1  Throughout international disputes, payment streams abound ranging from the remuneration of adjudicators to escrow services or ultimately transfers of awarded funds or assets. As digital assets gain traction globally, they may not just become the subject of disputes but might even fundamentally affect the procedural dynamics of cases whose subject is entirely unrelated to digital assets given that they may double-hat as means of payment as well as sources of data and evidence.

2  In the following the umbrella term ‘digital asset’ shall encompass ‘anything that exists in binary data which is self-contained, uniquely identifiable, and has a value or ability to use’ (Hamilton, 2021). Most prominently, this includes cryptocurrencies, such as bitcoin or ether, and other tokens, such as non-fungible tokens (‘NFT’s’).

3  The most interesting features for the purposes of international proceedings emerge when digital assets are used in ecosystems such as decentralized networks (eg on the Ethereum network) or when they are issued by sovereign actors (eg the Chinese e-CNY). In this regard, digital assets and connected ecosystems can enable efficiency gains as well as substantial power shifts affecting core aspects of international proceedings. Privately issued assets operating on decentralized networks, for instance, can diminish the influence of sovereign actors or international courts and tribunals. Conversely, sovereign actors tend to retain varying degrees of control over the assets they issue, which simultaneously bolsters their position in disputes while weakening the positions of the tribunal and the sovereign’s opponents alike.

4  In the context of international adjudication, the control over digital assets can be levied in two main aspects. Firstly, troves of data can either be made accessible through digital assets or are natively created during their use. These can serve multiple purposes from identity verification to adjudicator selection. Secondly, and most crucially, changes in control over digital assets themselves warrant novel approaches to enforcement as courts and tribunals can no longer seize, freeze, or recover assets through traditional channels due to the lack of intermediaries or greater state control. This entry shall focus on the role of digital assets in international adjudication with a particular focus on information flows and enforcement against digital assets.

5  Another potential avenue for efficiency gains as well as power shifts is rooted in automation enabled by the payment networks themselves. Decentralized networks already allow for high degrees of automation of decision-making across the entire life-cycle of disputes including assistance tools combining artificial intelligence and international adjudication. So far, however, many of these efforts have been limited to online dispute resolution (ODR) or low value disputes between private parties.

6  Meanwhile, most international fora have been slow in adopting these tools. This dynamic appears to mimic how ‘changes in international law more generally require widespread consent and are usually slow and incremental’ and thereby serve as an ‘extremely useful … instrument of stabilization’ (Krisch, 2005, 377). Nevertheless, digital assets are increasingly introduced into international proceedings without the need to change international law nor rules of procedure as parties and their counsel use them in connection with such disputes or submit them as evidence. Digital assets are also increasingly likely to become the subject of a dispute itself as sovereigns too are increasingly issuing digital assets, such as a central bank digital currencies (‘CBDC’) and setting up blockchain based networks to offer services to their citizens (European Commission, n.d-a; BSN Introductory White Paper, 2020).

7  The pinnacle of control over digital financial networks lies in the authority to grant the very permission to access them, which in turn relates to the issues of information control and enforcement that are the subject of this entry. Therefore the two diametrically opposed examples of permissionless private decentralized networks on the one hand, and their emerging—and likely permissioned—sovereign counterparts on the other hand, shall be contrasted where pertinent for the following analysis, to illustrate how their technological foundations enable very different (re-)distributions of power. Technological concepts shall be introduced whenever necessary and limited to a minimum for ease of reference.

8  The ideological context out of which many privately issued digital assets emerged is key to understanding the power struggle at the heart of the issues discussed below. The libertarian Austrian School of Economics had long advocated for a private ‘Denationalization of Money’ (see Hayeks book, originally published in 1976: Hayek, 2007). In addition to such a private marketplace for monetary systems, anarcho-capitalists further envisage a marketplace for dispute resolution, law enforcement, and even legal systems (Friedman, 2014, 110ff, 197ff, 215ff).

9  In the 1990s and early 2000s, a famous mailing list served as an email discussion forum for a group of technology enthusiasts that came to be known as ‘Cypherpunks’ adopted these ideas for the context of the emerging digital realm (Anderson, 2022, 1–11). In the words of a founding member, Cypherpunks envisaged that:

The combination of strong, unbreakable public key cryptography and virtual network communities in cyberspace will produce interesting and profound changes in the nature of economic and social systems. Crypto anarchy is the cyberspatial realization of anarcho-capitalism, transcending national boundaries and freeing individuals to make the economic arrangements they wish to make consensually (May, 1994).

10  This idea also included notions of privacy, which was seen as ‘the power to selectively reveal oneself to the world’—including during financial interactions (Hughes, 1993). Consequently, enforcement efforts of public entities, such as law enforcement agencies or courts, against decentralized networks are still commonly referred to as ‘censorship’ while networks that appear immune to interference from the outside are characterized as ‘censorship-resistant’ (see below sec C.3.(b) (ii)).

11  The founder of the infamous darknet market place ‘Silk Road’ (see also below sec C.2.(a)) told a reporter that cryptocurrencies were the key that empowered his business while ‘sector by sector the state is being cut out of the equation and power is being returned to the individual’ in what he described ‘as an epoch in the evolution of mankind’ (Greenberg, 2022, 70). He is currently serving a life sentence in prison (Ross Ulbricht, A/K/A ‘Dread Pirate Roberts’ Sentenced in Manhattan Federal Court to Life in Prison, 2015).

12  The anti-authoritarian ideology at the core of many early cryptocurrency projects and their users rested on the idea that (encrypted) digital interactions may be out of reach for traditional jurisdictions while 'code is law’ instead (see Mitchell, 1996, 111; Lessig, 2006, 5). The following entry will test this perception for the context of international disputes.

13  Digital assets and, in particular, cryptocurrencies are generally perceived to be opaque and often associated with illicit activities. However, in practice many blockchains provide much greater transparency than traditional channels of finance, which can be used to monitor funds. This is due to the fact that the most well-known cryptocurrencies, such as Bitcoin (‘BTC’) or Ethereum (‘ETH’), rely on the distributed storage of transaction data, and, as these are so-called ‘permissionless’ blockchains, anyone with the technical means to connect can read through immutable records of all transactions carried out since the very inception of the network (Miller, 2019, 193 and 199).

14  In the United States (‘US’) the fourth amendment protection against unreasonable searches was invoked by several criminal defendants but courts held that:

Indeed a number of homepages allow easy and unrestricted access to real time transaction data of many blockchains for everyone (see, eg blockchain.com website or etherscan.io website).

