesting insights into how the outcomes
of ODR procedures can be enforced privately. Hence, before comparing
different models of self-enforcement, it is necessary to describe the relevant
features of the Bitcoin system.
3. Overview of the Bitcoin System

Bitcoin is a peer-to-peer electronic cash system, launched in 2009 with the aim
of enabling parties to exchange money with each other without the need for a

trusted third party (such as a financial institution). To this end, Bitcoin works
like a currency, but is not attached to any issuing central bank, despite being
fully exchangeable with traditional currency through special websites.58
Together with other analogous electronic cash systems, it can be seen as a
new type of stateless currency.59
In order to understand the innovation of Bitcoin, it is necessary to compare
it with ‘traditional’ systems for electronic payment. Payments made through
financial institutions rely on a trust-based system: the institutions provide for a
safety net, thanks to which transactions can be reversed in case of fraud or
similar pathological events. As a result, trust-based transactions have a cost,
which is directly connected to the intermediary and dispute-mediator role
played by financial institutions. The Bitcoin system, in contrast, is able to
minimise transaction costs by implementing a trustless framework for
payments, where no third party acts as an intermediary between the party
who sends the money and the recipient.60
Bitcoins are held by users in their computers, in files called ‘wallets’. When
Bitcoins are exchanged, they are simply moved from the wallet of the sender to
the wallet of the recipient, by means of an electronic message. However, this
does not require either of the two parties to disclose their identity, as the
Bitcoin system is based on cryptography: the recipient’s wallet is identified
through a code (‘public key’ or ‘Bitcoin address’) which is not tied to his or her
identity. As a result, the sender will transfer the Bitcoins without necessarily
being aware of the recipient’s identity: although the system is not entirely
anonymous, it ensures a high level of privacy, since users operate through
pseudonyms (their Bitcoin addresses) which are not linked to their name.
Bitcoin transactions are not registered by any central authority but are
included in a public ledger (the ‘blockchain’), a copy of which is maintained
and automatically updated by every user of the network after each transaction
58
The Bitcoin system was theorised in a white paper circulated on the internet: S Nakamoto, ‘Bitcoin: A
Peer-to-Peer Electronic Cash System’ <https://bitcoin.org/bitcoin.pdf> accessed 3 July 2015.
59
Other electronic cash systems (‘altcoins’) include Litecoin (<https://litecoin.org> accessed 3 July 2015),
Peercoin (<http://peercoin.net> accessed 17 April 2015), Primecoin (<http://primecoin.io> accessed 3 July
2015) and Namecoin (<https://namecoin.info> accessed 3 July 2015).
60
TA Anderson, ‘Bitcoin—Is it Just a Fad? History, Current Status and Future of the Cyber-currency
Revolution’ (2015) 29(7) JIBLR 428, 430–1.
has taken place. Therefore, the blockchain is an entirely public ledger, where
each user can verify every transaction ever made in Bitcoins. However, such
ledger does not disclose the identity of senders and recipients, but merely keeps
track of the amounts exchanged and the pseudonymous Bitcoin addresses
exchanging the digital currency.
So far this article has described the most basic Bitcoin transaction, whereby
money is sent by a user and received by another user, but the Bitcoin system
(‘Bitcoin protocol’) allows for far more complex transactions. Bitcoin transac-
tions are software scripts through which users identify the funds to transfer and

determine where such funds must be directed. Users are free to write their own
scripts, thus creating elaborate contractual architectures. By way of example,
the first Bitcoin transaction ever was not a transfer of money from one user to
another but a mathematical puzzle which any user could solve, thus obtaining a
reward.61 Therefore, Bitcoin is not only a new peer-to-peer cash system, but
also a new forum for the expression of private autonomy. In other words, the
Bitcoin system can be used not only for a simple transfer of money, but also for
more complex arrangements: the Bitcoin protocol allows for the creation of
contracts, whose contents can be autonomously modified by writing software
scripts. The construction of scripts therefore becomes a new form of contract
making: were Bitcoin to become a widespread system of payment, it is likely
that more complex transactions would become common, analogously to what
has historically happened throughout the evolution of contract law.
4. The Emergence of Bitcoin Adjudication

A strong need for alternative dispute resolution has emerged from the outset in
the Bitcoin system. This is in part due to characteristics typical of e-commerce,
such as the disproportionate cost and complexity of court litigation. In
addition, three factors specific to Bitcoin generate a strong need for dispute
resolution.
First, since the system does not rely on a central financial authority providing
a ‘safety net’ by reversing transfers of money in case of fraud, a solution must
be found among the users within the system itself.
Secondly, disputes cannot be settled by national courts, as the legal status of
Bitcoin is uncertain62 and transactions often take place without disclosing the
identity of the parties, thus making it difficult to apply the rules set forth by
61
The process whereby new Bitcoins are created through the resolution of increasingly complex mathematical
problems is called ‘mining’: ED Jeans, ‘Funny Money or the Fall of Fiat: Bitcoin and Forward-Facing Virtual
Currency Regulation’ (2015) 12 Colo Tech LJ 99, 105–6; J Brito and A Castillo, Bitcoin—A Primer for
Policymakers (Mercatus Center 2013) 5–6.
62
P Kirby, ‘Virtually Possible: How to Strengthen Bitcoin Regulation within the Current Regulatory
Framework’ (2014) 93 NC L Rev 189; NM Kaplanov, ‘Nerdy Money: Bitcoin, the Private Digital Currency, and
the Case against its Regulation’ (2012) 25 Loy Consumer L Rev 111.
national systems of law for ‘traditional’ electronic transactions, or even to
identify them.
Thirdly, the Bitcoin system is distinctively trustless; such feature does not
make voluntary compliance with the outcome of an ODR procedure impos-
sible, but it does significantly limit its practical relevance. For this reason,
dispute settlement procedures in the Bitcoin system must necessarily be
complemented by an internal mechanism of enforcement.
The Bitcoin system was first theorised in a white paper which expressly
acknowledged the need for a self-enforcing dispute settlement mechanism. To

this end, the author(s)63 note from the outset that ‘routine escrow mechanisms
could easily be implemented to protect buyers’.64 Interestingly enough, in such
a peer-to-peer and trustless environment, the protection of purchasers is not in-
built: it is up to the parties to protect themselves by implementing self-
enforcing dispute settlement mechanisms, such as escrow. Therefore, the paper
founding the Bitcoin system expressly delegates the implementation of dispute
settlement devices to private autonomy, which in this context will operate
through the creation of Bitcoin transactions more complex than the basic
transfer of funds from one wallet to another. In light of this, it is not surprising
that Bitcoin dispute settlement is not a potential future evolution of the system,
but an actual and fully operational reality.
The escrow mechanisms referred to in the Bitcoin white paper are now
implemented by a number of service providers advertising their services on the
internet.65 A Bitcoin escrow transaction is similar to a traditional escrow
agreement, whereby the money is not transferred directly from the sender to
the receiver, but temporarily placed in the account of a third party; in the case
of Bitcoin escrow, the Bitcoins will be stored in the wallet of the service
provider. The party who sent the funds will then be able to inspect whether the
counterpart has fulfilled his or her obligations. In the case of the sale of goods,
for example, the buyer’s Bitcoins will be held in escrow until the terms of the
sale are met. If the seller’s obligations are fulfilled, the escrow service provider
will release the payment to the seller. In case of dispute, the service provider
will act as an adjudicator. At the end of the ODR procedure, the service
provider will forward the money to the party entitled to it.
Although Bitcoin escrow provides a basic solution to the problem of dispute
settlement, it has many evident limitations. First of all, the escrow mechanism
requires a relationship of trust between the service provider and each of the
parties, which seems to be inconsistent with the trustless assumption
underlying the Bitcoin system. In other words, there are no particular reasons
63
The identity of Satoshi Nakamoto has been widely debated in the press: L McGrath Goodman, ‘The Face
behind Bitcoin’ (Newsweek, 6 March 2014) <www.newsweek.com/2014/03/14/face-behind-bitcoin-247957.html>
accessed 3 July 2015.
64
Nakamoto (n 58) 1.
65
‘Bitcoin Escrow Service’ <https://en.Bitcoin.it/wiki/Bitcoin_Escrow_Service> accessed 3 July 2015.
why the sender should trust the third-party service provider more than the
recipient, as both of them operate in a confidential system with no central
authority. Moreover, the system is clearly rudimentary: in case a dispute arises,
no clear standards are defined as to what procedure will be followed and what
substantive rules will be applied.66 Bitcoin escrow is an entirely deregulated
form of online dispute settlement and, as such, does not offer any guarantees of
legal certainty and due process.
Some of the above problems are resolved through the more sophisticated
system of Bitcoin adjudication based on a multi-signature address.67 Unlike

