Technological innovation has helped fuel the current massive amount of global trade. With a click of a mouse button and an online video conference, trade deals can be hammered out with each participant never even having to leave their own office, much less their own country.
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However, those who regularly traffic in international trade are not yet taking advantage of all that blockchain technology has to offer in the form of smart contracts. Confideal is a blockchain-based, integrated platform for making secure international contracts that aims to help businesses and individuals engage in commerce while saving both money and aggravation. While such a construct is a boon to every businessperson, the hallmark of Confideal is its built-in arbitration system.
Large Volume of Trade Leads to Lots of Disputes
The amount of international trade is staggering and is estimated to be somewhere between $15 and $20 trillion USD per year. Real estate investment across national borders is on a far less scale, but that market is still expected to reach roughly $1.4 billion USD by the end of 2017. These numbers showcase that international deals are made every minute of every day.
With such a high volume of trade, it’s a certainty that some disputes will arise from a dissatisfied party. This then leads to arbitration, which is often expensive and time-consuming. It normally takes at least 6 months for an arbitration process to be completed, and the average cost is an eye-opening $2.5 million USD. Such circumstances mean that additional time and money is lost for both parties while the arbitration process drags along.
To counter this situation, Confideal has created a revolutionary approach to international trade by hardwiring in a comprehensive arbitration system into the very DNA of the smart contract that secures the original trade agreement entered into by all parties.
The arbitration system in Confideal begins with the creation of the smart contract that uses the Ethereum blockchain. The user creates the smart contract by laying out monetary sums, dates, and terms. Other contract data is stored in a unique hash function that is created.
An important part of this smart contract is the designation of an arbiter in case something goes wrong with the trade agreement. Both parties then have to agree to this contract, which is signified by them signing it with their unique keys. The money that is being paid by one party to the other is then held in escrow by the contract, in either ETH or Confideal tokens (CDL), and is then automatically paid out when the smart contract conditions are fulfilled.
The Nuts and Bolts of Arbitration in Confideal
At the heart of the arbitration system on Confideal are the arbiters themselves. The arbiters on the decentralized blockchain-based platform are qualified, third-party legal professionals or firms who have submitted the necessary documentation in order to have their status on the platform confirmed. Information on arbiters is viewable by users of the platform, such as the arbiter’s location, experience, specialization, language proficiencies, and so on.
All arbiters are ranked by their rating on Confideal, and this rating is comprised of objective and subjective factors. The objective factors for an arbiter include the number of disputes they have resolved, the speed of their responses, and the completeness of the information they have disclosed about themselves. Subjective factors for an arbiter’s rating include items such as votes given to them by CDL token holders.
Overall, 70% of an arbiter’s rating is based on objective factors while the remaining 30% is derived from subjective factors. In addition to their rating, those who have their transaction mediated by an arbiter can vote to like or dislike them. The number of likes and dislikes is clearly shown to users, who can then use this information, which does not factor into the actual rating, as another subjective measure of the arbiter’s work on the platform.
If a dispute arises, the arbitration system built into Confideal comes into play. At this point, the dispute can follow one of two routes: arbitration or mediation. In both cases, the arbiter will go over all the pertinent details of the smart contract and examine all of the relevant documents in order to come to a conclusion. It must be stressed that all parties to the smart contract agreed to the choice of arbiter when the contract was created.
Arbitration is the more protracted process as it does have a legal basis and the decision made by the arbiter can be used in national courts of law for further enforcement by bailiffs. All arbitration on Confideal conforms to UNCITRAL international arbitration regulations as well as national laws. When the arbiter makes their decision, the process then moves to the court system for final resolution.
The quicker route for resolution on Confideal is mediation. In mediation, both sides of the transaction agree to the arbiter making their decision and then enforcing it, which is done by releasing the funds held in escrow within the smart contract in a manner that the arbiter deems fit. This approach is easier and quicker as it does not adhere to the strict regulation of national or international laws as it instead just requires the agreement of the interested parties.
In this way, the entire arbitration process, from beginning to end, is housed entirely within the Confideal platform, allowing for faster, and far less expensive, resolution. For their impartial efforts, arbiters are given up to 10% of the value of the smart contract under their purview.
Speeding Up the Arbitration Process with Confideal
Current arbitration in international trade is costly and time-consuming, but Confideal has created an innovative approach that makes the entire process easier and more streamlined. Every smart contract that users enter into has an impartial, third-party arbiter that every signatory has agreed to in case things go sour. These arbiters are legal professionals and firms who have proven their credentials and been accepted by Confideal. The entire arbitration process is quick, smooth, and far less costly as it is done in-house on the platform with an arbiter who has already been chosen and has all the necessary information at their beck and call.
An integral feature of the arbitration system on Confideal is that users have full access to the information that they need, such as an arbiter’s rating and likes/dislikes, to make an informed decision when choosing one. With Confideal, there’s no need to waste time and money searching for an avenue for a dispute’s resolution as the entire transparent process is already set up and ready to go from the signing of the smart contract.
How important is a built-in arbitration process to the mainstream adoption of smart contract usage in the business world? Let us know in the comments below.
Images courtesy of Confideal, Shutterstock