15  Thus, far from being a secret, the strong transparency in networks, such as Bitcoin, has been leveraged in different ways. Firstly, sophisticated crypto forensic analysis has grown into a very sizeable industry with a prominent firm valued at US$8.6 billion in 2022 (Reuters, 2022). These companies support legal investigations and compliance efforts of financial institutions but are anathema to the cypherpunk ideology of some early projects in the cryptosphere that were hoping for increased privacy rather than transparency (see, eg Chainalysis Reactor or Elliptic Investigator: Chainalysis website; Elliptic website; for a narrative introduction to crypto investigations see also Yaffe-Bellany, 2023; Greenberg, 2022). Secondly, bitcoin ‘ordinals’ emerged as a ‘scheme for assigning serial numbers to satoshis’, the subunit of bitcoins, to allow for trading of specific units based on the ‘numismatic value’ (Ordinal Theory Handbook, 2022; BIP: Ordinal Numbers, 2022). This practice, in turn, relies on tracing every single subunit within the network all the way back to the moment it was created during the mining process—the epitome of financial transparency.

16  Providers of blockchain forensic services essentially rely on the combination of pseudonymous publicity of the most widely used networks, such as Bitcoin or Ethereum, with the relative robustness of the employed techniques to achieve immutability of the recorded transaction data (for a discussion on the tension between immutability and enforcement see below sec C). This combination equally allows for possibilities and use cases in the context of international dispute resolution. For instance, non-fungible digital assets can be employed to vet potential adjudicators or verify time-stamped evidence on chain. Additionally, the potential for programmable assets opens up a number of new ways to harness the available information and streamline international procedures. Additionally, the power balance between parties can also be strongly affected by information asymmetries—particularly in disputes between private individuals or entities and states, such as international investment disputes. Therefore, a distinction shall be made between networks operated and controlled by sovereign actors and those relying on private or decentralized control whenever appropriate.

17  Furthermore, several state actors have begun to set up networks employing blockchain technology either to offer services to their citizens directly or to allow third parties to build upon them. The European Union (‘EU’) is developing the European Blockchain Services Infrastructure (‘EBSI’) (European Commission, n.d.-a), for instance, and China set up its Blockchain-based Service Network (‘BSN’) through a consortium of companies including a government agency (BSN Introductory White Paper, 2020, 15; Blockchain-Based Service Network (BSN) website). Similarly, the LBChain by the Bank of Lithuania equally aims to serve as a regulatory backbone for fintech entrepreneurs (Bank of Lithuania website; Ornig, 2023, 12). In the future, sovereign actors or international organizations may choose to complement their platforms with sovereign oracles—their own authoritative data feeds that could bring otherwise unavailable information onto these platforms (Ornig, 2023, 11; see also below sec C.1.(c)).

18  Unlike their private counterparts, public networks tend to retain a significant degree of control in the hands of the issuing entities. The BSN, for instance, is structured as a consortium blockchain so as to allow for joint control and oversight by its constituent companies (BSN Introductory White Paper, 2020, 2–3).

19  Despite many efforts to the contrary, the verification of identities remains a central issue during digital interactions. Digital identities and digital assets are intrinsically linked. The connection runs so deep that esoteric language is often deployed to describe it. The general manager of the Bank for International Settlements (BIS) believes that ‘the soul of money is trust’—particularly in the digital realm (Carstens, 2022). In a similar vein, founding members of the Ethereum network proposed the concept of so-called ‘soulbound tokens’ (‘SBT’) (Weyl and others, 2022). SBT’s go beyond non-fungibility of NFT’s and would be ‘non-transferrable (initially public) … tokens’ linked to a person ‘representing commitments, credentials, and affiliations’ (Weyl and others, 2022, 1).

20  The most basic scenario of identity verification relates to the proof of control or ownership of digital assets. As discussed above, many digital asset markets emerged out of communities with strong anti-authoritarian convictions and were therefore often consciously designed so as to not reveal more identifiable information than absolutely necessary. This is often limited to the wallet address. For instance, several courts heard claims over the identity of ‘Satoshi Nakamoto’, the pseudonym under which the original Bitcoin whitepaper was published, which could have been proven by demonstrating control over the wallet holding the first bitcoins ever mined (Milmo, 2022; Nakamoto, 2008).

21  Increasingly, the most common connections between the traditional financial system, so-called ‘on- and off-ramps’, provide ever more transparency of digital asset ownership for law enforcement through anti-money laundering (‘AML’) and so-called ‘know your customer’ (‘KYC’) regulations. Accounts for CBDC are equally expected to be tied to the identity of their owners for the same reasons (Kaminska, 2021).

22  A more advanced scenario consists of identity tokens as a special kind of digital asset. The wealth of possible use cases far exceeds the verification of ownership or control of funds. Consequently, a booming market for digital, and often decentralized identities is emerging. Unlike digital identities that rely on accounts or third parties for verification, the term ‘self-sovereign identity’ (‘SSI’) has been widely established to describe decentralized digital identity solutions since they place the user at the centre of the verification process shifting power to the identified person (Reed and Preukschat, 2021, 10–13). One of the core building blocks for SSI is an address to establish a connection between the parties involved in identity verification, so-called Decentralized Identifiers (‘DIDs’). The World Wide Web Consortium (‘W3C’), for instance, is developing a standard for DIDs, which are ‘designed so that they may be decoupled from centralized registries, identity providers, and certificate authorities’ (Sporny and others, 2022).

23  When striving for such a decoupling, original ways of identifying people have been employed. The Worldcoin project’s Privacy-Preserving Proof-of-Personhood Protocol (‘PPPoPP’), for instance, derives identifiers from a human being’s retina scan (Bloemen and Sippl, 2022). It has distributed cryptocurrency to a notable number of participants after they had their retinas scanned (Kruppa, 2021).

24  The ability of individuals or entities to exercise greater control over identity verification processes is not limited to themselves and their personal credentials, but also allows to issue DIDs for Internet of Things (‘IoT’) devices (Lage and others, 2021). As IoT devices become more prevalent in ever more proceedings, the distributed control residing with their owners or operators is likely to affect the discovery and evidence gathering.

25  So far, public entities have tended to rely on traditional centralized means for digital IDs that rely on mutual recognition. To this end, the European eIDAS (electronic IDentification, Authentication and trust Services) regulation provides a federated EU-wide recognition system of digital identity solutions of individual EU member states as well as trust services, such as time stamps (Regulation (EU) No 910/2014 of the European Parliament and of the Council on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC, 2014; eIDAS website). However, the European Commission is studying ways to combine or integrate distributed ledger technology into the eIDAS framework (Alamillo Domingo, 2020; Alamillo Domingo, 2021). Even outside the scope of institutional adoption of an SSI, the combination of a trust framework, such as eIDAS, and blockchains can increase procedural efficiency—for instance when public trusted time stamps are brought on-chain or data residing on-chain is verified and time stamped off-chain (Sorge and Leicht, 2022).

