KLEROS BRINGING DECENTRALIZED JUSTICE FOR THE INJUSTICED

The world is experiencing an accelerated pace of globalization and digitalization.

If the Blockchain promise comes to a reality, in a not so distant future, most goods, labour and capital will be allocated through decentralized global platforms.
Disputes are natural part of any interaction.

What if there was a decentralized service that connects disputing parties to experts in the field? What if the agreement in place by the two parties gives the experts the right to vote on who is correct in a dispute?

Disputes will certainly arise. Users of decentralized eBay will claim that sellers failed to send the goods as specified in the agreement, guests in decentralized Airbnb will claim that the rented house was not as shown in the pictures" and backers in a crowd funding platform will claim a refund as teams fail to deliver the promised results.

Smart contracts are smart enough to automatically execute as programmed, but not to render subjective judgments or to include elements from outside the Blockchain. Existing dispute resolution technologies are too slow, too expensive and too unreliable for a decentralized global economy operating in real time.

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.

It is based on a fundamental insight from legal epistemology: a court is an epistemic engine, a tool for ferreting out the truth about events from a confusing array of clues. An agent (jury) follows a procedure where an input (evidence) is used to produce an output (decision).

INTRODUCING KLEROS

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. 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.

Kleros is a opt-in dispute resolution platform. Kleros is a network of jurors specializing in various categories who are available to settle disputes. By utilizing smart contracts, Kleros can escrow any funds in question until a resolution is put forth by the selected jurors. it is a fast, inexpensive, transparent, reliable and decentralized dispute resolution mechanism that renders ultimate judgments about the enforceability of smart contracts is a key institution for the Blockchain era.

NOW LET’S SEE HOW THIS PROCESS CAME ABOUT

Schelling points typically arise when communication is impossible, but also when, while communication is possible, no party can provide the other with a reason to believe that what he says is true.
Based on the concept of Schelling Points, Ethereum founder Vitalik Buterin has proposed the creation of the Schelling Coin, a token that aligns telling the truth with economic incentives.

If we wanted to know if it rained in Paris this morning, we could ask every owner of a Schelling Coin: Has it rained in Paris this morning? Yes or No". Each coin holder votes by secret ballot and after they have all voted, results are revealed.

The Schelling Coin uses this principle to provide incentives to a number of agents who do not know or trust each other to tell the truth. We expect agents to vote the true answer because they expect others to vote the true answer, because they expect others to vote for the true answer. . . In this simple case, the Schelling Point is honesty.

Arbitrated Contracts

Kleros is an opt-in court system. Smart contracts have to design a Kleros as their arbitrator. When they opt-in, contracts creators choose how many jurors and which court will rule their contract in case a dispute occurs. The idea is that they will choose a type of court specialized in the topic of the contract. This can range from different types of companies or careers or specializations, e.g.. Health, financial, software, insurance, E-commerce, engineering, human rights etc, will choose their court/Rep.

Options for jurors

Kleros is also providing options for the Jurors, Contracts will specify the options available for jurors to vote. These options could be as listed below:

• “Reimburse Alice" transfers funds to Alice's address.
• “Give Bob one extra week to finish the website" blocks new disputes for one week and removes this option from further dispute.
• “Pay Bob" transfers funds to Bob's address.

Privacy

Privacy is also very important when also solving disputes, because that also protects the image of the dispute solving company, and in that case Kleros is aware that solving disputes may require parties to disclose privileged information with jurors.

The contract creator sends {contract text; option list; salt} to each party using asymmetric encryption.
This way, parties can verify that the submitted hash corresponds to what was sent to them.
In case of a dispute, each party can reveal {contract text; option list; salt} to jurors which can verify that they correspond to the hash submitted. They can do so using asymmetric encryption such that only the jurors receive the text of the contract and of the options. All these steps are handled by the application users will run while using Kleros.

DO YOU WANT TO BE A JUROR?

THE PINAKION TOKEN

Users have an interest of becoming a Juror but before you can be a Juror, a probability is being drawn, the probability of being a juror for a specific dispute is proportional to the amount of tokens a juror deposits. The higher the amount of tokens it deposits, the higher the probability that it will be drawn as juror. Jurors that do not deposit Pinakions do not have the chance of being drawn. This prevents inactive jurors from being selected.

FUNCTIONS OF PINAKION

• Pinakion provides jurors the incentive to vote honestly by making incoherent jurors pay part of their deposit to coherent ones.

• 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.

JURY SELECTION

The Jury/Jurors are carefully selected. The amount of times a user is drawn for a dispute (called its weight) determines the number of votes he will get in the dispute and the amount of tokens he will win or lose during the token redistribution.

Imagine that 6 token owners signed up for the dispute and deposited 10,000 in total with the following distribution:

The image below gives a perfect description of tokens deposited and drawn jury members.

RANDOM NUMBER GENERATION

Random numbers are generated with sequential proof of work using a scheme similar to Bunz et al. Adapted to also work for Proof-Of-Stake blockchains.