escrow, the funds are not held by the dispute resolution service provider, but
stored in a special Bitcoin address. A multi-signature address works like a two-
out-of-three-keys lock: the adjudicator and each of the two contracting parties
are provided with a key to the lock, but the lock does not open unless at least
two of the three keys are used. Therefore, unlike escrow, the adjudicator
cannot autonomously unlock the Bitcoins sent to the multi-signature address.
Where no dispute arises, the parties can agree and release the payment, which
will then be transferred to the wallet of the recipient with no involvement on
the part of the adjudicator. In contrast, when a dispute arises, the adjudicator
will be asked to determine whether the Bitcoins should be transferred to the
recipient or given back to the original sender.
The problems relating to the rudimentary nature of the mechanism are not
entirely solved: adjudicators resolve disputes without any clear indication as to
what substantive and procedural rules will be applied.68 Nonetheless, such
limitations are due to the lack of general legal expertise, rather than to
technical reasons: the possibility of creating a multi-signature address demon-
strates how the current Bitcoin technology already provides the necessary
means for complex expressions of private autonomy.
5. Bitcoin as a Self-contained Legal System

A. Bitcoin Adjudication: an Alternative Model of Self-enforcing ODR
Mechanism
Bitcoin adjudication is a radically new type of self-enforcing ODR mechanism.
The particular relevance of Bitcoin adjudication lies in the fact that it stemmed
out of the necessity to operate in a ‘hostile environment’, without any support
from state law and state courts, or any interaction with trust-based payment
66
It must, however, be noted that, to a certain extent, the vagueness of the substantive rules to be applied in
an ODR procedure is an unavoidable consequence of the plurality of legal and commercial cultures coming into
play in e-commerce: T Schultz, Réguler le commerce électronique par la resolution des litiges en ligne—Une approche
critique (Bruylant 2005) 549.
67
See, for example, Bitrated: <www.bitrated.com> accessed 3 July 2015.
68
By way of example, the Birated website (ibid) does not specify what substantive or procedural rules will be
applied by the third party adjudicators.
systems. Hence, Bitcoin adjudication can lead the way in implementing self-
enforcing ODR systems.
Before drawing from the experience of Bitcoin in order to elaborate
alternative models of self-enforcement, one potential counter-argument must
be addressed. It could be argued that Bitcoin adjudication is not a new and
original model of dispute resolution, but simply an online form of international
arbitration. To be sure, Bitcoin adjudication and international arbitration share
some characteristic features: they are both private systems of cross-border
adjudication, operating independently from state courts and functioning as a

largely self-standing legal phenomenon. However, this part of the article will
confute such argument by demonstrating that Bitcoin adjudication cannot be
encompassed within any of the traditional narratives of international arbitration
and must, therefore, be seen as an entirely new and autonomous paradigm of
dispute resolution.69
Emmanuel Gaillard distinguishes between three alternative representations of
arbitration vis-à-vis national legal systems.70 According to the first, ‘monolocal’
representation, arbitrators are assimilated to state judges of the seat of
arbitration: arbitration therefore draws its legitimacy exclusively from the laws
of the state where the proceedings are seated. The second, ‘Westfalian’
representation construes arbitration as being anchored not in one particular
national legal order, but in the collectivity of national systems willing to
recognise and enforce the award. Hence, although arbitration is not seen as a
phenomenon whose relevance is limited to the national legal system where the
seat is located, it still derives its legitimacy from national legal orders and in
particular from their commitment to recognise the effectiveness of arbitral
awards.71 The third, ‘transnational’ representation describes arbitration as a
distinct legal order, whose legitimacy does not derive from any national law.72
69
For this reason, this article prefers the expression ‘Bitcoin adjudication’ to the oft-used but inaccurate
expression ‘Bitcoin arbitration’: see eg ‘Introducing Bitrated: Bitcoin Arbitration Marketplace’ <www.
deepdotweb.com/2014/02/17/bitrated-bitcoin-arbitration-marketplace/> accessed 29 June 2015.
70
E Gaillard, Legal Theory of International Arbitration (Nijhoff 2010) 15–66; E Gaillard, ‘Transcending
National Legal Orders for International Arbitration’ in AJ van den Berg (ed), International Arbitration: The
Coming of a New Age? (ICCA Congress Series No 17, Kluwer 2013) 371.
71
S Besson, ‘Is There a Real Need for Transcending National Legal Orders in International Arbitration?
Some Reflections Concerning Abusive Interference from the Courts at the Seat of the Arbitration’ in AJ van den
Berg (ed), International Dispute Resolution: Towards an International Arbitration Culture (ICCA Congress Series No
8, Kluwer 1998) 378.
72
Arguments in favour of the autonomous nature of arbitration have been put forth for decades: W Park,
‘The Lex Loci Arbitri and International Commercial Arbitration’ (1983) 32 ICLQ 21; W Park and J Paulsson,
‘The Binding Force of International Arbitral Awards’ (1983) 23 Va J Int’l L 253; J Paulsson, ‘Delocalisation of
International Commercial Arbitration: When and Why It Matters’ (1983) 32 ICLQ 53; J Paulsson, ‘Arbitration
Unbound: Award Detached from the Law of its Country of Origin’ (1981) 30 ICLQ 358; J Lew, Applicable Law
in International Commercial Arbitration (Oceana 1978); P Fouchard, L’Arbitrage Commercial International (Dalloz
1965); B Goldman, Les Conflits de Lois dans l’Arbitrage International de Droit Privé (Collected Courses of the
Hague Academy of International Law No 109, Brill Nijhoff 1963) 347; C Fragistas, ‘Arbitrage Etranger et
Arbitrage International en Droit Privé’ (1960) 49 Rev Crit DIP 1. Although not all of these arguments rely on
Gaillard’s idea of arbitration as a separate legal order and some emphasise the idea of delocalisation, ie the
detachment from the seat of arbitration, they are all based on the idea of the autonomy of arbitration from any
national legal system.
Bitcoin adjudication cannot be encompassed within any of the above
representations as it constitutes an entirely ‘floating’ form of private adjudi-
cation, where the enforcement of dispute resolution agreements and the
recognition and enforcement of decisions do not rely on any form of
cooperation with national legal systems, but mechanically derive from the
way the Bitcoin protocol operates.73 Hence, the ‘monolocal’ representation
cannot apply to Bitcoin adjudication, since the former requires the identifica-
tion of a national legal system where the arbitration is seated and whose laws
will regulate and legitimise the proceedings, whilst the latter is entirely

