When blockchain-backed smart contracts and Decentralized Autonomous Organizations (DAOs) reinvent the digital world of transactions and governance, they interfere with conventional legal modes of dispute resolution. This article discusses the potential of the new paradigm of automated, on-chain arbitration, as well as argues its limitations in the possibility of encoding justice as immutable code. It examines the inability of smart contracts to handle real-world uncertainties, the contribution of DAOs towards reinventing governance and how online arbitration systems such as Kleros and Aragon Court have developed. Although speed, transparency, and automation can be noted in these innovations, they have ethical, legal, and procedural issues. In the article, an argument is put forward in favor of the use of hybrid technologies in which the algorithms are a combination of optimal efficiency with human opinion and states that legal consideration is required and consequently ethical protection. Finally, it also ponders on the question of the future of justice as being between the statutory rigidity and the discretionary gavel.

KeyWords – Smart Contracts ,  Decentralized Autonomous Organizations (DAOs) , Blockchain, Justice

Introduction

A global economy that is becoming more and more digitized, the concept of contractual relations is developing not only at the paper stage or through digital signatures. Blockchain networks are also reshaping parties in the form of smart contracts that are pieces of code that automatically execute according to preprogrammed instructions. At the same time, the emergence of decentralized autonomous organizations (DAOs) is threatening conventional legal systems based on shifting governance under institutions to algorithmic agreement. .Online arbitration lives in an exciting new world where transactions have been automated and decentralized; at the crossroads between the code that regulates the activity and the justice that is to be served.

This paper or article looks into the advent of smart contract-based dispute resolution systems, the activities of DAOs, and the future of online arbitration in a future where justice was being codified as opposed to adjudication.

The Emergence of Smart Contracts: Rules of Robots Over re-Adjudication

The use of smart contracts on chains like Ethereum allows fast and secure transactions avoiding the need of any intermediary. The DeFi protocols, parametric insurance, real-estate tokenization, and NFT markets already use them as their power. However, their inflexible, two-valued thinking does not allow interpretation, fair exceptions or unexpected occurrences; this is an inappropriate solution to the chaotic situations in the world.

Legally they are in a gray area. Some (e.g. UK, Singapore) accept their validity but in most there is little direct guidance on how they are enforced, liabilities and or remedies. When a contract has been executed, its blockchain transfer is irreversible, and the processes of rescission and injunctions are pointless. Even damages are commonly impossible to recover when assets are lost on their ways into unidentifiable wallets or DEXs.

Jurisdictional uncertainty makes it more complicated: distributed ledgers are borderless, and a choice of governing law or of a suitable Automat badly needs proper jurisdiction. Old grounding such as lex loci contractus fail in this perilous ecology. Smart contracts will continue to challenge responsibility and degrade confidence in online transactions until internationally harmonised regulations can be fashioned.

In comes the DAOs: Governments Without Government

DAOs: decentralized organizations that are managed by code and community but not by other people or a board. The proposals that are put forward by the members are voted with the help of the blockchain-based tokens and this process allows the democratic control over decisions without any kind of centralized authority. There is now a multitude of DAOs in control of investment funding, DeFi protocols and social space.

But there are problems with DAOs on a legal scale. They do not have the legal personhood, which makes liability and litigation troublesome. There is opacity in the preparations of decisions, and internal mechanisms of dispute are either casual or not stated. In case of treasury abuse, manipulation of governance and malfunction of contracts, there is no traditional legal remedy available.

However, DAOs also have their opportunity. In them, built-in arbitration systems can be hosted to resolve disputes based on programmatically predetermined processes, by body-wide vote, or by ascertained juries–fast, cheap, and ecosystem-native justice.

Arbitration 2.0 The wise dispute resolution On-line On the Internet

The weakness of the conventional dispute resolution in respect to smart contracts and DAOs has fostered innovation. The online arbitration platforms are already working on the development of mechanisms specific to blockchain environments. Some of the initial forms of decentralized arbitration include protocols such as Kleros, Aragon Court and Jury.

Such platforms work as the following: when such a smart contract is drafted, a dispute settlement clause is provided stating that disputes should be referred to a certain online dispute resolution platform. In case of a conflict, evidence is provided online, and peers (who hold tokens to get into the electorate panel) volunteer to become a jury, voting in favor of making a fair decision through the mechanism of stakes. Judicial judgments can then be enforced by the smart contract itself, usually through conditional code which unlocks or locks funds.