4 Major steps are involved in random number generation

•Initialization
•Computing the master random value
•Getting the result on blockchain
•Getting all random values

VOTES

Votes are very necessary in carrying out judgement without the correct votes, judgement cannot be passed.

After assessing the evidence, jurors commit their vote to one of the options. They submit hash(vote; salt; address). The salt is a random value generated locally in order to add entropy to prevent the use of rainbow tables.

When the vote is over, they reveal {vote; salt}, and a Kleros smart contract verifies that it matches the commitment. Jurors failing to reveal their vote are penalized (see Incentive System section).
Kleros makes it that after a juror has made a commitment, his vote cannot be changed. But it is still not visible to other jurors or to the parties. This prevents the vote of a juror from influencing the vote of other jurors.

Strict measures are taken to make sure that Jurors provide a justified vote.
After all jurors have voted (or after the time to vote is over), votes are revealed by jurors. Jurors that fail to reveal their vote are penalized. Finally, votes are aggregated and the smart contract is executed.
The option with the highest amount of votes is considered as the winning one.

Arbitration fees

In order to compensate jurors for their work and avoid an attacker from spamming the system, creating disputes and appealing requires arbitration fees. Each juror will be paid a fee determined by the subcourt where the dispute is solved.
The arbitrable smart contract will determine which party will pay the arbitration fee.

WHAT IF SOMETHING GOES WRONG IN THE PROCESS?

In first instance, each party will deposit an amount equal to the arbitration fee in the smart contract. If one party fails to do so, the smart contract will consider that the court ruled in favour of the party who deposited the arbitration fee (without even creating a dispute in the court). If both parties deposit the funds, the winning party will be reimbursed when the dispute is over.

In appeals, both parties have to deposit the arbitration fees. The appellant also has to deposit an extra stake proportional to the appeal fees which will be given to the party winning the dispute. This way if a party makes frivolous appeals to harm the opposing party, the opposing party will get a compensation for the time loss, while if the appeals are finally ruled to be legit, the stake will be returned to the appellant.

Appeals

If, after the jury has reached a decision, a party is not satisfied (because it thinks the result was unfair), it can appeal and have the dispute ruled again.
There is also possibility of appealing a high number of times, it is important to prevent an attacker from bribing the jurors.

INCENTIVE SYSTEM

It’s very necessary that the jury vote honestly because jurors whose vote is not coherent with the group will lose some tokens which will be given to coherent jurors.

The tokens are divided between the coherent parties proportionally to their weight. Parties are considered coherent if they voted as the majority. You can see an example of token redistribution in the Image below here Jurors could fail to reveal their vote. To disincentivize this behaviour, the penalty for not revealing one's vote is twice as large than the penalty for voting incoherently (2.α.min activate􀀀weight).
This incentivizes jurors to always reveal their vote.

Attack resistance

Buying half of the tokens

The fact that one party could afford all the tokens at current market price does not mean it would be able to buy half of them. Tokens, contrary to most physical assets, have increasing marginal costs. They will be dynamically priced on exchanges, should one party buy a significant part, the price would go up due to market depth making it increasingly more costly to acquire tokens.

Bribe Resistance

We know in the general world now, bribing is now a common thing but Kleros has brought “Appeals” which is an important mechanism against bribes. Bribing a small jury is relatively easy. But since the victim always has the right to appeal, the attacker would have to keep bribing larger and larger juries at a steeply rising cost. The attacker would have to be prepared to spend an enormous amount of money to bribe jurors all the way to the General Court and would very likely lose in the end. To control the verdict of the whole court, the attacker would need to bribe token holders holding more than 50% of the pinakions in total.

Court Arborescence

Each subcourt has some specific features regarding policies, session time, cost, number of drawn jury members and tokens activated. Each token holder can register in at most one subcourt of each court they have token activated. This will stop the case of users trying to choose all of them to get the maximum amount of arbitration fees from their tokens, hence everyone has a fair share and things are done rightly.

Kleros Governance Mechanism

As Kleros protocol gains users and use cases, it will be necessary to create new subcourts, to make changes in subcourt policies and parameters and to update the platform to new versions with additional features.

Users could choose to delegate their vote in some subcourts but not in others. Note that delegates do not need to be humans. They can be smart contract implementing arbitrarily complex voting rules (for example voting on updating fees based on market data).

The governance mechanism can be used to:

A. Set policies:

Policies are guidelines about how to arbitrate disputes. They are the equivalent of the laws in traditional justice systems. They determine which party should win a dispute when particular conditions are met. They can be specific to a particular subcourt.

B. Modify the subcourts:

(a) Add subcourts.
(b) Remove subcourts.
(c) Modify subcourt hierarchy.

C. Modify parameters in subcourts:

(a) Arbitration fees.
(b) Time of each court session.
(c) Minimum amount of tokens to be activated.

D. Change one of the smart contracts Kleros rely on
This allows arbitrary changes. This can be used for improvements or in an emergency if it appears that some elements of Kleros are not working properly.

APPLICATIONS/ USE CASE SCENARIOS