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Bringing Dispute Resolution to the Blockchain

The Athenian jury system in the 4th an 5th centuries BC was a sophisticated and complex system based on democratic principles. Jurors were selected randomly and included hundreds of citizens from all classes and walks of life. In later iterations, jurors were paid, which benefited the poor. Federico Ast, a social scientist by trade (his doctoral thesis was in deliberative democracy and collective decision making), has developed a blockchain-based dispute resolution system based on the same principles, with elements of game theory thrown in. He has cleverly named his system Kleros, which, in Greek, means “luck” or “chance.”

How Kleros Works

Kleros was established in 2017 in Buenos Aires. A decentralized application built on top of Ethereum, the system relies on jurors being fair and unbiased in their arbitration judgments. That’s why Kleros pays those jurors in tokens. The idea is to incentivize fair and accurate judgments that get to the heart of a dispute and settle it in a way that is fair to both parties and honors their agreement.

Like the Athens law courts, and also based on the concept that every citizen has a right to judge, there are no lawyers and judges.

The Kleros system begins when two separate entities—probably companies and corporations—put money into a smart contract upon beginning their transactions. If there is ever a dispute between the two parties, Kleros finds a jury to hear the testimonials and make a decision.

Seven or nine jurors are chosen out of the entire pool of qualified jurors to hear a case. To become a juror, one buys a token and deposits it into the court specializing in disputes regarding one’s expertise and in one’s geographic region. For instance, doctors would join the juror pool for medical disputes in the U.S., Asia, or Latin America. Auto insurance personnel would enter the juror pool for automobile insurance disputes in their respective countries.

Jurors are anonymous and, once selected, review documents pertaining to a dispute and vote on the individual they believe is in the right. After the outcome is determined, money held in escrow based on a smart contract is sent to the party who wins the case.

Gaming the Jurors

Anonymity, and payment, gives jurors the incentive to vote honestly. Beyond that, the Kleros system relies on economist Thomas Schelling’s game theory focal points, what came to be known as “Schelling Points.” The idea is that, when a number of people with similar background and knowledge hear the same bit of information, they should all come to the same conclusion. If you have seven jurors, and you are left with a 6-1 count, Ast said, “You can assume that one guy didn’t read the evidence or wasn’t qualified to be a juror on that case.” That juror then forfeits his coin, which is divided between the other six. “This is how you make sure jurors don’t game the system, how game theory helps create incentives to find jurors who are fair and just.”

A buyer and seller in an e-commerce website, for instance, or gamers on a gaming site, can include Kleros as the dispute settlement company in their smart contract and, in the event that a dispute arises, they take the case to blockchain arbitration court.

Ast wants Kleros to become the protocol for arbitration on the blockchain. Two parties will write their smart contract using the Kleros arbitration standard, and they will then be able to use Kleros to resolve disputes. This blog post sheds more light on the Kleros arbitration standard.

The Tokens and the Technology

The Kleros token is called the pinakion, the value of which will be determined by the market. Jurors put up their tokens for the right to be selected as jurors. The money pool to be won or lost is paid by the two parties in the dispute. The winning party takes the pool, and the jurors are paid out of what the two parties pay in. The terms of their agreed-upon contract will determine if they each pay half of that money or if other terms will be adopted. Both parties agree to use Kleros and abide by its findings before a dispute occurs.

Ast said his company is building an organization that will automatically select jurors, and is developing software and a network of jurors as well as customers in need of dispute resolution. The company will not take a fee for transactions; instead, the company will be compensated by the appreciation of its tokens over time. As more potential jurors purchase tokens and join the platform, the value of the tokens should increase allowing Kleros to pay its executives, employees, and contractors.

The company has a working prototype and is beginning to run experiments to see if the technology will work as designed. Ast said the only way to find out is to conduct trials, and two pilots have been taken up between companies that already have disputes–one in the United States and one in South America.

The Competition and the Future of Dispute Resolution

Ast said that the company’s competition is slight. There is one other company that does small claims disputes, but not on the blockchain. One other company, Jury.Online, a blockchain-based dispute company, is in the early stages of development.
Ultimately, he envisions five or six companies offering blockchain-based dispute resolution, and Kleros will need to be the fastest and best to win the market.

The Kleros platform will be gain more relevance as the world becomes more global and digital. “Imagine living in virtual reality worlds,” Ast said. “If there is a dispute, no government can solve that. The dispute happens in the cloud. We need a system that is transparent, affordable, and fast at solving digital-based disputes.”

Building a dispute resolution platform on the blockchain ensures that no one owns it. Such is what Kleros is poised to offer, and its CEO believes that the company’s future will be determined by the users, jurors, and token owners.

Conclusion

To date, Kleros has been privately funded, but a token sale is planned in the months ahead. However, no official announcement has been made concerning as of now.

Ast said Kleros is always looking for talent, smart contract developers, blockchain developers, and partners to test the platform. As they are beginning to run experiments, the current need is to recruit jurors to analyze evidence in their pilot programs in the areas of insurance and e-commerce.

Ast is joined by co-founders Clément Lesaege, chief technology officer, and Nicolas Wagner, Web3 developer.

Authors:

Written by Paul Keenan and Allen Taylor.

Allen Taylor
Allen Taylor

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Allen Taylor

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