KLEROS "Dispute resolution platform for cryptocurrency transactions"

Introduction

Disputes are inevitable in situations that involve transaction between individuals or when services are being rendered both offline and online. There is an increase in the number of transactions being done online and with the introduction of cryptocurrencies, it is expected to rise more.

In some cases these transactions often end with disputes between parties. However, many of the existing dispute resolution technologies are slow, expensive and unreliable in the current decentralized globalized economy.

In the current crypto world, parties involved in any kind of transaction employ the use of smart contracts. Smart contracts are smart enough to execute programmed protocols, but they do not render subjective judgments or to include elements from outside the blockchain.
These limitations can be addressed by using decentralized dispute resolution mechanism that renders ultimate judgments when disputes arise.

Kleros as a tool for dispute resolution

Kleros is a protocol that leverages on the use of blockchain technology to act as arbitrator when a dispute arises between two or more individuals.

Kleros is an online court system that works as a decentralized third party to arbitrate disputes in every kind of contract, from the simple to the high complex ones.

In a scenario where a dispute arises between Mr. A and Mr. B, both would try to prove their honesty towards the contract. However, Kleros doesn’t rely on the honesty of the individuals to pass judgment rather it relies on game-theoretical economic incentives to develop a justice system that produces true decisions in a secure and inexpensive way.

How does Kleros work?

Arbitrated contracts

In the creation of smart contracts, it has to be designed in a way that Kleros can act as the arbitrator. When the contract creators opt-in to the Kleros justice system, they are allowed to choose how many jurors and also the court that would govern the contract in a situation a dispute arises between the two parties.

Options for jurors

Smart contract disputes without options to enable jurors to vote cannot be judged. Therefore, it is necessary for contracts to specifically contain options that would enable the jurors to vote. In addition, the smart contract will also specify the behavior of the contract after the ruling is done.

For example

• The option “Reimburse Mr. A” would behave as transfer of funds to Mr.A
• The option “Give extra one week to Mr. B to finish the website” would behave as within the one week period, there would be no new disputes and the option won’t be available for further disputes.
• The option “Pay Mr. B” would behave as transfer of funds to Mr. B for successfully rendering the service.

Privacy

During any form of transaction, privacy is of utmost importance to the individuals involved. Dispute resolutions in some cases between the parties involved, require disclosing information with the jurors and in the process such information can be accessed by outside observers.

In order to prevent access of such information to outsiders, the contract language and options are not registered on the blockchain. Once the contract is created, the creator submits the hash and sends it to each party involved using asymmetric encryption. When a dispute arises, each party can reveal this unique hash to the jurors which can be used to verify the authentication of the hash submitted.

Drawing jurors

The Pinakion (PNK)

PNK is the system token. Users that have interest to serve as jurors can only do so through the use of the token Pinakion. The amount of tokens a user deposits serves as a criteria to be drawn as a juror for a specific dispute. The higher the amount of tokens the possibility of being drawn as a juror.

The Pinakion has two roles to play in Kleros design

• They protect the system against users that would create numerous addresses so as to increase the number of times they are drawn in each dispute thereby giving them control of the system.
• They serve as incentives for jurors to vote honestly.

Jury selection

Just as it was mentioned above, the selection of a juror depends on the amount of Pinakion deposited. The amount of times a user is drawn for dispute determines the number of votes he will get in the dispute and the amount of tokens he will win or lose during token redistribution.

Votes

Once a dispute arises, the jurors selected would assess and commit their votes to the options available. They submit their hash so as to make commitment to the dispute. Once a juror makes a commitment, the vote cannot be changed.

The vote cannot be seen by other jurors or the parties involved. This is done to prevent the decision of one juror from influencing the decision of others. The votes can only be revealed once the voting time is over.

Arbitration fees

Arbitration fees are necessary for compensating the jurors and prevention of spammers from the system. The subcourt where the dispute is being addressed would determine the individual to pay the arbitration fee.

The arbitration fee can be applied through two instances

• The first instance, each individual would deposit equal amount of arbitration fee to the smart contract. In a situation both individuals pay the fee, the winner of the dispute would be reimbursed once the dispute is over. However, if only one party pays the fee, the smart contract would be executed in favor of the individual.
• The second instance is during appeals. The parties involved would pay the fee and the appellant would pay extra fee to serve as compensation to the winning party.

Incentive system

The Kleros incentive system ensures that jurors are highly compensated for ruling a dispute. In this system, some votes are coherent while some incoherent. A juror whose vote is incoherent would lose some tokens which will be given to the jurors whose votes are coherent. With this system, the jurors would be able to vote honestly to any disputes that arise.

For example, a scenario where seven jurors are required to rule a dispute with options A and B. Assuming five jurors vote for option A while 2 jurors vote for option B, the option chosen by the majority is regarded as being coherent while that of the minority is incoherent.
The tokens would be distributed between the coherent jurors proportionally to their weight.

Bribe resistance

Bribing is another way one party would try to cheat another party. However, due to the fact that appeal is present in the system, the attacker would have to keep bribing larger and larger juries at a steeply rising cost.

Use case

Ken is a freelance writer and earns from writing articles for individuals and corporations. He has experienced different scenarios where clients contact him for his services only not to fulfill the end of their bargain once his services are rendered.

Omega Corporation contacts Ken to write an article for their corporation and they both reach an agreement on how the services would be rendered and payment for his services.

Due to Ken’s previous experiences with clients, he decides to secure their agreement using Kleros.

Ken and omega creates a smart contract using Kleros as the arbitrator in case a dispute arise between the two parties.

If after the services were rendered and there was a dispute between Ken and Omega corp. The both parties would present their cases to a panel of jurors on the Kleros platform that would help settle the dispute.

Conclusion

The current dispute resolution mechanisms on ground have failed to address the issue of disputes that arise between two or more parties. Due to lack of appropriate resolution mechanism, individuals/corporations are discouraged from rendering services or conducting cryptocurrency transactions online.

Kleros was programmed to address these limitations in the areas of e-commerce,finance, insurance, transport, freelancing etc. It employs the use of game theory and blockchain technology to give “justice to the unjusticed”.

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