26  Building upon tamper proof digital identities and transaction history, several administrative aspects of international proceedings can benefit from digitalization. Most notably, this could affect challenges of arbitrators or judges but also counsel selection. The increasing availability of data on past proceedings is already being used extensively for analysis and prediction of procedural outcomes. When combined with data from other sources a very comprehensive picture could emerge as the basis for informed arbitrator selection. Data points could range from education to publications or business connections. Many institutions are already exploring similar options very actively. For instance, an international consortium of well-known universities, including the Massachusetts Institute of Technology and Harvard University, is developing digital academic credentials (Chartrand and others, 2022). Similarly, the EU is piloting digital academic credential and licence exchanges on its EBSI platform (European Commission, n.d.-b).

27  The granularity of digital credentials and verified experience could be unprecedently high. In the context of higher education for instance, it could go far beyond simply verifying a degree and would be limited only by the data collected at the relevant institution. Credentials could cover, eg all the courses an adjudicator candidate had taken to earn any given degree, include the subjects covered in those particular courses during a specific term or even include connections to classmates that in turn could also be broken down to individual sessions of every course or even proximity between them on a seating chart. Many digital asset related events already issue digital attendance certificates, for instance in the form of the NFT based Proof of Attendance Protocol (‘POAP’), which allows the distribution of tokens containing information about the event to participants (POAP website; What is POAP?, 2022).

28  Naturally, privacy concerns abound whenever such vast amounts of personal data are collected and processed. However, technical solutions exist to mitigate the distribution or disclosure of personal data while nevertheless enabling conflict checks. Particularly for the context of conflicts of interest, it may only be necessary to compare data sets on a machine level without disclosing any of it to a human operator—eg through zero-knowledge proofs (a technique to prove knowledge without disclosing it to the other party, see Ciesla, 2020, 271–72). If data is held in a self-sovereign way, this can also enhance data security. The larger the database the more attractive it becomes as a target—particularly if relevant to high profile proceedings and containing swathes of personal information. However, self-sovereign data structures rule out any single large scale data breach because individuals would have to be targeted one by one.

29  Dedicated databases for international arbitrators date back at least 30 years (Mistelis and Smit, 2019), and have grown into sophisticated searchable platforms, such as Arbitrator Intelligence (Arbitrator Intelligence website). Thereafter, professional social media platforms, such as LinkedIn, emerged and, more recently, also specialized networks for the arbitration community, such as Arbi City (Arbitration City website). Such databases have been ascribed very diverse roles including those of ‘archivists, gatekeepers, liaison offices and/or guerrilla tools’ and play an essential role as ‘unseen actors of the ISDS Investor State Dispute Settlement system’ as ‘they compete and cooperate in shaping its reality’ (Ortolani, 2019a, 589–90). The online footprint of (prospective) arbitrators can also be scrutinized for conflict checks and challenges through ‘social media mining’ to detect connections and relationships or analyse behaviour patterns (Bassiri, 2018; Sanubari, 2017; Zafarani and others, 2014). Despite limitations due to inter alia data protection legislation, ‘failure to consider social media in a case may … result … in disciplinary proceedings or even in a malpractice claim’ for counsel (Veit, 2018, 276).

30  Digital credentials can be used in a similar way and complement other information sources. Crucially, however, they can easily integrate into institutional frameworks or instil confidence from their own technological underpinnings. Professional credentials could be integrated into (government enabled) SSI’s, for instance, or immutable records of remuneration payments may be in the public domain since they could be available for scrutiny on a public blockchain to verify a candidate’s track record (Remuneration of International Adjudicators). Payment streams connected to ‘outside activities’ could also be taken into account throughout the relevant proceedings and possibly even for a period of time thereafter to catch remuneration for parallel activities. This would give international courts and tribunals a powerful tool to enforce adherence to guidelines or ethical standards for international arbitrators (Gibson, 2019, 534, 540–41).

31  Furthermore, institutional bias can equally be assessed on the basis of the described increase of transparency regarding remuneration and credentials of prospective adjudicators since secretariats regularly have the authority to screen requests for adjudication, select or appoint adjudicators (Claussen, 2019, 152–56). This way common ‘optimism biases’ in favour of one’s own impartiality or independence could be reduced in a privacy friendly way while taking into account the ‘multipositionality of actors’—so as to ultimately dispel the prevalent fog that at times envelops conflict checks (Ruiz Fabri, 2019, 307 and 310).

32  In disputes related to digital assets, the service of court documents often poses very similar, yet mirrored issues to identity verification. In this context, the destination wallet, for instance, into which illicitly obtained funds have been funnelled may have been identified, but its owner often has not. This issue is exacerbated if the actor(s) that need to be served acted through an organization, such as a decentralized autonomous organization (‘DAO’).

33  Different courts have already tackled these issued by serving documents in unconventional ways. In the case of Commodity Futures Trading Commission v Ooki DAO, for instance, the Commodity Futures and Trading Commission, a regulatory agency in the US, filed a lawsuit against Ooki DAO, a decentralized autonomous organization accused of providing illegal financial services (Commodity Futures Trading Commission, 2022). Given the complexity in serving such an organization, a court in the US held that service through ‘Ooki DAO’s Help Chat Box, with contemporaneous notice by posting in the Ooki DAO’s Online Forum’ was sufficient (Commodity Futures Trading Commission v Ooki DAO, 2022; see also below sec C.3.(c) for DAO related enforcement issues).

34  Decentralized networks can also allow for documents to be delivered into the wallets of its users similar to the identity tokens discussed above; they do not carry market value since they are neither fungible nor transferable. In fact, document delivery may be achieved even if the underlying network was not designed for this use case. Following a cyber heist at the Liechtensteiner crypto exchange LCX AG, for instance, the identity of the hacker was unknown but the Ethereum wallet address into which the funds were transferred could be traced—it was: 0x29875bd49350ac3f2ca5ceeb1c1701708c795ff3 (LCX Hack Update, 2022). As a consequence, a New York court allowed service through the transfer, a so-called ‘airdrop’, of an NFT into this wallet (LCX AG v John Doe Nos 1-25, 2022). This NFT contained a hyperlink to a website containing all relevant court documents (the airdropped NFT can be found here: etherscan.io website, 2no.Co/LCXAGService #1. The link contained in the NFT led to the following page: Holland & Knight website). Similarly, an English court also allowed document service through an NFT airdrop following a scam involving digital assets (D’Aloia and Person Unknown & ors, 2022, paras 39–40).

35  Blockchain technology is already being deployed in many different industries to trace products as diverse as recycled cobalt, salmon, or beef steaks throughout production processes and supply chains (BeefChain website; Circulor website; Ledger Insights, 2020a; Ledger Insights, 2020b; Wood, 2020). As a natural extension, the same technology can be leveraged to monitor the progress of proceedings to increase accountability, transparency, and efficiency for all parties involved. Renowned institutions have also started to deploy blockchain-based case management for arbitral proceedings and mediation that extend to document management and communication channels (London Chamber of Arbitration and Mediation Launches, 2020; Initiative on International Arbitration, Mediation, and Blockchain-Based Transactions, 2020).