delocalised and can take place between anonymous users who do not
necessarily disclose their identity or geographical position. Similarly, the
‘Westphalian’ description does not cover the phenomenon of Bitcoin adjudi-
cation, as it is based on the consensus among a plurality of national legal
systems, which agree to enforce arbitration agreements and awards under
certain conditions. By contrast, Bitcoin adjudication operates in a legal grey
area, and the enforcement of agreements and decisions does not rely on an
international convention among states but, rather, operates automatically
through the Bitcoin protocol. The Bitcoin system was designed in reaction to
the perceived inadequacies of the traditional banking system.74 As such, it
rejects the premise of a central authority governing the supply of money and
the monopoly of states over currencies, thus being incompatible with a
Westphalian conception of state authority.75
By excluding the relevance of state intervention and cooperation in the
legitimisation of arbitration, the transnational representation is the only
narrative that is apparently analogous to the theoretical framework of Bitcoin
adjudication. However, the latter does not constitute an expression of the
former; Bitcoin adjudication, in fact, alters some of the ideas underlying the
transnational conception. Scholars advocating a transnational narrative of
arbitration do not suggest an antagonistic relationship between arbitration and
national legal orders: national laws are not rejected by arbitration, but rather
73
In Bank Mellat v Helliniki Techniki Sa [1984] 1 QB 291, 301, Kerr LJ rejected ‘the concept of arbitral
procedures floating in the transnational firmament, unconnected with any municipal system of law’, relying on
FA Mann, ‘Lex Facit Arbitrum’ in P Sanders (ed) International Arbitration—Liber Amicorum for Martin Domke
(Nijhoff 1967) 157, 167. Similar ideas, rejecting the notion of delocalised arbitration, are expressed in Braes of
DouneWind Farm (Scotland) Ltd v Alfred McAlpine Business Services Ltd [2008] EWHC 426 (TCC) and Naviera
Amazonica Peruana SA v Compania Internacional de Seguros de Peru [1988] 1 Lloyd’s Rep 116. Such definition is
strikingly fitting, when applied to Bitcoin adjudication: the latter is not connected to any national legal system
and operates notwithstanding the uncertainties concerning the legal status of Bitcoin in most jurisdictions.
74
Nakamoto (n 58) 1.
75
From this point of view, the increasing use of cryptocurrencies could be seen as an additional factor
determining the decline of the Westphalian conception: see MW Zacher, ‘The Decaying Pillars of the
Westphalian Temple’ in JN Rosenau and E-O Czempiel (eds), Governance without Government: Order and Change
in World Politics (Cambridge 1993) 58. The tension between Bitcoin and state authority is particularly evident
when Bitcoin is used for illegal purposes: A Ouakrat, ‘Une analyse sociotechnique d’un type d’usage du Bitcoin: le
crypto-marché SilkRoad’ (2015) 159 Banque & Droit 14. On the relationship between the Westphalian
conception of authority and the idea of the regulatory monopoly of the state see T Schultz and D Holloway,
‘Retour sur la comity I: les origines de la comity’ (2011) 138 Clunet 863; T Schultz and D Holloway, ‘Retour sur
la comity II: La comity dans l’histoire du droit international privé’ (2012) 138 Clunet 571.
embraced through the ascertainment of prevailing rules and their elevation to
the rank of transnational principles.76 In other words, authors arguing in favour
of the independence of arbitration and its autonomous normative potency do
not describe it as antagonistically operating in a vacuum: on the contrary,
arbitration is seen as coexisting and cooperating with national states.77 In this
context, the difference between transnational arbitration and lex mercatoria is
often highlighted.
Lex mercatoria is commonly described as a product of legal Darwinism by
which the society of merchants, dissatisfied with the inadequacy of state laws,

generates autonomous transnational rules responding to the needs of interna-
tional commerce.78 The theory of lex mercatoria is rooted in the idea that
national legal systems cannot effectively satisfy the needs of merchants: hence,
the creation of non-state rules spontaneously stems from the inability of state
laws to evolve in accordance with the economic environment.79 The
transnational theory of arbitration, in contrast, does not have any element of
antagonism: rather than being based on the perceived inadequacy of state legal
systems, it underlines how the arbitral legal order has received unanimous
recognition throughout the world, albeit having developed autonomously.80
B. Legal Darwinism: Bitcoin as an Autonomous Legal System

Bitcoin adjudication seems to be closer to the idea of legal Darwinism than to
the postulate of friendly coexistence with national legal systems. The necessity
to resort to escrow or similar devices has been pointed out from the outset81 as
being an intrinsic characteristic of the Bitcoin system, stemming from the
inadequacy of national courts to operate in a trustless environment with a high
level of privacy. Therefore, the legitimacy of Bitcoin adjudication cannot be
found in the coexistence and cooperation with national legal systems, but relies
76
Gaillard, Legal Theory (n 70) 45–52.
77
S Brekoulakis, ‘International Arbitration Scholarship and the Concept of Arbitration Law’ (2013) 36
Fordham Int’l LJ 745, 785. According to K-H Böckstiegel, ‘The Role of National Courts in the Development of
an Arbitration Culture’ in van den Berg, International Dispute Resolution (n 71) 219, 224–5, the rise of
international arbitration is mainly due to the preferences of the business community, but national legal systems
and courts were able to recognise the relevance of business interests and facilitate the diffusion of arbitration,
rather than hindering it.
78
E Loquin, ‘Où en est la lex mercatoria?’ in Souveraineté étatique et marchés internationaux à la fin du 20ème
siècle. A propos de 30 ans de recherches du CREDIMI. Mélanges en l’honneur de Philippe Kahn (Litec 2000) 23, 26;
LE Trakman, The Law Merchant: The Evolution of Commercial Law (Rothmans 1983) 23; LE Trakman, ‘The
Evolution of the Law Merchant: Our Forgotten Heritage’ (1981) 12 J Maritime Law & Comm 153. On the
comparison between lex mercatoria and international arbitration generally see TE Carbonneau (ed), Lex
Mercatoria and Arbitration: A Discussion of the New Law Merchant (Juris 1998).
79
From this point of view, terminology plays a crucial role: T Schultz, Transnational Legality—Stateless Law
and International Arbitration (OUP 2014) 46 notes how characterising a private-made system of rules as ‘law’
entails that said system should be understood as equivalent to state law in terms of normative meaningfulness.
Hence, the idea of replacing an inadequate state-made normative system is an indispensable corollary of lex
mercatoria, which is already relied upon in B Goldaman, ‘Frontières du droit et lex mercatoria’ (1964) 9 Archives
de Philosophie du Droit 17.
80
Gaillard, Legal Theory (n 70) 48.
81
Nakamoto (n 58) 1.
entirely on an evolutionist approach to dispute resolution: similarly to the
society of merchants developing the contents of lex mercatoria, Bitcoin users are
a social group pushing towards self-regulation and implementing stateless
mechanisms of adjudication which transcend the constraints of financial
institutions and the contents and boundaries of national regulation.82 Bitcoin
adjudication is thus the result of a metaphorical ‘survival of the fittest’: the
Bitcoin environment has triggered a process of natural evolution, leading to a
form of arbitration which does not rely on state law in any way, but cannot be
entirely encompassed within the current transnational description either.

