Kleros: A Platform for Dispute Resolution

In every ecosystem, there are interactions between the living souls. The most sensitive interactions among humans are business/money oriented. This is because the involved parties always expect a satisfactory return. Anything that could prevent or reduce the expectations of any of the parties could result into a dispute.

While some non-business disputes are resolved through an amicable conversation, a business oriented dispute usually involve a third party to reach resolution. The third party could be a court of law or a governmental/non-governmental body. However, the cost and duration of adjudication in a court of law could be unaffordable to either of the involved parties (depending on the monetary value of the transaction). Imagine a case of $500 worth and $1000000 worth, the former wouldn't wish to incure additional cost associated with the court of law and would rather let it go.

Due tot the increase in the number of small and medium scale business, there have been an increase in the number of cases where the worth of the contracts are too small to incure additional cost of adjudication. Thereby leaving one of the parties with a great loss.

Disputes in the global, digital, and decentralized economy occur in areas where they cannot be solved by state courts and existing dispute resolution methods. Source: Kleros whitepaper

The advent of a blockchain dispute resolution called Kleros has come to the rescue.

What is Kleros?

Kleros is a dispute resolution platform. It allows two parties involved in a contract (transaction) to opt-in for judgement by crowd-sourced jurors if dispute arises. Kleros resolution layer uses blockchain technology and crowdsourced jurors to adjudicate disputes in a fast, secure, and affordable manner.

Kleros is a decision protocol for a multipurpose court system able to solve every kind of dispute. It is an Ethereum autonomous organization that works as a decentralized third party to arbitrate disputes in every kind of contract, from very simple to highly complex ones. Every step of the arbitration process (securing evidence, selecting jurors, etc.) is fully automated. Kleros does not rely on the honesty of a few individuals but on game-theoretical economic incentives. Source: Kleros whitepaper

How does Kleros works?

The mechanism of Kleros resolution is hinged on four major point: Contract, Dispute, Selection and Enforcement

In order to understand better how Kleros works, let's examine a use case. Mr. Coker is Clinical Scientist. He is interested in purchasing a Digital microscope to improve his diagnostic experience. He browsed through the internet an found a microscope of his choice from Ali Express, an international store. The microscope worth $200 including the delivery fee and Mr. Coker made his payment using his Debit Card.

The payment was successful and he was expecting his good to be delivered. The microscope was delivered within the stipulated 7 days delivery period but the microscope doesn't work perfectly as expected. Let's go ahead with the mechanism.

Contract

When two parties are involved in a transaction, they must create a smart contract and and declare Kleros as their adjudicating protocol if dispute arises. Since Kleros is an opt-in service, the parties must agreed on Kleros right from the onset and provide all the necessary information about the contract. The will also choose a type of court specialized in the topic of the contract. For instance, a package delivery contract (like that of Mr. Coker and Ali Express) will select a package delivery court while a software development contract will choose a software development court.

Also, the nature of the smart contract will determine the options available for jurors to vote. In the case of Mr. Coker and Ali Express, the voting options for the jurors may be;

• Reimburse Mr. Coker- transfer fund to Mr. Coker's wallet to fix the problem
• Extra time for Ali Express to provide a replacement- Mr. Coker will send back the microscope and Ali Express will send another one.
• Refund Mr. Coker- Mr. Coker will be refunded and he will also return the microscope.

Dispute

When dispute occur, both parties are required to send relevant information with respect to the smart contract to Kleros. In some cases, solving disputes may require both parties to provide private information with the jurors. In order to ensure privacy, outside observers are prevented from accessing these information. The natural language of the contracts (English or other) and the labels of the jurors voting options are not put on the blockchain. Privacy is ensured!

Selection

Kleros select jurors from its crowd users. The number of jurors to be selected is earlier decided by the parties. Kleros relies on game theory, cryptography and blockchain for securing evidence, selecting jurors and providing them incentives to make honest decisions.

The protocol token (the Pinakion, PNK) represents the right of users to be drawn randomly as jurors. Incentives are based on a game theoretical concept known as Schelling Point developed by Thomas Schelling.

Pinakion play two key functions in Kleros design. First, they protect the system against the sybil attack. If jurors were simply drawn randomly, a malicious party could create a high number of addresses to be drawn a high number of times in each dispute. By being drawn more times than all honest jurors, the malicious party would control the system. Second, pinakion provides jurors the incentive to vote honestly by making incoherent jurors pay part of their deposit to coherent ones. Source: Kleros whitepaper

The probability to be drawn as a juror is proportional to the amount of deposited tokens. Theoretically, a candidate may be drawn more than once for a specific dispute (but in practice it is unlikely).

After selection, the jurors vote by choosing one of the available options and make judgement. Jurors will cast their votes based on the available evidences on the contract. Once a juror has voted, his vote cannot be changed and it is not visible to other jurors or to the parties. This prevents the vote of a juror from influencing the vote of other jurors.

Enforcement

After all the jurors have voted, the results are revealed and the decision is enforced by the smart contract. The option with the highest amount of votes is considered as the winning one. The enforcement mechanisms will depend on the use case. In the case of Mr. Coker and Ali Express, the buyer (Mr. Coker) can make payment to a smart contract or escrow account. If there is no dispute money can be released to the seller (Ali Express). If a dispute arises, Kleros will make the decison. Both parties cannot avoid enforcement because their funds are held in escrow.

If after the judgement a party is not satisfied with the final decision due to unfairness, it can appeal and the dispute will be ruled again. Each appeal case will have twice the previous number of jurors plus one.

Arbitration fees are paid to compensate jurors for their work and avoid an attacker from spamming the system. Creating disputes and appealing requires arbitration fees. The amount to be paid to each juror will be determined by the subcourt where the dispute is solved. The arbitrable smart contract will determine which party will pay the arbitration fee.

How does Kleros ensure fair incentivization system?

Kleros employs a fair incentive system by redistribution mechanism is inspired by Thomas Schelling, where jurors gain or lose tokens depending on whether their vote was consistent with the others jurors. Jurors are incentivized to rule honestly because, after a dispute is over, jurors whose vote is not coherent with the group will lose some tokens which will be given to coherent jurors.

Advantages of Kleros over current dispute resolution

• Kleros is bribe resistant
• Kleros ensures a quick arbitration
• Kleros is cost effective
• Privacy of the parties is ensured
• Fair incentive system
• Effective enforcement of judgement
• Provision of specialized sub-court to handle different cases
• Skilled jurors are involved

Applications of Kleros

Kleros resolution system is applicable to the following

• Escrow
• Social networks
• Freelancing
• Gaming
• Oracle
• Curated lists
• e-commerce
• Insurance
• Crowd funding

Conclusion

Kleros is a project that ensures a quick, safe and cost effective dispute resolution. It can be used to resolve dispute among small, medium and large scale business. It has a wide range of application.