36  Critics rightly point out that digital case management platforms need not be based on blockchain technology and set-ups akin to the Bitcoin network would likely create bottlenecks when processing a large number of transactions (Chugh, 2018). Indeed, a wide range of digital assistance tools exists to enable ever greater automation of decision-making (Lauritsen, 2021, 70–72). Just like most of use cases for digital assets described here, centralized case management tools outperform (partially) decentralized ones in terms of efficiency when assessed on an individual basis—at times significantly. Once integrated into a wider ecosystem of digital identities, conflict checks, payments, and enforcement mechanisms, the tables can be turned though. Naturally, this particularly concerns features that cannot (easily) be replicated without digital assets at all.

37  One such use case could consist of combining digital assets as payment and real time accounting tools of all costs related to proceedings. Future initiatives could go beyond simple monitoring by gradually unlocking funds in accordance with procedural progress. In turn, this allows improving the timing of cost orders fees and expenses (Moloo and Kahloon, 2022, paras 36–39), or set up privacy preserving liquidity monitoring of the parties’ finances revolutionizing the dynamics of security for costs. The latter could be effected, for instance, through funds ensuring continued operation for a pre-determined timeframe through automated margin calls once the fund dips below a threshold. Arbitrators, whose work is being increasingly scrutinized, could also see drastic changes in their remuneration structure when procedural tokens automatically pay out fees in accordance with progress or efficiency markers during a dispute (Brauch, 2021, paras 13–22). Similarly, international courts and tribunals could use this type of platform to assess internal efficiency or their donors to track the use of earmarked funds.

38  Financing for traditional disputes has become part of the mainstream yet may, at times, materially alter the incentives of the parties involved. Moreover, the secondary market for obligations arising out of financed disputes has not yet fully matured. Tokenization of claim-based obligations are on the verge of disrupting the current market by introducing crowd-funded investment disputes and mass claims to enforce a ruling. The sophistication of funding arrangements may also impact procedural dynamics.

39  Several companies have already ventured to make use of this technology to offer tokenized investments into (international) disputes. Ryval, for instance, seeks to build ‘the stock market of litigation financing’ through a platform for transactions in ‘tokens that represent shares in a litigation’ so as to allow for ‘access to a multi-billion dollar investment class previously unavailable to the public’ (Chang and McCarthy, 2022; Ryval website). Even before founding Ryval, the law firm behind the company issued an Initial Litigation Offering (‘ILO’) related to a dispute before a district court in the US (Apothio LLC Claim Participation Agreement, 2021; Apothio LLC v Kern County and ors, 2020; Court Listener, Docket for Apothio LLC v Kern County, 2023; Frankel, 2021; Apothio Initial Litigation Offering, 2022).

40  Similar initiatives have emerged for international disputes (Third-Party Funding: Investment Arbitration). General European Strategic Investments Inc (‘GESI’) was planning to offer tokenized investment opportunities linked to a planned international investment arbitration (GESI Holdings website, Poloma Talc Member Network). Despite announcements that arbitral proceedings would be initiated in Q2 of 2022 (Charlotin, 2022), this seems not to have occurred and their GESI tokens were not moved according to the schedule announced in the Whitepaper either (etherscan.io.website, GESI Token Tracker; GESI Holdings website, Poloma Talc Member Network: Whitepaper 2.0).

41  More successfully, Liti Capital SA has issued its own layer-2 tokens on the Ethereum network to offer (counter-cyclical) investment opportunities in the funding of several arbitral and court proceedings, including the Hong Kong International Arbitration Centre (HKIAC) (Liti Capital SA, n.d.-b, n.d.-e, n.d.-a). It issued two tokens, the equity tokens, ‘LITI’, which represent shares in the Swiss public company and a connected, so-called ‘wrapped’ version thereof, the ‘wLITI’ tokens. LITI tokens are connected to voting rights and dividend payment entitlements from Liti Capital, SA, while wLITI tokens are not (Liti Capital SA, n.d.-c, n.d.-f sec. 4.2). Five thousand wLITI tokens represent the value of 1 LITI token and, contrary to LITI tokens, wLITI tokens can be traded freely on exchanges without requiring authentication of the owner, which makes them more liquid (Liti Capital SA, n.d.d, n.d-f sec. 4.3). Additionally, wLITI tokens can also be staked to earn interest (Liti Capital SA, 2021), and the two tokens can be exchanged freely on the company’s platform.

42  Liti Capital’s ‘LITI tokens are equity backed’ and therefore ‘grant access to voting rights’ on a company level in compliance with the financial market regulations in Switzerland, where it is incorporated (Liti Capital SA, n.d.-f sec. 5.1). Any disputes resulting out of disagreement on the use of company funds, would therefore not substantially differ from other shareholder disputes in substance. Procedurally, however, they would be similar to disputes arising from the governance of decentralized autonomous organizations, which also routinely administrate governance functions through tokens. Such meta-disputes therefore open up opportunities for providers of crowdsourced or decentralized dispute resolution mechanisms not otherwise active in this context, such as Aragon, Jur, or Kleros, since they could be natively integrated into the token ecosystem (Chaisse, 2022; Ornig, 2021, paras 45–49).

43  About two decades ago, a pre-eminent arbitration scholar contended, that ‘international arbitration is a sui juris or autonomous dispute resolution process’ for which ‘the relevance and influence of national arbitration laws and of national court supervision and revision is greatly reduced’ (Lew, 2006, 181). In very much the same way technology both introduced opportunities for autonomous dispute resolution on decentralized networks and greatly reduced the influence of traditional enforcement avenues over digital assets.

44  Consequently, enforcement is one of the areas that will see the most significant changes from financial digitization. Digital assets are no longer necessarily tied to a (single) physical location. Smart contract implementations (‘computer programs stored on the blockchain’ (Ethereum website, Introduction to Smart Contracts, 2023)) may be triggered by externally available data sources and invert default positions before traditional venues are called upon. Physical assets may have splintered ownership structures due to tokenization or may be used to back other assets. Traditional intermediaries, such as commercial banks, may no longer be in a position to give effect to court orders while the relevant institutions can benefit from a sovereignty defence.

45  In the following, different avenues for enforcement against digital assets shall be explored ranging from direct enforcement, such as asset seizures off the concerned individuals/entities controlling the assets to indirect enforcement, such as asset freezes through limitations on transaction processing.

46  The analysis of these avenues shall focus on tools that are typically at the disposal of law enforcement and targets thereof. An analysis of network level attack surfaces or software exploits may equally allow for enforcement against digital assets but is beyond the scope of this entry. Offensive hacks or exploits are also likely to be the subject of even faster change than the elaborations given below since the cryptographic arms race is entering a new phase as current encryption mechanisms may already be susceptible to attacks by quantum computers and central banks are working on ‘quantum-proofing’ their protocols (Waters, 2023; Bank for International Settlements website).