Historical analysis can shed further light on the reasons why Bitcoin
adjudication constitutes an expression of legal Darwinism and cannot entirely
be accommodated within the narrative of cooperative and non-competitive
coexistence with state justice. The diffusion of merchant fairs in medieval
Europe is commonly referred to as one of the factors encouraging the use of
commercial arbitration.83 Unlike local markets, these fairs attracted interna-
tional merchants from different parts of Europe. The reality of medieval
merchant fairs can, to a certain extent, be compared with the Bitcoin system:
an international forum for commercial relations, where merchants with
different legal and cultural backgrounds enter into contractual agreements
without directly knowing—let alone trusting—each other. In medieval Europe,
the permit to host a merchant fair was typically complemented with the power
to administer justice within the fair itself: given the wide diversity of cultural
and legal backgrounds of the merchants participating to the fair, a special form
of jurisdiction was established where the fair took place, so as to ensure that
disputes were resolved without resorting to the local system of justice.84
Similarly, the emergence of Bitcoin adjudication is closely linked to the
inadequacy of state justice to resolve disputes between Bitcoin users: in both
cases, merchants reject state justice and feel the need for an alternative device
of dispute resolution.85 In the context of Bitcoin, the aforementioned
inadequacy is particularly evident, as the lack of trust between users and the
82
Although the contemporary transnational narrative of international arbitration denies any conflict between
the arbitral legal order and national systems, one of the historical reasons for the diffusion of arbitration is the
disfavour of litigants towards state justice and state laws. Such disfavour is likely to be stronger in times of
political uncertainty, where both the existence of effective jurisdictional powers and the legitimacy of substantive
law are questioned: by way of example, according to PS Leicht, Storia del diritto italiano. Le fonti (3rd edn, Giuffrè
1947) 173 and A Pertile, Storia del diritto italiano, vol 6 (Utet 1903) 176, the fall of the Roman Empire was one
of the factors triggering the popularity of arbitration.
83
F Marrella and A Mozzato, Alle origini dell’arbitrato commerciale internazionale—L’arbitrato a Venezia tra
mediovo ed età moderna (CEDAM 2001) 13–14, with reference to J-F Poudret, ‘Deux aspects de l’arbitrage dans
les pays romands au Moyen Age: l’arbitrabilité et le juge arbitre’ (1999) Rev Arb 3; Y Jeanclos, ‘La pratique de
l’arbitrage du XII e au XV e siècle—éléments d’analyse’ (1999) Rev Arb 417.
84
ME Basile, JF Bestor, DR Coquillette and C Donahue, Lex Mercatoria & Legal Pluralism: A Late Thirteenth-
Century Treatise & Its Afterlife (The Ames Foundation, Hein 1998); R David, L’arbitrage dans le commerce
international (Economica 1982) 21.
85
For a comparison between medieval lex mercatoria and e-commerce in general see LE Trakman, ‘From the
Medieval Law Merchant to e-Merchant Law’ (2003) 53 U Toronto LJ 265, 284–93.
high level of privacy make it often structurally impossible for state courts to
perform adjudicative functions.
The characteristics of Bitcoin have led the systems of dispute resolution
implemented therein to develop the ability to enforce the outcome of
procedures autonomously. The existence of ‘enforcement jurisdiction’, ie the
power to enforce its own norms, is rightly considered a fundamental indicator
of the existence of an autonomous legal order.86 From this point of view, the
nature of Bitcoin adjudication is not comparable to international arbitration,
even in its transnational representation. Hence, Bitcoin adjudication must be

regarded as an original and distinctive system of dispute resolution, whose
characteristics can be used to theorise new models of self-enforcement.
Before drawing lessons from the Bitcoin system, one last preliminary
objection must be addressed. It could, in principle, be argued that, although
Bitcoin escrow and Bitcoin adjudication are interesting models of self-enforcing
ODR, similar services are offered by many e-commerce and electronic payment
platforms, such as eBay and PayPal. In light of the above analysis of the Bitcoin
system, five arguments can be put forth in order to differentiate Bitcoin from
other platforms and demonstrate that Bitcoin ODR constitutes a unique case
study, which can provide new and original paradigms of self-enforcement.
— First, the Bitcoin system allows the conclusion of transactions whilst
preserving a high level of privacy: the circumstance that the identity of the
two contracting parties may not be disclosed entails that, in a large number
of cases, it is structurally impossible for the parties to institute state court
proceedings. In other words, the rules of jurisdictions set forth in national
systems of civil procedure and private international law cannot operate if
the parties conclude a contract without revealing their identity.87 This is a
fundamental difference between Bitcoin ODR and any other consumer
ODR mechanism: in normal e-commerce transactions, such as the ones
taking place on eBay and/or through PayPal,88 the parties have the option
to commence court proceedings as an alternative to ODR schemes, or after
ODR proceedings have been conducted. Furthermore, even in the context
of ICANN, where self-enforcement is guaranteed through a very efficient
system of domain name allocation, the disputing parties retain the option
to relitigate the case before the competent state court.89
86
Schultz, Transnational Legality (n 79) 146–50; Schultz (n 47) 182.
87
In addition, a number of other problems arise, depending on the subject of the dispute and the specificities
of each national legal system: by way of example, the rules on service of documents and the identification of the
applicable law may be practically inapplicable to a Bitcoin transaction concluded with a high level of privacy
between the parties. From this point of view, the uniqueness of Bitcoin resonates with Lawrence Lessig’s idea that
the factors orienting the behaviour of the internet cannot be comprehensively assessed by focusing exclusively on
the law made by the state: see L Lessig, Code and Other Laws of Cyberspace (Basic Books 1999).
88
‘Resolution Center’ <http://resolutioncenter.ebay.com> accessed 3 July 2015; ‘Dispute Resolution Process’
<www.paypal.com/webapps/mpp/security/seller-dispute-resolution> accessed 3 July 2015.
89
UDRP, para 4k: ‘Availability of Court Proceedings. The mandatory administrative proceeding requirements
set forth in Paragraph 4 shall not prevent either you or the complainant from submitting the dispute to a court of
competent jurisdiction for independent resolution before such mandatory administrative proceeding is
commenced or after such proceeding is concluded’. For an analytical assessment of the relationship between
— Secondly, even if the parties to a transaction disclose their identity, the
unclear legal status of Bitcoin in many jurisdictions constitutes an
insurmountable hurdle to civil actions before state courts.90
— Thirdly, Bitcoin is a distinctively peer-to-peer system. Credit and debit
cards, PayPal and eBay, as well as ICANN, all rely on a central structure,
which is entrusted with the task of enforcing the outcome of the ODR
procedure privately. By contrast, Bitcoin is entirely decentralised and the
users themselves take the initiative to devise effective self-enforcing
mechanisms. Hence, the Bitcoin system provides for radically alternative
schemes of self-enforcement, which are not comparable to the other

mechanisms attached to e-commerce platforms or to ICANN.
— Fourthly, Bitcoin is an entirely trustless electronic cash system. By contrast,
the self-enforcement mechanisms typically used in e-commerce hinge on
the cooperation of a trusted third party: this feature is evident, for example,
in eBay91 and PayPal.92 For this reason, an analysis of the Bitcoin system
can suggest alternative and entirely autonomous strategies of self-enforce-
ment. In this context, it should be considered that ruling out the
cooperation of a third trusted party may prove to be an operational
necessity in the context of ODR: if payment service providers (such as Visa
and MasterCard) refuse to cooperate with ODR service providers, e-
commerce ODR self-enforcement schemes based on chargebacks will prove
practically unviable.
— - Fifthly, Bitcoin has not so far attracted the attention of scholars dealing
with civil justice and alternative dispute resolution. Hence, the methods of
resolution of disputes arising out of Bitcoin transactions constitute an
unprecedented case study, providing new inspiration for the development
of innovative self-enforcement devices.
6. Towards New Models of Self-enforcement

