By Michael Scott
News of technological advancements driving global decentralization is garnering mainstream attention. All of this comes amid a rise in online transactions across geographic and jurisdictional boundaries.
With these developments come key questions about how to handle dispute resolution for transactions on a global scale.
Take, for instance, a situation where a consumer claims that the seller failed to send items via an online purchase or where a buyer claims that a good they purchased and received doesn’t match what they viewed online. These and other related scenarios suggest a need for an efficient, reliable, fast, decentralized dispute resolution system that effectively enforces smart contracts in this rapidly evolving digital economy era.
Enter Kleros, a dispute resolution network fueled by blockchain technology.
“Kleros is a decentralized application built on top of Ethereum that works as a decentralized third party to arbitrate disputes in every kind of contract, from very simple to highly complex ones,” according to the project white paper. “It relies on game theoretic incentives to have jurors rule cases correctly. The result is a dispute resolution system that renders ultimate judgments in a fast, inexpensive, reliable and decentralized way.”
In short, Kleros utilizes blockchain technology and crowdsourcing to evaluate complex evidence to resolve claims quickly and transparently. This is aligned with the company’s stated vision to “build a justice protocol for the Internet.”
Kleros aims to achieve this through the use of blockchain-based smart contracts whose technology and distributed attributes allow for any claim to be adjudicated. Dispute resolution and arbitration is therefore integrated into transactions and recorded on a blockchain. Users will have the ability to select their preferred arbitration service at the point of sale.
This project’s developers believe that smart contracts, while having the ability to automatically execute functions as programmed, lack the intelligence to deliver subjective judgments on elements outside of the blockchain. Kleros promises to deliver rapid, cost-effective, transparent, reliable and decentralized dispute resolution model-rendering judgments tied to the enforceability of smart contracts, a key deliverable for the blockchain era.
Whether securing evidence, selecting jurors or other elements of the arbitration process, each step of the Kleros process is fully automated and tied to game-theoretical economic incentives.
Here’s how it works: Both the buyer and seller agree to use the Kleros Court as their dispute mechanism, including consensus on which court will rule, the number of jurors and the possible outcomes. Whenever a dispute arises, one or both parties initiate the resolution process through a digital form.
The claim is then assigned to a specific subcourt in the Kleros system where potential jurors with specific domain expertise assess whether they would like to participate in the case. If interested, these participants pay a fee to arbitrate. That fee is paid in “pinakion,” the token used by the Kleros system. The higher the pinakion payment on the part of the juror, the more likely the juror is to be selected for the case.
Each case is ruled on by several jurors, with an allocated period of time for a decision to be made. Once the votes have been tallied, the disputants are informed of the decision. At this point the jurors are compensated in pinakion for their involvement.
When fully functional, Kleros can be utilized for virtually any type of online transaction between parties, such as freelancing, crowdfunding, insurance, copyright or e-commerce.
This represents an interesting use case in the area of dispute resolution. It offers the particularly compelling proposition of providing a resolution process for those of limited means, particularly when the disputants are located in different companies.
As of this writing, the project, which is completely open source and is not backed by institutional investors by design, is currently engaged in the development of its minimum viable product.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
