The more complex a society is, the higher the chance of having disputes
It is completely natural to have misunderstandings, every individual develops his own judgment according to the experiences that are constantly shaping his personality and his own way of interpreting things. As we evolve, the amount of interactions between individuals start to grow giving room for potential differences of judgments and opinions that, depending on the intensity, could escalate into a bigger conflict where both parties, due to their inherent subjectivity, believe they are right.
In order to solve these situations, it is necessary for a third party to intervene and in the most objective way possible, assess the available information regarding the conflict or dispute, and decide which of the two parties are indeed right. But this requires a level of organization that is not easily achievable, especially in a context where there are a very large number of transactions causing an amount of disputes so big, that handling them becomes quite a challenge.
As our digital world keeps growing with every passing year, an increasingly part of our interactions are done in the online space, and so far, any dispute that might have arisen is dealt with through a centralized platform. However, there is a clear tendency towards the development and adoption of decentralized platforms with a complete different way of functioning, and this requires a new approach when figuring out a way to solve disputes taking advantage of the benefits that blockchain technology can provide.
Current issues in the traditional ways of solving disputes
It is no secret that having a serious dispute with another person can get very time and resource consuming, the mechanisms we use right now to solve these issues have a lot of bureaucracy involved and this slows down the overall process, which could become an important problem if we want to live in a fast paced society with a high level of efficiency in every industry. The most important aspects that can be improved by implementing a new platform based on blockchain technology are the following:
- Lack of speed: currently, solving disputes takes too much time, even with simple cases. It is understandable that complex disagreements demand a lot of analysis and discussion in order to reach a fair final decision, and this certainly require time. But it is also true that there is too much ineffectiveness that could be solved through technological means.
- Not affordable: the amount of money involved in legal disputes is staggering, leaving a lot of people with huge bills to pay without necessary having the capacity to afford it. Besides, there are a lot of small scale disputes where the legal costs can even surpass the value of the dispute itself, causing the affected person to decide not to do any dispute in the first place, this could be particularly common when doing small online transactions with people from another country
- Too much unreliability: corruption is something present literally everywhere in the world, and sadly, it also affects legal procedures. There could be the case where one of the two parties involved in a dispute finds the way to bribe certain individuals, making them support a resolution favorable to the person who paid them.
These issues have been present for a long time, but solving them has not been possible as of yet. This is where Kleros comes into action.
How can Kleros provide a better platform for dispute resolutions?
First of all, Kleros is a platform providing a decentralized way of solving disputes. People doing transactions can make use of smart contracts to handle the money involved, if there is any dispute between both parties, said contracts won’t release the funds because they are controlled by the decisions of anonymous jurors who decide which person should keep the money based on their fair analysis of the evidence provided and the original terms of the agreement.
There will be several courts, and depending on this, jurors with enough experience in that field are assigned, this ensures a proper criteria when difficult situations are being analyzed, and since everything is automatic, the process happens much quicker when comparing it to traditional procedures, reducing the overall costs as well.
In short words, it works like this: before doing a transaction, both parties agree on certain conditions, they choose a related court as well as the amount of jurors in case any dispute happens, they create a smart contract and set the potential resolutions, later on, if one of them believes something is wrong he can start a dispute and send the relevant information to the Kleros platform, the jurors are randomly selected taking their field into account, and once the evidence is analyzed, they come to a decision and the funds locked in the smart contract are released.
Incentives to jurors
Since the jurors must act in an honest way, there are economic incentives that reward correct decisions and punish incorrect ones. The way this works consists in having the decision most supported by the jurors interpreted as the correct one, and each juror who supported it will be rewarded with a certain amount of the PNK token, on the contrary, each juror who didn’t support it, will be penalized and he will lose some PNK tokens. The decisions are private and each juror is anonymous so it is convenient for them to act honestly and support the most reasonable decision, and wait for the other jurors to do the same so everyone is rewarded, which is a clever way to implement game theory to solve disputes.
In the following image we can see an example of how tokens are distributed. The jurors who voted for the less supported option lose tokens, and the jurors who voted for the most supported option receive said tokens.
Each vote from the a juror must include the information about his unique Ethereum address to guarantee its uniqueness, and at the end of the process each vote must be revealed so a proper resolution can take place, if a juror decides not to reveal his vote he will be penalized and will lose a certain amount of his tokens, this is done to promote active participation from the jurors, after all, knowing their decisions and the reasoning behind them is the most important part of the dispute.