Section 6.A will present two models of self-enforcement which were discussed
in the context of the UNCITRAL Working Group III on Online Dispute
Resolution. Subsequently, Section 6.B will draw concrete lessons from the
Bitcoin system and propose two alternative models of self-enforcement.
such provision and the autonomy of ICANN ODR from state justice see J Zekoll, ‘Jurisdiction in Cyberspace’ in
G Handl, J Zekoll and P Zumbansen (eds), Beyond Territoriality (Nijhoff 2012) 341; J Zekoll, ‘Online Dispute
Resolution: Justice Without the State?’ (Max Planck Institue for European Legal History Research Paper Series,
2014) 2 <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2398976> accessed 30 June 2015.
90
For a recent overview of the problems revolving around the regulation of virtual currencies see A Loke,
‘Virtual Currency Regulation in Singapore’ (2015) JFR <http://jfr.oxfordjournals.org/content/early/2015/02/11/
jfr.fjv001> accessed 30 June 2015.
91
‘eBay Money Back Guarantee’ <http://pages.ebay.com/help/policies/money-back-guarantee.
html#reimbursement1> acccessed 3 July 2015.
92
‘Resolving Disputes, Claims, and Chargebacks’ <www.paypal.com/us/webapps/mpp/security/resolve-disputes>
accessed 3 July 2015: ‘we don’t initiate or handle chargebacks—the buyer’s credit card issuer does’.
In order to display the clear differences among these models, a checklist will
be provided for each of them. The checklist will summarise the differences by
clarifying:
— whether the model requires card payments;
— whether the model entails transaction costs;
— whether the model hinges on the cooperation with a trusted third party;
— if yes, whether the trusted third party is a payment service provider;
— whether the model may affect the credit score of merchants; and
— whether, in the context of a typical purchase transaction, the model entails

that the money will be transferred to the seller before the purchaser
receives the goods.
A. Models of Self-enforcement Compared

At its 27th session, the UNCITRAL Working Group III on Online Dispute
Resolution entrusted the Secretariat with the duty to provide a document
setting out an overview of existing private enforcement mechanisms.93 In the
document, the Secretariat describes both indirect enforcement mechanisms
(such as ratings and trustmarks) and direct enforcement instruments.94 In the
context of direct enforcement, chargebacks and escrow accounts are addressed.
(i) The chargeback-based model

The mechanism of chargebacks has already been described.95 Integrating
chargeback mechanisms into an ODR procedure requires some significant
adaptation,96 as chargebacks themselves are traditionally conceived as a
mechanism of dispute resolution, whereby the payment intermediary requests
information concerning the dispute and subsequently decides whether the
payment should be reversed. Were chargeback mechanisms to be coordinated
with the UNCITRAL procedural rules for online dispute resolution, the
payment intermediary would be relieved from its dispute resolution duty and
operate as a mere private enforcement service, reversing the payment whenever
the ODR service provider instructs it to do so.
The chargeback-based model of self-enforcement has some positive aspects:
it does not curtail the payment flows in any way and it relies on an already
existing mechanism, which should simply be adapted to the specific context of
ODR private enforcement. Conversely, however, the model also has some
93
A/CN.9/769, para 57.
94
A/CN.9/WG.III/WP.124.
95
Section 2.E above.
96
The adaptation of chargebacks to the context of self-enforcing ODR procedures should take into account
the contents of national legislation regulating chargebacks. However, this necessity should be seen as a possible
obstacle, not as the demonstration of the impossibility to employ chargebacks for the purposes of private
enforcement of the outcomes of ODR proceedings.
significant drawbacks: every time a chargeback is requested, the merchant is
required to pay a fee.97
The current chargeback fees are proportionate to the fact that the payment
intermediary also performs a dispute resolution function; were that function to
be performed by the ODR service provider, it may be possible to renegotiate
the fees in light of the circumstance that the payment intermediary operates
only as a private enforcement agent, not as a dispute resolution service
provider. However, the costs related to the chargeback system cannot be
entirely eliminated, as chargebacks are structurally based on two transfers of

funds: the first, from the buyer to the seller; the second, from the seller back to
the buyer. Hence, relying on chargebacks to enforce the outcomes of ODR
proceedings necessarily entails the payment of the costs associated with the two
transfers necessary to implement this model. Given the average low value of e-
commerce transactions, such costs could constitute a significant deterrent
against the use of self-enforcing ODR mechanisms.
Another significant drawback of the chargeback-based model lies in the fact
that chargebacks affect the trader’s credit score: since chargebacks consist in
reversals of credit-card-based payments, they have a negative impact on the
perceived reliability of the merchant vis-à-vis the payment intermediaries. As a
result, the more ODR cases are enforced by way of chargeback, the higher the
fees the merchant will be required to pay per transaction.
To summarise, the distinctive features of the chargeback-based model are as
follows:
— it requires card payments;
— it entails transaction costs, arising out of the reversal of the payment;
— it hinges on the cooperation with a trusted third party;
— said third party is a payment service provider;
— it can affect the credit score of merchants; and
— in the context of a typical purchase transaction, it entails that the money
will be transferred to the seller before the purchaser receives the goods.
(ii) The escrow-based model

As a possible alternative to the chargeback-based model, the UNCITRAL
Secretariat proposes the use of escrow accounts. Similarly to the aforemen-
tioned system of Bitcoin escrow, this mechanism relies on third-party accounts
where the money will be stored temporarily, before being transferred to the
merchant in the absence of disputes with the buyer. If a dispute arises, the
outcome of the ODR procedure will be enforced by transferring the money to
the appropriate party.
97
DE Sorkin, ‘Payment Methods for Consumer-to-Consumer Online Transactions’ (2001) 35 Akron L
Rev 1, 9.
Like the chargeback-based model, the escrow-based model requires two
different transfers of money to achieve the self-enforcement goal. One positive
aspect of this model is that it can be entirely operated by the ODR service
provider, without any particular cooperation with payment intermediaries: the
funds will be held on an account controlled by the ODR provider itself (or by a
third party escrow service provider) and transferred in accordance with the
outcome of the ODR procedure.
However, this model presents a number of significant drawbacks. First of all,
it requires two transfers, the costs of which will be borne by the parties. Hence,

like the chargeback-based model, it may not be a viable solution for low-value
e-commerce disputes. In addition, unlike the chargeback-based model, two
transfers are required in any case, even if no dispute arises: if the buyer receives
the goods or services and does not file a complaint, it will be necessary to
transfer the money from the escrow account to the merchant’s account, thus
multiplying the costs.
Other drawbacks include the fact that escrow constitutes an obstacle to
payment flows and that the escrow service itself may act fraudulently. This last
disadvantage could be mitigated, were the escrow account to be managed by an
accredited ODR service provider. In the case of the EU ODR platform, for
example, it could be provided that self-enforcing ODR procedures based on
escrow can only be offered by entities which have a direct control over the
escrow account (either directly or through a trusted third-party escrow service
provider) and offer an adequate financial guarantee.
In conclusion, even if it is possible to implement an escrow-based model of
self-enforcement, its features make it unlikely to become a widespread
mechanism to be attached to ODR procedures.
The distinctive features of the escrow-based model can be summarised as
follows:
— it does not require card payments;
— it entails transaction costs, arising out of the need to conclude two
transactions and to manage an escrow account;
— said third party is not a payment service provider;
— it does not affect the credit score of merchants; and
— in the context of a typical purchase transaction, it does not entail that the
money will be transferred to the seller before the purchaser receives the
goods.
B. Lessons from the Bitcoin System

The emergence of Bitcoin adjudication offers some interesting insights into
how self-enforcing ODR procedures may evolve in order to survive in the
environment of low-value e-commerce transactions. Bitcoin adjudication
attains the goal of self-enforcement by allowing the private adjudicator to
determine the final recipient of the disputed sum of money. Such mechanism is
significantly less complicated than the chargeback- and escrow-based models,
as it does not require the reversal of a transaction, nor does it rely on the
cooperation with a trusted escrow service. ODR procedures should take
Bitcoin adjudication as an example and implement simplified mechanisms of
self-enforcement, so as to limit unnecessary costs. Two possible models can be
envisaged as alternatives to the chargeback- and escrow-based models: the
stateless-currency-based model and the preauthorisation-based model.

