With advances in technology, negotiations in the digital world have increased, such that there are many people who are involved in work and independent development (freelance) in the web environment or applications for existing systems and receive their payments in a digital way. However, when it presents problems between the parties, both for the contractor and for these independent entrepreneurs, it becomes difficult to resolve disputes and generally one party ends up paralyzed and loses their investment or work. Most of the time demanding this problem is expensive or only the law does not cover laws on other areas.
As before, there are many types of contests or disputes that can be avoided by using the Kleros ecosystem, a decentralized system to resolve disputes in any form. In the following report, we will explain in detail how it works and what applications the Kleros system can have.
What is Kleros?
Kleros is an ecosystem based on blockchain technology, built on Ethereum, to resolve all types of disputes between two entities in a fast, safe, automatic and economical way. Kleros takes advantage of crowdsourcing technology to apply game theory and economic incentives to develop a fairer and cheaper justice system.
Kleros encourages his justice system to use a mechanism very similar to Schelling Coin (created by founder Ethereum Vitalik Buterin), in which a question is asked to a series of agents, who have no communication between them, however, they all assume that they must respond with truth and their economic incentives will depend on the final outcome of the response, that is, all those whose votes coincide with the majority's response will get a commission and those who choose the opposite will be deducted from their funds by the same amount to the commission.
Draw a jury
Jury selection is determined randomly, however, it will also depend on the number of pinakion tokens (PNK, Kleros original tokens) deposited by the jury. The more PNK tokens they deposit, the more likely they are chosen. Users will be given an incentive to become judges, because of the arbitration fees obtained in each dispute.
Pinakions will have a dual function in the Kleros ecosystem:
- Protect the system from Sybil attacks (Sybil attacks occur when a distributed system is damaged by one entity that controls different network identities so the system does not know the difference between the original and the fake nodes). In this way one entity will have control of the jury system.
- Give the jury an incentive to vote honestly, in this way they will receive a part of the deposit from those who voted indistinctly (this will be explained further in the incentive system section).
It is important to point out that jury selection is done through a process that generates random numbers based on a work proof calculation scheme (which also works with proof of ownership) and verification of interactions. However, this process requires time, which can be a problem for resolving certain sub-court disputes in particular, but is considered for the future to use a faster and less secure method for cases like this.
Vote
The judges will vote after examining the evidence. Votes will be sent encrypted together with the Ethereum jury's address for reasons of cost allocation or cost penalty; after the vote, this cannot be changed. The election remains confidential, this prevents him from influencing other judges. Finally, when all the judges have voted, the option with the most votes is the winner and immediately the smart contract action is carried out. Judges who support the winning option will be respected and others will be punished (see incentive system).
Arbitration fee
Each party to the contest must pay fees for arbitration. To provide compensation to judges who support the court's decision. In addition, the winning party will be replaced by the amount invested at the end of the dispute. If one party is the only party to pay the arbitration fee, the smart contract will side with the paying party, without the need to make a dispute in court.
An appeal will require payment of fees for arbitration by both parties as well. However, the appeal applicant must deposit an additional fee per appeal; with the aim of covering up time wasted by the opposing party in the case of losing a dispute. In the case of winning a dispute, the applicant will return their additional fees.
Appeal
If a party is not satisfied with the court's decision, he can appeal and issue a new dispute. Each appeal will have twice as many judges and the cost of the appeal will increase with the number of judges. Therefore, each arbitration fee will grow exponentially with each new appeal. This is to avoid bribery attacks against judges.
Incentive system
After the Kleros system reached a decision in a dispute, tokens were distributed among the judges who voted in favor of the final decision. Judges who vote will be deducted from their balance; This mechanism is inspired by the Coin Schelling mechanism mentioned above, where judges will win or lose, depending on their votes.
The token will be divided equally among the winning judges, as shown in the following image (Bob has lost the dispute and has to pay arbitration fees).
The amount lost from the judge is calculated using the following formula:
Governance Mechanisms
Governance mechanisms are used to improve the functioning of the Kleros ecosystem. This is decided by a vote from the token holders or without them, by a delegate from their vote.
Governance can be used to:
- Establish policies to mediate disputes from certain sub-courts. This will determine the conditions for the dispute being won.
- Change sub-courses: add, delete or modify the hierarchy of several sub-courses.
- Change subcourse parameters: arbitration fees, session time, and minimum amounts to activate certain subregions.
- Change or upgrade Kleros smart contracts.
Application
Electronic commerce
In the e-commerce environment, Kleros not only offers great assistance to minimize the expenses of both parties, but also provides greater security in negotiations for both parties. Before paying for services or property, funds will be placed in smart contracts. If the goods are in good condition or service is in accordance with the agreement, the buyer can open funds. Otherwise, a dispute will begin and Kleros will decide to return the buyer's money or pay the seller.
Crowdfunding
Crowdfundings are collective financing networks, generally established on the internet which, through altruistic or other donations, manage to finance certain projects. Kleros can act as an entity to save funds directed to a particular project and return those funds to crowdfunding participants if the project does not comply with what is specified in its milestone.
Conclusion
Kleros is an ecosystem that enables dispute resolution in a fast, safe and cheaper way. Especially in negotiations and digital contracts or contracts made online or P2P. Not only can Kleros arbitrate disputes and offer a series of specialist judges who decide the best alternative quickly, but it is also a safe way to make smart contracts that support negotiations between the two parties. Especially for small and medium businesses that will spend their income in long, tedious and complicated (usually expensive) litigations when they face disputes.
However, it will also represent savings for large companies like Amazon, Ebay and others, by defining the sale of goods such as smart Kleros contracts between them and their customers, to avoid losses in disputes with customers, especially buyers who do not live in the same continent .
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