47  In terms of procedural cost efficiency, self-enforcing systems may well be the holy grail for international disputes where enforcement efforts would otherwise routinely require (additional) proceedings abroad and often entail parallel enforcement actions in multiple jurisdictions. Autonomous enforcement mechanisms can reap even greater benefits in the context of digital assets, whose features both enable greater autonomy of the respective ecosystem but also pose particular challenges as subjects of enforcement for traditional mechanisms.

48  The idea of automated enforcement mechanisms driven by financial payment networks predates the mainstream establishment of programmable digital assets or smart contracts. In 2013, for instance, the United Nations Commission on International Trade Law (UNCITRAL) considered modelling an enforcement mechanism for online disputes after chargeback systems used by credit card companies, but warned that it ‘may be limited in its utility given that they apply only to payments made by credit card’ (Online Dispute Resolution for Cross-Border Electronic Commerce Transactions: Overview of Private Enforcement Mechanisms, 2013, paras 35–39, 44). Similarly, self-enforcement mechanisms for digital assets are equally bound by the limits of their ecosystem. Notably, however, this ecosystem has grown to immense proportions. It far exceeds the scope of credit card payment networks and extends to a wide variety of goods and services. Consequently, this may be more appealing to parties since it supposes less constraints than the chargeback model for credit cards did.

49  The self-enforcement of rulings in international adjudication entails a drastic redistribution of power. Due to the radical increase in control over funds through programmability, adjudicators are given new options. Escrow solutions can be set up to release funds on their own as pre-defined by the adjudicators. Majorities of multi-arbitrator tribunals can be required to release funds on a technical level. Awards can be enforced even before a pending appeal has concluded as the pay-out itself may be programmed to revert should the appeal be successful.

50  The most straightforward type of self-enforcing awards is issued within the bounds of decentralized systems so that no gap between the dispute resolution mechanism and the subject in dispute needs to be bridged. This is most often the case for disputes arising within the ecosystem of a decentralized network, ie when relevant assets and the dispute resolution mechanism are all administered ‘on-chain’. Currently available blockchain-based dispute resolution services include, eg projects like Kleros or Aragon (Ornig, 2021, 41–49; Metzger 2019).

51  As elaborated above, international dispute resolution mechanisms have been slow in implementing greater automation of decision making. However, solutions for digital identity verification, payments, and third-party services are gradually integrated in sovereign digital networks. This may in turn pave the way for a new sovereign type of online dispute resolution with similar, or even more sophisticated features.

52  The original Bitcoin whitepaper ‘proposed a system for electronic transactions without relying on trust’ and envisaged that ‘routine escrow mechanisms could easily be implemented’ (Nakamoto, 2008, 1, 8). Indeed, few things illustrate the demand for transparency and trust more than escrow services, where payments are made to usually unknown third parties to increase the trust of parties and assure required solvency. Through several different avenues, however, the same result can be achieved for digital assets without the need to entrust a third party with any funds. This effectively replaces the trust in the (human or at least human-controlled) third party with trust in the technology enabling these solutions.

53  Between a quarter and a third of all bitcoin in circulation was held in so-called multi-signature (‘multisig’) wallets in recent years (The programmability enabling multisig addresses is implemented on the basis of so-called ‘pay-to-script’ addresses - as opposed to standard public key based ones: txstats.com website, Grafana: P2SH Statistics; Bitcoin Wiki website; see also Ortolani, 2019b, 435). Their functions are relatively simple yet allow several elegant implementations for digital asset disputes. Instead of one key, which is typically sufficient to assert control over funds associated with a wallet, several keys are required. This allows keeping funds locked in the escrow wallet until all required keyholders agree. Multisig wallets can also be designed so as not to require all keys. Instead, digital wallets can be set up so as to require a pre-defined quorum of keys to authorize transactions similar to quora required for decision making in adjudication processes.

54  If used for escrow purposes, a two out of three set up can be used with both parties and an adjudicator holding keys to the wallet. Unlike traditional decision-making processes, the keyholder majority with the power to release funds includes the parties. The parties can consequently settle without involving the adjudicator with the same tool that otherwise allows an adjudicator to grant one party access to the funds.

55  Keys perform a role akin to voting rights in this context. However, the individual voting shares need not be equal. Keyholders that shall exert greater influence can receive multiple keys. More sophisticated schemes can also be devised to allow specific groups of keyholders to control funds by themselves akin to ‘master keys’ that do not require any multi-signature quorum (Bitcoin Wiki website; Ornig, 2023, 10). This could be used, eg, to concede presiding adjudicators a tie-breaking vote.

56  As with ‘native’ decentralized dispute resolution mechanisms, this mechanism does not allow for enforcement against assets that are not yet locked in such a wallet. If one of the parties refuses to transfer assets into the multi-signature wallet, adjudicators would need to resort to other mechanisms first. However, multi-signature wallets can also be used as a best practice for digital asset transactions since they can be configured so as to not require the involvement of third parties during the usual course of business. The third party, or adjudicator, would then ‘remain dormant when the contract is performed by the parties without disagreements’ and only ‘step in to resolve the altercation’ once a dispute arises (Gurkov, 2017, 63).

57  A so-called hash time-locked contract (‘HTLC’) is defined as ‘a type of smart contract used in blockchain applications’ which ‘reduces counterparty risk by creating a time-based escrow that requires a cryptographic passphrase for unlocking’ (Frankenfield, 2022). These passphrase scripts can provide even more elegant escrow solutions by effectively combining a key with an expiry date (Antonopoulos and others, 2022, 201ff). In other words, should the transaction fail within the pre-determined time it would simply revert to the sender to avoid funds remaining locked up indefinitely (Antonopoulos and others, 2022, 209ff). Naturally, this feature depends on smart contract support by the network in question. Some networks, such as the second layer bitcoin network, Lightning Network, and the XRP Ledger explicitly highlight their support for HTLC’s (XRP Ledger website, Escrow).

58  The connection to data and events outside its respective ecosystem amounts to a key challenge for any enforcement mechanism. This issue is particularly pressing when it comes to automated enforcement, which aims precisely not to rely on human intermediaries (such as, eg, witnesses) that need to be trusted or may weigh on the overall speed and efficiency of the mechanism.

59  Instead of (human) witnesses, oracles, such as Chainlink or Augur, are the solution of choice for many decentralized networks (Chainlink website; Augur website). Oracles, at their core, simply are information providers that can feed a given ecosystem, such as, eg the Ethereum network, data observed and captured outside of it so the network can react to it (Ethereum website, Oracles, 2022; Hertig, 2020). Just like judicial proceedings often revolve around evidentiary matters, the way an oracle captures data and how the veracity of this data is verified may give rise to disputes of its own.

60  Oracles can be either centralized or decentralized, which boils down to largely the same considerations revolving around trust as centralized or decentralized digital assets do in general. Centralized oracles rely on ‘a single entity … for aggregating off-chain information and updating the oracle contract’s data as requested’ while decentralized oracles rely on ‘multiple participants in a peer-to-peer network that form consensus on off-chain data before sending it to a smart contract’ thereby ‘eliminating single points of failure’ (Ethereum website, Oracles, 2022).