(i) The stateless-currency-based model
A possible alternative to chargebacks and escrow is the use of Bitcoin or other
stateless currencies: were the transaction concluded in a stateless currency,
ODR service providers could attain the self-enforcement goal simply by setting
up multi-signature addresses. In other words, the model of Bitcoin adjudica-
tion, which has already proved successfully in the niche of Bitcoin users, could
be adopted by ‘mainstream’ ODR service providers, thus ensuring the self-
enforcement of outcomes without incurring any additional cost. By adopting
this model, ODR providers could combine the advantages offered by stateless
currencies with the necessary guarantees of due process and legal certainty,
which are currently lacking in Bitcoin adjudication. By way of example, an
accredited ODR service provider operating on the EU ODR platform could
offer to set up a multi-signature address and to distribute the keys to it to the
parties of an e-commerce transaction.
This model has one main drawback: it requires that the transaction be
concluded in a stateless currency. As such, its viability depends largely on the
prospects of diffusion of electronic cash systems. However, this is not enough
ground to exclude the practical relevance of this model: in addition to the
many stateless currencies currently existing, new types of electronic cash
systems may emerge in the future. Social networks, for example, may introduce
ad hoc virtual currencies which enable users to purchase electronic items
within the platform, as already attempted by Facebook.98 It is thus entirely
plausible that, for transactions concluded in virtual currencies, the outcome of
ODR procedures will be enforced privately according to the model of Bitcoin
adjudication.
98
J Brito, H Shadad and A Castillo, ‘Bitcoin Financial Regulation: Securities, Derivatives, Prediction
Markets, and Gambling (2014) 16 Colum Sci & Tech L Rev 144, 148; S Sposito, ‘Facebook Fast-Tracks Its
Payments Business’ (American Banker, 21 February 2012) <www.americanbanker.com/issues/177_35/facebook-
credits-money-transmitter-license-bank-regulation-1046825-1.html> accessed 3 July 2015; M Helft, ‘Facebook
Hopes Credits Make Dollars’ New York Times (New York, 23 September 2010) B1; LHM Holland, ‘Making Real
Money in Virtual Worlds’ (Forbes Magazine, 7 August 2006) <www.forbes.com/2006/08/07/virtual-world-jobs_
cx_de_0807virtualjobs.html> accessed 3 July 2015; S Reiss, ‘Virtual Economics—A Q&A with Philip Rosedale,
Founder and CEO of Linden Lab, a Virtual Market-Driven Community’ (MIT Technology Review, 1 December
2005) <www.technologyreview.com/art/404979/virtual-economics> accessed 3 July 2015.
In conclusion, even if the prospects for expansion of the stateless-currency-
based model are currently difficult to evaluate, such model has one feature
which could constitute a significant comparative advantage: it allows the ODR
service provider to enforce the outcome of the procedure autonomously and
without incurring any operational cost, which would unavoidably affect the
parties.
The stateless-currency-based model can be differentiated from the other self-
enforcement models in light of the following features:
— it does not require card payments;

— it does not entail transaction costs;
— it does not hinge on the cooperation with a trusted third party;
goods.
(ii) The preauthorisation-based model

Bitcoin adjudication could be used as a source of inspiration to implement a
model which resembles the multi-signature address method but relies on trust-
based payment intermediaries, rather than requiring the use of a stateless
currency. Such model would enable ODR service providers to enforce the
outcome of procedures by determining the final recipient of the sum of money,
rather than reversing a concluded transaction (as in the chargeback-based
model) or storing the funds in a third-party account (as in the escrow-based
model).
This model relies on credit card preauthorisations. A preauthorisation is
similar to a normal charge to a credit card, with one important difference:
instead of being immediately transferred from the buyer to the merchant, the
money is temporarily ‘frozen’. In other words, the merchant will not
immediately receive the funds, but the cardholder will no longer be able to
dispose of them. The merchant can then operate a ‘settlement’, ie require the
payment intermediary to finalise the transaction.
The preauthorisation mechanism can be adapted after the model of Bitcoin
adjudication, in order to be integrated into ODR procedures as a system of
self-enforcement. In the first phase of the transaction, the merchant will be able
to operate a preauthorisation, but not a settlement; in other words, it will be
possible to ‘freeze’ the buyer’s funds, but not to transfer them to the
merchant’s account. From the moment of the preauthorisation, the buyer will
have the option to commence an ODR procedure within a designated time
limit. If such time limit expires without any complaint being filed, the
merchant will then have the option to operate the settlement and receive the
money. In contrast, if an ODR procedure is commenced, the option to operate
the settlement will fall to the ODR service provider. This way, the service
provider will be able to self-enforce the outcome of the procedure by
controlling the final destination of the payment—very much like it happens
in Bitcoin adjudication based on multi-signature addresses. Self-enforcement
will be attained in different ways, depending on the outcome of the ODR
procedure: if the money must be transferred to the merchant, the ODR service
provider will operate the settlement. If, however, the money must go back to
the buyer, the ODR service provider will not operate any settlement and the
preauthorisation hold will automatically be terminated after a designated time

limit.
In order to adapt the preauthorisation scheme to the necessities of ODR
enforcement, it is necessary to set two subsequent time limits. The buyer will
only be allowed to start the ODR proceedings within the first time limit: if no
complaints are filed upon expiry of this time limit, it will be assumed that the
transaction has been successful. As a result, the merchant will be allowed to
operate the settlement. If an ODR procedure is commenced, a second period
of time will begin. Upon expiry of this second time limit, the preauthorisation
hold will end if no settlement has been operated by the ODR service provider.
In order to ensure the efficiency of the system, the second time limit will need
to be longer than the maximum duration of the ODR procedure. This aspect,
however, does not seem to be particularly problematic, as the rules to be
followed by the ODR service provider (for example, the UNCITRAL ODR
procedural rules) will determine the duration of the procedure, which will then
be foreseeable. In addition, for ODR procedures conducted within the
framework of the ODR Regulation, the ADR entity has the duty to conclude
the procedure within the deadline referred to in point (e) of article 8 of the
ADR Directive (90 days).99
The main advantage of the preauthorisation-based model is that it attains the
goal of self-enforcement without requiring two transfers of money and, as such,
is more cost-efficient than the chargeback- and escrow-based models. The use
of one transaction instead of two allows one to save on the fees charged by the
payment intermediary: the discount-rate fee (based on a percentage of the
value of the transaction) will be charged only if and when the settlement is
operated.
An additional advantage of this mechanism of self-enforcement is that it does
not affect the credit score of the merchant, and thus has no consequence on
the average cost of transactions. Furthermore, unlike the stateless-currency-
based model, it can work with any currency and it does not require the use of
electronic cash systems.
One possible criticism against this model is that it hinders payment flows: the
merchant does not receive the money upon completion of the e-commerce
99
Regulation 524/2013, art 10(a).
transaction, but only at settlement. However, such argument must be rejected
for three reasons. First, although the merchant does not receive the payment
immediately, the buyer is effectively prevented from disposing of the ‘frozen’
funds: the system therefore does not constitute an obstacle to swift payments,
but rather ensures that the money will be transferred by keeping it on hold for
a limited period of time.
Secondly, the delay between the preauthorisation and the settlement will
typically be short. As to the first time limit, this should cover the period
between the preauthorisation and the expiry of the option to commence an