Selection process
In order to be selected as a juror, users need to first make their own deposit of PNK tokens, the larger their deposit the higher the chance of being selected as a juror, and the higher the proportion of the reward if the juror chose the correct decision. In order to avoid any manipulation in the selection process “Random numbers are generated with sequential proof of work... adapted to also work for Proof-Of-Stake blockchains… The output of this process is a random number as long as there is at least one honest party.” | Source This particular part is highly technical and for anyone who is interested in knowing how this work the best choice would be to read the section called “Random number generation” from the official whitepaper (linked above).
Fees
Besides the token distribution already explained, compensation for the jurors also come in the form of arbitration fees paid for by the parties having the dispute, however, there are several options for this to take place. For example, one of them is having only the party creating the dispute to pay for the fee, on the other hand, it is also possible to have both parties pay for an equal amount of the fee and reimbursing the winner once the dispute is solved. There are several ways to approach this and the team behind the project is still figuring out what mechanisms are going to be implemented.
If one of the parties is unhappy with the final decision from the jurors, there is always the possibility to appeal. This process requires “twice the previous number of jurors plus one” | Source, which makes it more and more expensive as new appeals are added to the same original dispute. When it comes to the jurors, if their chosen decision was appealed their rewards gets canceled, adding another reason for them to not only support the most fair decision, but also to provide an extensive explanation including their arguments and reasoning that lead them to their final choice.
To avoid jurors trying to exploit the system by participating in as many courts as possible, “Each token holder can register in at most one subcourt of each court they have token activated”. | Source
It is expected for the platform to grow with time, adding new users and all types of modifications to improve the way disputes are handled, these changes are going to be decided by having token holders casting their votes, this allows only people with a proven interest in the platform to be the ones approving any important modification.
Use cases and potential impact in everyday transactions
One of the most important benefits from using Kleros is that real life events are the ones conditioning the actions taken by the smart contract. This can have a lot of implications in how certain transactions are done. Let’s explore a few examples :
Use case: Regular purchase from an individual seller
Tom sells custom art over the internet. One day, a customer called Jane requests a particular piece of art with very specific instructions as to what should the painting be about. They both decide to use Kleros as a way to protect themselves against potential fraud.
Jane sends the money to the smart contract, and both of them agree on the conditions. After a week, Tom delivers the art piece to Jane but unfortunately she isn’t happy with the result. She thinks Tom didn’t comply with the specific instructions, and decides she don’t want to buy that art piece, therefore, a dispute is the only way to solve this. Evidence of the work is sent to the Kleros platform, and the system randomly choose jurors with experience on art, who must decide which options is the right one, in this case there are only 2 options:
- Giving the money to Tom
- Giving the money to Jane
These jurors take a look at the evidence and based on the original terms, and the majority (4 jurors out of 5) come to the conclusion that Tom’s art piece isn’t what Jane had requested, on the other hand, the remaining juror decided that Tom’s art piece had everything Jane wanted and was worthy of the money. The majority rules, the funds are sent to Jane, and the 4 jurors receive their corresponding reward, with only 1 juror losing a certain amount of his token holdings.
As we can see in the example above, a platform like Kleros will provide an additional layer of protection to both buyers and sellers, because even if the case was different and the buyer starts a dispute without any proper reason, the jurors will take the decision in favor of the seller, allowing him to receive the funds. This is a quick and affordable way to solve little issues without going throw a slow and expensive procedure like legally accusing Tom of being a fraud. Now, even small transactions can be effectively protected from people who try to deceive others.
Use case: Dealing with insurance scammers
There is a company called Chained Insurance, that leverages blockchain technology to register every one of their transactions, allowing them to have higher security and transparency that results very attractive to their customers. Since they have to deal with a lot of disputes, they decided to adopt Kleros platforms as a way to streamline the process in the most effective and fair was possible.
However, one of those customers called Harry has bad intentions. He is planning to fake an accident and demand some benefit from the insurance company, and one day, he actually decides to do it.
He demands the insurance company to cover some fraudulent medical bills, and the company decides to initiative a dispute because they think Harry is not being honest about his claim. All the documentation is sent to the jurors, and after an extensive evaluation, they decide Harry is indeed lying and the whole accident was faked, therefore, the funds are never sent to Harry and he now will probably face legal consequences for trying to scam the insurance company.