61  In practice, decentralized networks are likely to avoid delegating control to centralized entities including oracles, even though centralized designs are typically more efficient, as this would defeat the purpose of setting up a decentralized network in the first place. Other users, however, may prefer centralized oracles. It is all but unthinkable that traditional venues of international adjudication could automate conditional awards even if issued off-chain, eg, paying out awarded sums, transferring control over a smart contract, etc upon fulfilment of a contingency stipulated in the award. These smart awards may then save further (human) interactions to prove and verify that the conditions have been met and give effect to the award without delay. Similar to Multi-signature Wallets, an organizing third party can also act as an oracle in determining the fulfilment of a condition that was added. In this case, centralized governmental or international oracles would likely be set up. As the mentioned CBDC projects mature across the globe, domestic and international disputes are increasingly likely to be settled through digital currencies, which could also be designed to incorporate interfaces for courts and tribunals to immediately give effect to their rulings.

62  Interactions between decentralized networks and events outside of them also carry the potential to affect procedural power balances before international adjudication procedures have even commenced. Self-enforcing smart contracts can lead to inverted starting positions when a transfer is triggered automatically—then the reversal of the transfer may become the subject of the claim instead of its performance in the first place. Financial consequences can be reasonably addressed through interest payments upon a final verdict. Depending on the specific procedural framework for a given dispute, however, the claimant may, for instance, be unable to satisfy the burden of proof it would not have needed as a respondent.

63  Banks can be instructed to release illicit funds and even cash can be physically seized. Most major networks, including Bitcoin and Ethereum, operate on the basis of publicly accessible ledgers, which often facilitate the tracing of funds. Their lack of (required) intermediary is a double-edged sword for enforcement purposes though. On the one hand, tracing of directly held funds does not require cooperation with (other) enforcement agencies or local courts nor the assistance of private entities. On the other hand, however, the control to transfer digital assets typically resides with its owner unless it has been delegated or transferred to a third party.

64  Consequently, locating digital assets may often be easier compared to other assets. Yet, stripping the owner of digital assets of his control over them or even limiting the owner’s ability to transact supposes particular challenges for any adjudicator. Meanwhile, a growing number of concerted large scale law enforcement operations across the globe are seizing digital assets from criminals in ways that would make many blockbuster movies green with envy (for a comprehensive account of prominent enforcement efforts see Greenberg, 2022). These will be used as examples throughout the following analysis to illustrate the use in practice.

65  Particularly for decentralized networks without intermediaries, individuals are the immediate—and often only—target for asset seizure and recovery. Similar to enforcement processes targeting physical items, digital assets or signs of their presence are often found during the search of physical premises (Furneaux, 2018, 120ff). Signs range from paper notes (described as ‘pocket litter’) to specific hardware devices storing digital wallets (Clegg, 2020; see also below sec C.2.(b)(iii)). These do not grant access to the funds, however, unless the related passphrases are also stored on an accessible medium. For instance, it is not uncommon to print out passphrases that allow restoring access to wallets even without the usual keys. Additionally, digital assets can be located or even retrieved through online searches and remote access tools (Furneaux, 2018, 125ff).

66  The structure of many digital assets can render enforcement efforts more difficult. Digital assets can be transferred globally with great ease like traditional financial assets and do not require an intermediary or specific device/location to be accessed like cash. While transactions for all major networks can only be carried out online, the control over digital wallets can be handed over offline, eg in the form of hardware wallets or even just through passphrases. It is therefore very hard to give effect even to an asset freeze and ensure that digital asset owners cannot transfer control to others—including when they are detained and barred access to any digital device.

67  For the same reasons, asset recovery can hinge on the asset owner’s willingness to cooperate. This is because user cooperation is the last resort if the assets are neither held through an intermediary nor the entire network can be brought under the control of the entity attempting to enforce. In practice, however, individuals often surrender the necessary information to control digital assets or the necessary information can be retrieved by enforcement agencies through different means. In a very large digital asset seizure, for instance, funds connected to the infamous darknet marketplace ‘Silk Road’ were recovered once the accused surrendered the necessary passwords (United States v Ulbricht, 2022, para 28). Another fortune related to the platform ‘BTC-e’ was obtained when an individual ‘typed out the private key that controlled’ it ‘character by character’ into a law enforcement agent’s computer (Greenberg 2022, 469). In another of the biggest digital asset seizures to date, the keys to seize the proceeds from the hack of the cryptocurrency exchange ‘Bitfinex’ were recovered ‘by decrypting a file saved to’ the accused’s ‘cloud storage account’ (Case 1:22-Mj-00022-RMM, 2022, para 6).

68  Typically, no intermediaries or custodians are required to hold, manage, or use digital assets residing on decentralized networks. Nevertheless, most retail investors currently hold digital assets in accounts of specialized financial intermediaries, such as crypto exchanges, because they lower technical entrance barriers and provide financial services such as easy avenues to convert cryptocurrencies into fiat money or vice versa. Additionally, so-called stablecoins (see below sec C.2.(b)(ii)) allow escaping the volatility of digital assets while preserving the accessibility within the wider ecosystem. Both crypto exchanges and stablecoins introduce strong elements of centralization relevant for enforcement efforts.

69  Within decentralized networks, (centralized) crypto exchanges (‘CEX’), such as Binance, Coinbase, or Kraken, are the most prominent elements of centralization (for a list of major centralized exchanges see: CoinGecko website, Top Crypto Exchanges Ranked by Trust Score) and, due to mounting regulatory oversight, increasingly also registered, licensed, or incorporated in at least one jurisdiction. Consequently, these service providers are often the first point of contact for regulators and law enforcement alike given their central position in the ecosystem. However, escrow services, trading, or investment platforms for digital assets can be much harder to target when it comes to regulatory efforts and enforcement as compared to traditional financial intermediaries. Even centralized exchanges can be hard to pin down. Notoriously, the biggest CEX by market capitalization, Binance, long refused to fully cooperate with regulators. A British regulator, for instance, concluded that due to Binance’s ‘complex structure and extensive geographical spread’ as well as its lack of engagement it was ‘not capable of being effectively supervised’ (First Supervisory Notice: Binance Markets Limited, 2021, paras 2.6, 5.3; Samson and others, 2021).

70  Additionally, decentralized applications running on networks like Ethereum allowed the creation of decentralized financial services (‘DeFi’) including decentralized exchange platforms (‘DEX’) where customers do not need to place trust in a single entity (for a list of major decentralized exchanges see: CoinGecko website, Top Decentralized Exchanges Ranked by Volume). The dynamics of enforcement efforts against a DEX or DeFi platform tend to resemble those described above for individuals. However, some DeFi services are no longer subject to human control including the individuals who set it up. Interestingly, CEX’s have helped in enforcement efforts against DeFi services as they have joined the ranks of the largest token holders for many networks (for further details on ‘autonomous’ DeFi services and the role of CEX’s in network wide enforcement see below sec C.3.(b)(ii)).