ODR procedure. Such period need not be long, irrespective of whether the
goods or services to which the e-commerce transaction refers are electronic or
physical. If the goods or services are electronic in nature (eg a software
licence), the buyer will immediately be able to determine whether the merchant
has complied with its contractual obligations and subsequently decide whether
to commence the ODR procedure. Transactions concerning physical goods or
services require a longer, though also not extensive, period of time: postal
shipments are increasingly effective, even in cross-border scenarios. By way of
example, the international bookseller Amazon offers a service of shipment
which guarantees delivery within one day in the UK and two days in the US,100
and it is reasonable to foresee that the further expansion of e-commerce will be
complemented by even more efficient and faster systems of shipment. Hence,
the time limit within which the buyer is given the opportunity to start the ODR
procedure need not be long. In addition, the future accessibility of high-quality
3D printing technology may allow buyers to create physical items based on
electronically purchased models. In this case, the use of technology may
eliminate the difference between electronic and physical goods, thus nullifying
the delay between the completion of the e-commerce transaction and the
receipt of the purchased item.101
Thirdly, the preauthorisation-based model allows for the fairest allocation of
disadvantages between the parties to an e-commerce transaction. On the one
hand, the merchant has the certainty that the buyer’s money is kept on hold
and cannot be spent elsewhere; on the other hand, the buyer knows that the
money will only be transferred to the merchant’s account if the obligations
arising out of the e-commerce transaction are complied with. Therefore, the
preauthorisation-based model does not hinder payment flows, but rather
modulates them in a balanced way, so as to accommodate the conflicting
interests of the buyer and the merchant.
100
For a description of the Amazon Prime service see <www.amazon.co.
uk/gp/prime/pipeline/landing?ie=UTF8&*Version*=1&*entries*=0> accessed 3 July 2015 and <www.amazon.
com/Amazon-Prime-One-Year-Membership/dp/B00DBYBNEE> accessed 3 July 2015.
101
ST Cutting, ME Meitzen, BP Wagner, CW Backley, CL Crum and B Switzky, ‘Implications of 3D
Printing for the United States Postal Service’ in MA Crew and TJ Brennan, Postal and Delivery Innovation in the
Digital Economy (Springer 2015) 44.
In conclusion, the characterising features of the preauthorisation-based
model are the following:
— it requires card payments;
— it does not entail any additional transaction cost, as it never requires two
transfers of money;
— said third party is a payment service provider;

goods.
7. The Way Forward

A. Recommendations
The goal of self-enforcement of outcomes of ODR proceedings is currently
being pursued by UNCITRAL, ODR service providers and e-commerce
platforms. In order to attain this goal, this article offers some practical
recommendations to the UNCITRAL Working Group III, the European
Commission, e-commerce platforms and social networks, ODR service
providers and payment service providers.
(i) Recommendations to the UNCITRAL Working Group III

So far, the Working Group has taken into account models of self-enforcement
based on chargebacks and escrow accounts. The Working Group should first of
all enlarge the perspective of its analysis and consider alternative models, such
as the preauthorisation-based and stateless-currency-based models.
Subsequently, the Working Group should address the practical problems
relating to the feasibility of each model of self-enforcement. Models of self-
enforcement based on the cooperation with payment service providers could be
difficult to implement in practice: major credit card providers, in particular,
may prove unwilling to cooperate with ODR service providers. In order to
overcome this hurdle, the Working Group should take two subsequent
initiatives. First, it should devise practical protocols of self-enforcement.
Such protocols should address all technical issues revolving around the
practical implementation of the model from the point of view of both ODR and
payment service providers.102 Secondly, the Working Group should rely on
such protocols and enter into direct negotiations with payment service
102
The chargeback management guidelines issued by major payment service providers could be used as a
source of inspiration in this regard: see ‘Chargeback Management Guidelines for Visa Merchants’ (n 57);
‘MasterCard Chargeback Guide’ (n 57).
providers. The negotiations should aim at perfecting the protocols and ensuring
their practical feasibility. Once the Working Group and the major payment
service providers have reached an agreement, the protocols should be
incorporated as annexes to the UNCITRAL ODR procedural rules; ODR
service providers could then ensure the self-enforceability of outcomes by
simply adhering to them.
Entrusting UNCITRAL with the task of negotiating the practical operational
patterns of self-enforcement directly with payment service providers would be
beneficial from two points of view. First of all, payment service providers are

unlikely to enter into one-to-one negotiations with every ODR service provider
currently operating in the market, or planning to enter the market in the near
future. For this reason, it is important to streamline the practical operational
functioning of self-enforcement in a manageable fashion, devising standard
solutions which should be offered to every ODR service provider. Secondly, a
direct involvement of UNCITRAL could play a key role in overcoming
resistances to collaboration on the part of payment service providers; in
contrast, such resistances are likely to be significantly higher if the practical
implementation of self-enforcement models is left to one-to-one negotiations.
(ii) Recommendations to the European Commission

The EU ODR platform should integrate the proposed models of self-
enforcement in its functioning. To this end, when proposing ODR service
providers to the disputing parties, the platform should clearly state whether the
provider has implemented a scheme of self-enforcement.103
Raising user awareness is essential in order to ensure the success of ODR. To
this end, the EU ODR platform should also describe the functioning of the
available self-enforcement mechanisms. However, such description should not
be overly technical: in order to balance accurateness with accessibility, the
ODR portal should display flow charts and other standardised graphics,
providing a basic illustration of how self-enforcement works. Delivering the
relevant information in a user-friendly fashion, the EU platform would be able
to assist the parties who need to choose the most appropriate ODR service
provider.
In addition, user awareness could be enhanced through the creation of an
EU self-enforcing ODR trustmark, which electronic merchants would display
on their websites. The trustmark would certify not only that the merchant
adheres to an ODR scheme, but also that such scheme is effective because it
allows for the self-enforcement of outcomes. The creation of the trustmark
103
art 4(2) of the Commission Implementing Regulation 2015/1051 (n 2) provides that a search tool, offered
by the ODR platform, will ‘help the parties to identify the ADR entity competent to deal with their dispute
among the ADR entities registered with the ODR platform’. This search tool should clarify whether a self-
enforcement mechanism has been adopted by the listed entities. In addition, the parties should be able to refine
the results of their search, so as to exclude entities which cannot offer self-enforcement schemes.
would produce positive incentives for both consumers and merchants. On the
one hand, consumers would be encouraged to conclude e-commerce transac-
tions even in cross-border settings, because they would know that, should a
dispute arise, the ODR process would result in a self-enforcing outcome,
without the need to resort to the cost-inefficient enforcement procedures
provided for in national legal systems. On the other hand, merchants would be
encouraged to adhere to a self-enforcing ODR scheme, as this would enhance
their prospects of business growth.
Finally, escrow services operating in connection with an ODR service

provider should be regulated in greater detail at the European level. In the
context of the EU ODR platform, it could be provided that self-enforcing
ODR schemes based on escrow accounts can only be run by service providers
which directly control the escrow accounts and offer adequate financial
guarantees, in order to prevent fraud.104
(iii) Recommendations to e-commerce platforms and social networks

E-commerce platforms and social networks should explore the possibility of
allowing the use of stateless currencies for transactions concluded among their
users. Since the stateless-currency-based model is entirely self-sufficient and
allows the exclusion of transaction costs, it could prove to be particularly
suitable for transactions of low value. In addition, through the use of stateless
currencies, the goal of self-enforcement could be attained even in the absence
of any form of cooperation with payment intermediaries.
(iv) Recommendations to ODR service providers