There are various advantages that will be brought by this model:

• Speed: The delays are minimized with automation of procedures and asynchronous communication.
• Accessibility: No commute, no in person hearings just a laptop and the internet.
• Enforceability: The judgment or decisions levied are on-chain and do not require local courts.

Yet there are still challenges involved. The injustice can be caused by prejudice, hideousness, and possible manipulation of juror pool tokens. In addition, the ruling might not be enforceable beyond the blockchain, where there is no legally acknowledged status, therefore, the parties do not agree with the ruling.

What is the role of Lex Cryptographia: Law without the State?

Other legal theorists dream of the emergence of lex cryptographia, a decentralized legal order explained by code rather than states. What is envisaged in this vision is not law as a body of statutes, but rather a system of rules that are coded and automatically enforceable anywhere in the world. Making judgments stops being the business of judges and lawyers but rather intelligent thinking and agreement of the network.

However, this dream has dangers. Systems of law have been developed through the centuries in an attempt to achieve the balance of power and form of protection, as well as the guarantee of procedural fairness. Eliminating the human factor and action of justice, however, may get rid of prejudices but also of those things like compassion, equity, and the situation in which justice should be viewed.

In addition, there is no neutrality of code. It is composed by people, and it usually comes with certain untold biases and assumptions. Thus, one should review critically the notion that smart contracts or DAOs embody a just neutral order. The transition to rule of code must not be romanticized unless the consequences are counted.

Filling the Gap – Hybrid Arbitration/ Mediation Systems of Dispute Resolution

It is probably not in medicining courts that there will be a future but in blending automation with human judgment and creating a hybrid system. Smart contracts may incorporate fallback provision that freezes execution in times of dispute and sends resolution to online arbitration facilities. Artificial intelligence may help in sorting evidence, blockchain to verify transactions and human arbiters to make sense out of complicated facts.

Legal backing of such models is dawning. The Law Commission of UK promoting flexibility of the interpretative standards of smart contracts, the UNCITRAL and SIAC are at the stage of considering the usage of digital tools in the arbitration. In India, the Information Technology Act, 2000 and the Arbitration and Conciliation Act, 1996 already provide a basis of recognizing and enforcing blockchain-based dispute resolutions, especially on cases involving parties with a cross-border relationship- albeit with a few reforms needed.

Ethical and structural issues: control, access and design

With the increasing expansion of digital arbitration systems, there exists the cloud of ethical issues. Who is the system programmer? Who decides upon the rules? Assuming that the jurors in a blockchain arbitration are the token-holders, is justice defined by wealth? In case of the precondition of being digitally literate, does that mean the marginalized users are excluded?

Moreover, the online systems can duplicate the structural biases that they manage to avoid themselves, only under the cover of technology. The resolution of dispute should be people-oriented as opposed to profit oriented, particularly in consumer related disputes. Legitimacy must have transparency, the system design variety, and attractiveness.

A Digital Age New Jurisprudence

Smart contracts and DAOs are not merely technical changes, but rather the challenge to the very concept of the law. Is justice automated? Is consensus the alternative to adjudication? As arbitration evolves, the legal community will have to come up with a new body of jurisprudence- a one which has merged process justice with technology accuracy.

The engineers, ethicists, arbitrators, as well as the legal scholars need to work towards shaping the digital justice system, which is fair, resilient, and inclusive. Arbitration will not be constructed in only courtrooms or only on GitHub but it will be constructed at the intersections of the two.

Conclusion: Putting Trust in the Trustless Code: Putting Trustworthy Justice in Place

Human-to-algorithmic governance transformation is not inevitable and absolute. Although DAOs and smart contracts are projected as independent and robotic, justice is purely a human ideal. Online arbitration has to change, not to give up on code, but to make it work in a manner which is not all efficient and lacks empathy, automation and a lack of accountability.

We are in the middle of the code and the gavel, and the future of dispute resolution is not going to be determined by the technology we adopt, but the values we imbibe.

AUTHORS’ BIO:
Ishita Jain is the 2nd year law student, pursuing B.Com. LL.B(Hons.) from Jindal Global Law School, O.P. Jindal Global University, Sonipat, Haryana