71  Stablecoins are tokens pegged to the price of traditional assets—most often traditional ‘fiat’ currencies, such as the US Dollar or the Euro (for an overview of definitions and taxonomies see Ferreira, 2021, 759ff). Several mechanisms have been employed to ensure the intended parity of exchange rate between a stablecoin and the fiat currency to which it is pegged. Most of these mechanisms entail the backing of assets, such as other digital assets, securities or cash, that can be sold off in operations similar to open market transactions of central banks to stabilize the price.

72  The market capitalization, and therefore also the collateral, of the most popular asset-backed stablecoins has grown to exceed the deposits of most banks in the US (Kharif, 2021; Tether held more than US$80 billion in reserves at the end of Q1 2023: Tether Holdings Limited: Independent Auditor’s Report on the Consolidated Reserves Report, 2023, 7). To hold these reserves, the issuers of stablecoins typically resort to classical financial service providers, such as banks. These service providers can also serve as a traditional centralized avenue for law enforcement themselves. Some stablecoin issuers even explicitly address the risk that a ‘bank could freeze or confiscate’ their assets as an ‘implementation weakness’ (Tether Whitepaper: Tether: Fiat Currencies on the Bitcoin Blockchain, 10–11).

73  Additionally, stablecoin issuers can often also enable indirect enforcement through the control they wield over smart contracts used to issue stablecoins (see below sec C.3.(a)(ii)), and their choice of network on which they make their tokens available (see below sec C.3.(a)(i)).

74  Even when users manage their own wallets—as opposed to intermediated ones on exchanges—security mechanisms may be available that allow one or more third parties to gain unrestricted access to the funds on it. For example, Ledger, one of the leading manufacturers of so-called ‘hardware wallets’—a specific physical device that stores the necessary information to access funds on a wallet—has introduced a service to recover funds from such wallets (Ledger Recover FAQs, 2023; Conlon, 2023). This recovery service is based on a distributed and encrypted backup of the keys to the wallets among three custodians (Ledger Recover FAQs, 2023; Conlon, 2023). Consequently, similar recovery processes create (data) custodians that can give immediate effect to any enforcement orders even when the funds were not under their control before the enforcement action. In effect, this resembles the dynamics of a multisig wallet (see above sec C.1.(b)(i)).

75  The particular dynamics of decentralized networks may provide another, different way to enforce asset freezes or even asset recovery that would be unthinkable in the traditional financial system. Enforcement may be possible on a network wide level depending on the way transactions are verified in a particular network or how it is maintained. This section shall give an overview of available avenues.

76  As architects of the infrastructure on which decentralized networks as well as related wallets and dapps (applications that are ‘built on top of open, decentralized, peer-to-peer infrastructure services’ (Antonopoulos and Wood, 2019, 28)) run, developers occupy a key position within the ecosystem. Additionally, developers are also very likely the smallest group of influential stakeholders in any network. For the Bitcoin network, for instance, the GitHub repository lists only approximately 900 contributors as of early 2023 (Bitcoin GitHub Repository website). The distinction between developers of the network itself and those of dapps and smart contracts running on these networks is crucial for the purposes of enforcement and will be illustrated in the following.

77  The role of network developers stands in marked contrast to centralized software development. Here the power to implement any change in the rules validating transactions is ‘diffused between multiple constituencies such as miners, core developers, wallet developers, exchanges, merchants, and end users’ (Antonopoulos, 2017, 266).

78  Nevertheless, there are precedents for protocol changes to force transactions within a decentralized network. After an incident that came to be known as ‘The DAO’, a change in the Ethereum network was implemented to reverse a transaction and return funds to their original owners following a severe attack on the Ethereum network (Antonopoulos and Wood, 2019, 542–46). The proposed change to reverse a transaction ultimately led the network to split into the community members that did and those that did not support the changes (History and Forks of Ethereum, 2022). Such a split of a previously single blockchain into two successors is referred to as a ‘fork’ (see also the history of forks in the Ethereum network: History and Forks of Ethereum; Antonopoulos and Wood, 2019, 31). Those who did not support this change representing ‘a sizable portion of the Ethereum community (roughly 10% by value and mining power) started supporting the non-forked chain, which came to be known as Ethereum Classic’, or ‘ETC’ (Antonopoulos and Wood, 2019, 543).

79  As the example of ‘The DAO’ illustrates, attempts to reverse or effect transactions through protocol changes may lead to competing networks. These networks are initially identical—except for the change giving rise to the split—and share the same history. Node operators and miners then need to decide which version of the protocol to run—in the context of Proof-of-Work networks. Most often, only one version prevails (see History and Forks of Ethereum). The future of either version hinges on its ability to attract mining power to increase its resilience against attacks and to attract value stored on the network to bolster its ecosystem.

80  One key factor for value retention on a specific network relates to the way stablecoins are designed (see below in the next subsection). When a fork splits a network, all balances are identical on both networks—again except for any modifications intended to be enforced through the protocol change. If a user held 100 ETH before ‘[t]he DAO’, he will continue to hold the same amount on the network running the modified protocol (ETH). In addition to that, however, he will also hold 100 ETC on the network running the original protocol because ETH and ETC share the same transaction history up until the fork. Naturally, this kind of duplication is not possible with asset-backed stablecoins as the amount of collateral is not affected by changes in code. Here, the stablecoin issuer’s decision, which version to support can be decisive as it may move a large portion of the stored value to one contender.

81  Therefore, the ultimate success of an enforcement effort through protocol change requires a concerted effort by developers to propose a protocol change as well as the adoption of this change by network participants—possibly nudged by stablecoin issuers. Only then will the network implementing the enforcement action (exclusively) prevail.

82  Exceptionally some networks, such as Polkadot, decided to pre-empt such a dilemma by rolling out automatic updates (Web3 Foundation, 2023). This avoids incompatible forks but is not currently supported by the largest networks.

83  When dapps or smart contracts running on decentralized networks are programmed, their developers initially are in (full) control over their code. The Ethereum network, for instance, is the most prominent as well as the most popular example of so-called Turing complete networks, meaning it allows for the processing of any computational issue (Dannen, 2017, 2, 50) This in turn allows for services to be provided on-chain.

84  For instance, in 2020, the infamous cryptocurrency mixing service Tornado Cash relinquished control when the developers changed the operator address to a dummy address—akin to the so-called ‘burning’ of digital assets sent to addresses under nobody’s control (Tornado Cash, 2020). This process effectively bars anyone from implementing any modifications yet allows continued operation of the smart contracts as long as the underlying network—in this case Ethereum—does so itself (Tornado Cash, 2020; see also below sec C.3.(b)(ii)). This renders enforcement efforts against a smart contract without operator particularly challenging because the implementation of an asset freeze, for instance, would require an interference with the entire network on which the smart contract is executed.

