The rise of globalization and the digital economy as a result of the connectivity that the Internet affords has created an entirely new digital realm that has surpassed modern geopolitical jurisdictions. Kleros, a new decentralized application built on top of Ethereum, aims to provide the solution to the the inevitable disputes that will arise in this global digital medium through leveraging the power of blockchain and game theory mechanics.
How Does Kleros Work?
At its most basic level, Kleros connects users who need disputes settled with a crowdsourced pool of jurors who have the requisite skills to settle their disputes in a quick and affordable manner. The Kleros protocol is opt-in, meaning that users can implement Kleros as their dispute resolution protocol directly into their smart contracts.
For instance, a freelancer is hired by an employee, and the smart contract between them references Kleros as the adjudication protocol for their contract. Should a dispute arise, the funds are locked in the contract and the Kleros arbitration process begins. A tribunal is drawn from a pool of crowdsourced jurors, relevant information is sent to the jurors, and the jurors vote on the case. The vote is revealed, the majority is considered the winner and the smart contract is executed, sending funds to the party that the jurors voted in favor of.
It’s a very straightforward process that offers simplicity and convenience to users, however, there is much more working behind the scenes to make the platform secure and viable as a dispute resolution layer. Specifically, the platform utilizes the blockchain to ensure transparency and integrity in the juror selection process. Additionally, game theory mechanics predicated on important concepts and their native Pinakion (PNK) token provide the necessary incentive model for jurors to act honestly within the system.
The incentive model of Kleros uses an optimized version of the Schelling Coin concept that is derived from the game theory concept of a Schelling Point. A Schelling Point is a focal point as a solution that people tend to use in the absence of communication because it seems natural or special to them. This is important in distributed systems where users do not trust each other. The Schelling Coin concept was laid out by Vitalik Buterin and is designed to be a token that aligns telling the truth with economic incentives.
In regards to Kleros, their platform employs an optimized version of this concept to incentivize jurors to vote coherently with others through economic incentive with their PNK token. Jurors who vote inchorently against the winning majority are penalized, and those that vote in the winning majority receive redistributed tokens from the jurors that did not. This redistribution is based on a proprietary formula and jurors must stake a set amount of tokens as a deposit prior to a case starting. Jurors also receive arbitration fees for their work.
Jurors self-select into subcourts with specific focuses as part of a larger autonomous pool of jurors serving a wide variety of potential cases. When selection for a case begins, a random process using sequential proof of work is used to select jurors from the pool. The probability of a juror being selected for a case directly correlates to how much PNK token they deposit. The contracts for a case specify how and what jurors can vote on as well as how many jurors are needed.
The entire process is automated and Kleros functions as an Ethereum autonomous organization. The need for sustainable security and scalability is paramount for the platform because of this. Game theory mechanics provide the necessary economic incentive while the design of the platform is to use a decentralized governance mechanism based on a liquid voting mechanism. This governance mechanism can be used for the following.
- Set policies of how to arbitrate disputes
- Add, remove, or modify sub courts
- Modify parameters in sub courts
- Change one of the smart contracts that Kleros relies on.
Appeals are also part of the functionality of Kleros and play an important role in mitigating against bribing while also mirroring important legal processes of current state governments. A party can appeal the Kleros ruling if they are not satisfied. Each new appeal has twice the number of original jurors plus one, so the appeal fees rise exponentially and deter users from endlessly appealing or bribing jurors because the cost is too high as more appeals are made.
Use Cases of Kleros
Kleros is designed to be a multipurpose dispute resolution platform and can function as a legal adjudication service in a wide variety of cases. Important types of cases include escrow dispute resolution, social network policy violations, and oracle resolutions.
For escrow disputes, this applies to a multitude of cases revolving around goods or services exchanged in off-chain mediums. Kleros can resolve disputes between employers and employees, rental agreements, or inadequate goods sold on an online store.
Social network policy violations include preventing spam and mitigating against policy violations by requiring users to make deposits before a case begins. Kleros can either directly resolve the dispute or if the context is more ambiguous, other options exist such as removing the content which can be specified directly in the smart contract.
Finally, oracles provide an interesting use case for decentralized data feeds to be used by smart contracts to pull information from the outside world. With Kleros, a party can submit a question and everyone can submit an answer with a deposit. If the answer is unanimous, then it is returned by the oracle, if not, Kleros dispute resolution ensues. The oracle then returns the solution decided on by the Kleros dispute resolution process.
Team and Partners
The team behind Kleros is led by co-founders Frederico Ast (CEO) and Clement Lesaege (CTO). Their token sale is currently live and is one of the first, if not the first Interactive Coin Offering as laid out by Vitalik Buterin, Jason Teutsch, and Christopher Brown as an improvement to the traditional ICO model.
Kleros has partnered with both Dether.io and Ink Protocol to help deliver on decentralized arbitration. Dether payment platform users will be able to use the Kleros peer to peer justice protocol to arbitrate disputes and Ink Protocol provides an important integration for Kleros to be able to test two key use cases for their platform, escrow and curated lists.
The PNK Token and Interactive Coin Offering
The PNK token plays an integral role in the game theory dynamics of the Kleros platform. The amount deposited by jurors is directly correlated to the probability of them being selected for a case and it functions as the economic incentive for jurors to act honestly in cases.
Token holders also have voting power tied to the amount of PNK tokens that they hold, thus providing incentive to hold tokens for governance purposes. Jurors are also paid by case in the form of arbitration fees which are actually paid in ETH rather than PNK.
As mentioned earlier, Kleros is one of the first platforms to implement the Interactive Coin Offering format. Essentially, this format attempts to enable investors to have more information at their disposal while participating in a fluid bidding system governed by a smart contract. The success and results of this IICO will be fascinating to watch as well as to see if other platforms begin to use the same model.
Kleros offers a dispute resolution protocol for the modern digital world that supersedes traditional jurisdictional areas as the world trends towards globalization. The potential of smart contracts to disrupt transactions and agreements between parties in an efficient and automated manner will inevitably lead to the need for a decentralized court system.
With the right incentive mechanisms enforced by proven game theory mechanics and the underlying blockchain providing the transparency and integrity needed, Kleros looks to become the justice protocol of the future.