ODR service providers play a fundamental role in terms of communication:
they are the ones directly presenting the advantages of ODR to the final users
of the services. For this reason, they should make a greater effort to raise
awareness as to the importance of self-enforcement.
As far as consumer awareness is concerned, the service providers should
illustrate the additional advantage of self-enforcing ODR schemes: not only the
out-of-court resolution of disputes, but also the private enforcement of
outcomes, even when the other party refuses to comply voluntarily.
As for merchant awareness, ODR service providers should describe the
positive correlation between the use of self-enforcing ODR mechanisms and
the attraction of new business opportunities. By way of example, service
providers accredited on the EU ODR platform could explain that, if merchants
submit to a self-enforcing scheme, they will be able to display the proposed EU
self-enforcing ODR trustmark on their website.
104
See Section 6.A(ii).
(v) Recommendations to payment service providers
Payment service providers should collaborate in the implementation of self-
enforcement models, rather than opposing it: the implementation of reliable
ODR systems would trigger a growth in e-commerce and, as a consequence, in
the use of payment services. The dialogue with ODR experts, such as the ones
in the UNCITRAL Working Group III, could lead to the implementation of
balanced self-enforcement models based on chargebacks or
preauthorisations.105

B. The Case for Regulatory Competition
Four possible models for the self-enforcement of the outcomes of ODR
procedures have been presented in this paper. Two of these models (the
chargeback-based and the escrow-based models) have been discussed by the
UNCITRAL Secretariat in the context of the drafting of the procedural rules
for ODR; this article proposes two alternative models (the stateless-currency-
based and preauthorisation-based models) which draw from the experience of
Bitcoin adjudication.
It is currently impossible to determine whether one model will prevail over
the others. However, one important aspect should be highlighted from the
outset: not all self-enforcement models have the same cost. In light of this,
there is clearly a value in competition among different regulatory models of
self-enforcement: service providers could (and should) present the users with
different options, thus leaving the ODR market free to determine which system
of self-enforcement is the most satisfactory.
The difference in cost is not the only reason why different models of self-
enforcement should be left free to compete in the ODR market. When
choosing the most appropriate procedure, ODR users may take into account
additional factors, such as the ease of use or the different effects on credit
scores. As a result, it is possible that different models of self-enforcement will
be used for different purposes, depending on the characteristics of the
transaction and the identities of the parties to it. By way of example:
— For transactions of particularly low value or taking place on specific
platforms (such as social networks), stateless currencies may be increasingly
used in the future in order to minimise transaction costs. In this scenario,
users are likely to prefer self-enforcing dispute resolution services based on
multi-signature addresses.
105
In contrarst, an attitude of mere resistance may result in the marginalisation of payment service providers
in the context of e-commerce: users wishing to attain the goal of self-enforcement may opt for models which do
not hinge on the cooperation of payment service providers, such as the escrow-based and stateless-currency-based
models.
— Users wishing to avoid card payments may prefer ODR services based on
escrow, as both chargebacks and preauthorisations require the use of a
card.
— Merchants wishing to protect their credit score may opt for the
preauthorisation-based model, in order to minimise the possibility of
chargebacks.
— Merchants wishing to maximise the speed of payment flows may opt for the
chargeback-based model, rather than relying on preauthorisations.
In conclusion, the competition among different models of self-enforcement

may reveal the purpose specificity of each of them, rather than determining the
prevalence of one of them over the others: the future evolution of e-commerce
may trigger a need for specialisation of ODR service providers, which could be
required to offer bespoke self-enforcement mechanisms based on the
peculiarities of the transaction. For this reason, it is important that different
mechanisms are implemented and presented to users.
8. Conclusions
Low-value electronic commerce transactions constitute a hostile environment
for the traditional model of alternative dispute resolution, where the enforce-
ment of the final outcome depends on the support of state courts and
enforcement authorities. Hence, only ODR systems including an in-built
enforcement mechanism can ensure the attainment of the goals of speed and
effectiveness specified in article 1 of the ADR Directive.
Although compliance with the outcome of an ODR procedure can often be
encouraged through external incentives (indirect self-enforcement), the imple-
mentation of mechanisms of direct self-enforcement is indispensable to
guarantee the success of ODR. In the context of the drafting of the
UNCITRAL ODR procedural rules, the UNCITRAL Secretariat has proposed
two models of direct self-enforcement: one of them relies on chargebacks and
the other requires the use of escrow accounts. Although these models offer
some interesting advantages, they are not the only possible mechanisms of self-
enforcement. The example of Bitcoin adjudication offers interesting insights
into how alternative models of self-enforcement can be devised.
Given the inadequacy of state justice to resolve disputes between Bitcoin
users, internal systems of alternative dispute resolution have been developed
within the Bitcoin system whereby the outcome is enforced without any form
of support from state courts and authorities. Rather than being a new variety of
arbitration, Bitcoin ODR constitutes a radically original and self-standing
species of dispute resolution, whose development is the consequence of a
process of legal Darwinism triggered by the characteristics of e-commerce
Bitcoin transactions.
Bitcoin adjudication can serve as an inspiration to devise two alternative
models of self-enforcement. A first possibility is the use of stateless currencies:
if e-commerce transactions are concluded via electronic cash systems or digital
currencies, the ODR service provider can ensure the self-enforcement of
decisions by controlling the flow of money, without relying on the cooperation
with third parties and thus avoiding additional costs. A second possibility is the
implementation of a preauthorisation-based model: by adapting the current
mechanism of credit card preauthorisations to the needs of ODR, the ODR
service provider could enforce the outcome of the procedure with one transfer

of money only, hence limiting operational costs.
In light of the above analysis, it can be concluded that further efforts should
be made to integrate self-enforcement mechanisms within ODR. The
UNCITRAL Working Group III, the European Commission, e-commerce
platforms, social networks, ODR service providers and payment service
providers could play a particularly important role in this respect.
Since different models of self-enforcement have different costs, there is
clearly a value in presenting ODR users with a choice among them. As a result
of the competition between different self-enforcement models, one of them
could prevail over the others and establish itself as the industry standard.
Alternatively, such competition could reveal the purpose specificity of each
model of self-enforcement: users may choose a different model, depending on
the specificities of the transaction to be concluded. In either case, the future
development of ODR would clearly benefit from the creation of a plurality of
mechanisms of direct self-enforcement.

Self-Enforcing Online Dispute Resolution: Lessons From Bitcoin

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Oxford Journal of Legal Studies Advance Access published December 8, 2015

Oxford Journal of Legal Studies, (2015), pp. 1–35

Self-Enforcing Online Dispute Resolution:

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Keywords: online dispute resolution, enforcement, Bitcoin, cryptocurrencies,

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2. The Need for Self-enforcement in Online Dispute Resolution

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(ii) The transnational perspective: UNCITRAL online dispute

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(iii) The national perspective: a comparative overview of attempts

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B. The Need for Self-enforcement as an Example of Legal Darwinism

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C. Self-enforcement of Decisions Concerning the Allocation of Resources

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E. Mechanisms of Direct Self-enforcement

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3. Overview of the Bitcoin System

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4. The Emergence of Bitcoin Adjudication

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5. Bitcoin as a Self-contained Legal System

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B. Legal Darwinism: Bitcoin as an Autonomous Legal System

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6. Towards New Models of Self-enforcement

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A. Models of Self-enforcement Compared

(i) The chargeback-based model

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(ii) The escrow-based model

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B. Lessons from the Bitcoin System

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(ii) The preauthorisation-based model

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7. The Way Forward

(i) Recommendations to the UNCITRAL Working Group III

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(ii) Recommendations to the European Commission

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(iii) Recommendations to e-commerce platforms and social networks

(iv) Recommendations to ODR service providers

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