85  Stablecoins are frequently issued on the basis of smart contracts (eg using the token standard ERC-20) and made available on one or several blockchains. The issuers thereby retain a significant amount of control over these tokens. The largest stablecoin issuer by market capitalization, Tether, even offers a ‘token recovery service’ (Knowledge Base: Tether Tokens Recoveries website). The second largest stablecoin issuer, Centre, on the other hand:

Another stablecoin issuer, Paxos, explicitly states that they retain sufficient control over their stablecoins to give effect to orders imposing a ‘freeze, seizure, forfeiture or similar limitation’ and render them ‘wholly and permanently unrecoverable and unusable’ or even destroy them altogether (Paxos, Illegal Activity, 2023).

86  Decentralized networks typically rely on consensus algorithms to verify and process transactions. Contrary to the often assumed even distribution of processors, however, in practice the parties processing transactions are often highly concentrated—particularly for the most prominent networks with the biggest market capitalizations. The following analysis shall distinguish between the two most common types of these algorithms: Proof of Work and Proof of Stake (see a survey of algorithms used in practice: Ferdous and others, 2021). They differ in the way transactions are verified (and new tokens created). Proof of Work algorithms rely on ‘a resource-intensive computational task’ performed by so-called miners to secure the corresponding network while in Proof of Stake algorithms, so-called validators ‘must lock a certain amount of its currencies, called stake, into an escrow account in order to participate’ in the validation of transactions (Ferdous and others, 2021, 6 and 10).

87  For networks secured by Proof of Work consensus algorithms, this is often rooted in the economies of scale that can be realised for computing centres or, depending on the attribution of hashing power, because of mining pools. In fact, only 0.1 per cent of individual miners in the Bitcoin network control roughly half of the total mining capacity, which translated to less than 50 miners at the end of 2020 (Makarov and Schoar, 2021, 23).

88  Consequently, the absolute number of individuals or entities that would need to be subjected to enforcement action in order to give effect to an asset freeze is significantly smaller than one may assume. Additionally, the same economies of scale also lead to a greater geographical concentration of mining activities, which facilitate enforcement by reducing the jurisdictions in which actions need to be brought. Notably, this concentration also reduces the number of individuals or entities needed to fork a Proof of Work network in order to enforce transfers. As elaborated above, the most prominent use of this avenue for enforcement was used to return stolen funds following the ‘The DAO’ incident.

89  On the other hand, networks employing Proof of Stake consensus algorithms often struggle to avoid ‘excessive concentration of decision-making powers on crypto exchanges and wallet services providers’ since the performance of these services requires concentrated holdings that can be used to reap additional income when used to validate transactions (Bains and others, 2022, 25). Most prominently, this is the case for the second biggest cryptocurrency network by market capitalization, Ethereum, following its switch to a Proof of Stake algorithm in September 2022. This is even more significant, since Ethereum is used to ultimately secure a number of other so-called layer-2 networks built upon it, and to run decentralized applications.

90  The described concentration of parties involved in the processing of transactions also translates to an immense reduction in targets for law enforcement purposes (or an attack on the integrity of a network itself) as compared to the total number of users or even miners on Proof of Work networks. The staking requirement to process transactions also leads to a much greater level of transparency with regard to the identity of the validators. Experience with Ethereum has shown, that centralized cryptocurrency exchanges have started to double-hat as the most significant validators on the network due to the amount of tokens in their custody. However, unlike Proof of Work miners, cryptocurrency exchanges require licenses in many jurisdictions and therefore increase transparency for law enforcement further.

91  In mid-2022 the impact of this dynamic was vividly illustrated when the Office of Foreign Assets Control (‘OFAC’) in the US sanctioned a decentralized cryptocurrency mixing service named Tornado Cash, which it identified through a large number of cryptocurrency wallet addresses (Cyber-Related Designation: Specially Designated Nationals List Update, 2022). As a consequence, a large majority of block builders and validators refused to include addresses connected to the OFAC sanctions into new blocks on the Ethereum network by late 2022 (The share of compliant blocks increased steadily. By mid-October 2022 a majority of blocks was OFAC compliant and by late November 2022 more than three in four blocks were compliant: MEV Watch (21.10.22), MEV Watch (28.11.22)). Notably, this made it increasingly difficult to move funds from the concerned addresses, but it did not freeze assets altogether (Nijkerk, 2022).

92  A decentralized autonomous organization (‘DAO’) ‘is a collectively-owned, blockchain-governed organization working towards a shared mission’ (Ethereum website, Decentralized Autonomous Organizations (DAOs); see also Hassan and De Filippi, 2021). The ‘backbone of a DAO is its smart contract, which defines the rules of the organization’ including the requirements to transfer funds ‘and holds the group’s treasury’ (Ethereum website, Decentralized Autonomous Organizations (DAOs)).

93  For the purposes of this analysis the enforcement against a DAO can fall into either direct or indirect enforcement. On the one hand, a DAO can control its own collective funds, in which case the assessment of enforcement against individuals, multisig wallets, and smart contracts above would equally apply here mutatis mutandis. On the other hand, however, a DAO can also be employed as a governance superstructure on top of entire networks.

94  In the case of the Juno Network DAO, for instance, a DAO served as such a governance vehicle for the network of the namesake JUNO tokens. An investor was found to have exploited the rules of the network and therefore an—ultimately successful—proposal to vastly reduce the balance of the investor’s account (from about 3.1 million tokens to 50,000) was subjected to a vote by the community (Kelly, 2022; Kessler, 2022; Cosmostation, 2022).

95  In practice, DAO’s may also be an interesting avenue for enforcement purposes given the concentration of control in some DAO’s:

Additionally, in some jurisdictions DAO’s can also be incorporated as entities similar to limited liability companies, which establishes a clear territorial connection and also provides for an identifiable representative. In the state of Wyoming, for instance, a ‘DAO LLC’ or ‘LAO’ (both short for limited liability autonomous organization) can be incorporated (s.17-31-102 (iv) and 17-31-104 (d) Act on Decentralized Autonomous Organizations, 2021 (Wyoming)). The incorporation of a Wyoming LAO requires that ‘each decentralized autonomous organization shall have and continuously maintain in this state a registered agent’ (s.17-31-105 (b) Act on Decentralized Autonomous Organizations, 2021 (Wyoming)).

96  The growing role of digital assets in international disputes affects procedural dynamics and power balances in international adjudication in different ways. So far, privately issued assets are the driving force in this context. However, ever more states are issuing CBDC’s that are likely the first step towards an ecosystem including solutions for secure document delivery, identity verification, and enforcement. The great difficulty of enforcement against privately issued assets on decentralized networks, however, may foreshadow the legal complexity of enforcement disputes that are yet to arise on a jurisdictional level once competing CBDC’s—each rooted in a different jurisdiction—are circulating more widely.