By using a platform like Kleros, large companies can reduce their costs because not disputes will be dealt using a much affordable and efficient system. Which will save these companies a considerable amount of money while also having the benefit of a quick and fair dispute resolution procedure.
Use case: Stopping fraud in online sales
Gary sells some of his original clothes using Amazon & eBay, he has been doing it for years and his products are now very well known. He has never tried to scam anyone because he knows honest work is the best way to succeed.
One morning, one of his t-shirts is bought by someone in another country and as usual, he prepares the package, sendx the package to his customer, and both parties agree to use Kleros as a way to protect themselves, therefore, a smart contract is created.
However, the buyer has bad intentions and is planning on demanding a refund after getting the t-shirt. What he does is pretending he didn’t receive any t-shirts and accuse the seller of being a scammer, a dispute starts.
On a third country, we have Frank who has experience with online sales and is very talented in identifying online scams, which is why a few months ago he decided to enroll as a juror in the Kleros platform. After the dispute starts, he is notified that he has been chosen as a juror for this particular case, and find himself with extensive evidence about what’s happening with the t-shirt sale.
After analyzing the available information, and checking the data in the shipping documents, he finds proof that the t-shirt was indeed included in the package, and the buyer is simply lying. Therefore, he votes for releasing the funds in favor of Gary the seller, and the same decision is taken by the other 2 jurors, resulting in the reward being distributed to each of them and Gary receiving his well deserved payment for the t-shirt he sold.
In this case, we can see how already big companies can take advantage of this platform and provide a new option to solve disputes when doing online transactions between people in different countries. There are more types of applications such as:
- Micro tasking Source: similar to how the incentives to the jurors work, but in this case, people doing the task in the same way as the majority will be rewarded.
- Oracle Source: people are required to provide an answer to a particular question, those whose decisions are in the minority lose part of their tokens, which are awarded to the majority
- Curated lists: “Parties could submit items to the list by putting a security deposit. If no one contests that the item belongs to the list for a sufficient amount of time, the name is added and the deposit refunded” Source
- Stopping abused in social media: Source to ensure a fair process when identifying someone who is not respecting the terms and conditions of a certain website, people can report it by first using a security deposit, which they might lose if the report is rejected. This way, only justified reports will be made because no one would like to lose their security deposit.
It is clear that adding incentives in the decision making process will make this system fairer than previous centralized ones.
The token
One of the reasons Kleros uses its own tokens is for protecting the platform against Sybil attacks.
In a Sybil attack, the attacker subverts the reputation system of a peer-to-peer network by creating a large number of pseudonymous identities, using them to gain a disproportionately large influence. A reputation system's vulnerability to a Sybil attack depends on how cheaply identities can be generated | Source
Since in order to participate as a juror people will have to invest in the platform, they will have a monetary interests in everything going well, reducing the chances of a participant acting in a destructive way. This is explained in an official video
Token distribution
As we can see, right now the project is in the process of testing the first pilot. It can be found in the following website and the way it works is explained below:
The team
Advisors
Partners
Summary
Our societies are quickly becoming more sophisticated thanks to the constant innovations that are taking place on a non stop basis, and this systematic evolution should also include aspects as important as the systems we use to handle our disputes.
Decentralization provides us with a new generation of platforms that can function in a more transparent, more efficient, and more affordable way, what Kleros is doing is leveraging the capabilities of this new technology and allow for a decentralized court system to be implemented with smart contracts, and with the help of experienced and anonymous jurors, a decision is taken regarding which party is right and which is wrong.
With the goal of encouraging jurors to act honesty, they are rewarded or penalized depending if their votes are the same as the majority of all other jurors, making all of them act in their best interests and really support the resolution that is fairer and hope for the others to do the same, besides, in order to participate they need to first acquire tokens which adds another layer of security.
Therefore, Kleros can offer a secure platform for easily solving any type of dispute without incurring in huge costs, which is important especially now that the majority of the people are starting to be much more active in the digital space, and as decentralized applications start to increase in popularity and in use, it is clear there is a demand for a new generation of platforms well adapted to the paradigm shift that is taking place right now.
The complete system can be summarized by the following image:
