Introduction

The excitement around blockchain technology continues to soar as we see limitless opportunities open up for individuals, investors and corporate bodies. Each day, new tokens are introduced, large volume of blockchain transactions are carried out and more people embrace the blockchain revolution. It is really amazing how far we have come since bitcoin was launched in 2009. As we continue to explore this uncharted territory of blockchain application, it just gets better. The future of blockchain technology is simply astonishing! However, there are biting issues in the crypto sphere that need to be addressed.

Like any other field of human endeavor, blockchain technology has its challenges. Looking from scalability and acceptability to technical requirements, there are no shortage of challenges for the blockchain industry. There no shortage of efforts to solve these problems too! So join me in this article as we examine one of the critical issues facing blockchain technology: How do we effectively settle conflicts or disagreements between transacting parties?
Before we see how, consider why today's conflict resolution system is greatly flawed and not well suited for most trade disagreements.

The Problem with Today's Judicial System

The major provision for conflict resolution today is litigation. Because of this, numerous court cases involving individuals, firms and corporate bodies continue to linger. People tend to disagree on many issues. Fraud, dishonesty and unfair treatment in personal and business dealings happen everyday. So for an aggrieved party, the only seemingly reasonable way to obtain justice is to go to court. You see that there will be no end to court cases. However, the disturbing fact remains that taking a matter to court has proven ineffective in most trade disagreements. The reasons are simple and clear to see. Consider three of them:
1. The Court System of justice is alarmingly slow: Several court cases have dragged on for many years. The defendant and complainant continue to spend lots of money and time to pursue the case. In some ironic situations, the cost of litigation becomes more expensive than the money involved in the initial business transaction. So the courts are never swift in rendering justice.

2. Litigation is expensive: Assuming courts do settle conflicts quickly, how about the costs. Legals costs are skyrocketing. For conflicts running into thousands or millions of dollars, it may worth the time and money to pursue the case. But how about spending $20,000 dollars to resolve trade disagreements when the actual business deal is worth $900? Does not it make sense? Common sense demands that there should be an alternative solution to resolve low-key business conflicts other than going to court. So for this type of disagreement(which happen rather frequently) involving small money, we need to look elsewhere for resolution.

3. Courts are biased: Bribery and discrimination is rife with the courts. If the defendant or complainant is wealthy, they can actually pay to obtain favorable judgement. In this case, justice is perverted and sadly, it happens quite often.
From the above presentation, it is obvious that courts are not always the best place to go for business disagreements.

Apart from going to court, some businesses have an internal conflict resolution provision. Most times, there are no standard procedures in such internal arrangements and this leads to poor handling of disputes. In most others, there are no justice systems at all.

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.

Consider one such unique mechanism called Kleros.

What is Kleros?

Kleros is a decentralized and fully automated dispute resolution framework to handle every form of trade disputes. Based on trade agreements made by transacting parties, Kleros uses a selection of jurors who are specialists in specific trade categories to decide the most equitable way to implement the terms of a smart contract. If there is a disagreement between parties in business, Kleros withholds trade funds until the Jurors arrive at a final decision. Honest Jurors are rewarded with economic incentives. Everything happens automatically, fast and in real-time!

Kleros leverages the technologies of crowdsourcing, blockchain and game theory to develop a justice system that produces true decisions in a secure and inexpensive way.

In the technical analysis, we will understand how Kleros delivers the best results in conflict resolution.

Kleros - Technical Analysis

How Jurors are Rewarded:
A juror or specialist in a trade category must vote in the process of resolving trade disputes. Each voter is expected to make the same choice with other voter's though without their knowledge in order to receive an incentive.

The Kleros fair voting and reward system of Jurors works perfectly because it is a derivative of the Schelling Coin mechanism which has proven successful. Consider a brief explanation:

The Schelling point mechanism is used where interacting parties are expected to arrive at the same course of action but communication is impossible. Then, they rely on a focal point of each other's expectation (also called Schelling point after Thomas Schelling). The focal point of expectation is simply what one party believes is the correct thing to do in a particular situation. He also believes that the other party believes that that is what should be done in the specific situation. If both parties are challenged and are expected to make the correct choice from many options without the other's knowledge, they are likely to make the same choice. Reason? (1)Both of them believes a particular choice is right. (2) Both of them also believes that the other believes that a particular choice is right. (3) Both of them wants to arrive at the right choice.
The Schelling coin was later proposed based on the Schelling point. Each Schelling coin is used to reward holders for doing the right thing.

The Kleros incentives system is a modified type of The Schelling coin mechanism. In Kleros, each Juror is rewarded with Pinakion Token for being part of a group that voted coherently.

Smart Contracts Arbitration: Unlike the usual smart contracts we know in blockchain technology, Kleros smart contracts are arbitrated. This is to activate the dispute resolution mechanism of Kleros. The main court is divided into smaller courts of specific trade categories. There are Jurors too. When two parties enter a trade and choose Kleros as a conflict resolution mechanism, the smart contract design includes selecting the number of Jurors, and the court that should handle a potential dispute. Each court should handle a dispute that falls under its jurisdiction. For example, a freelancing dispute should be handled by a sub-court under E-commerce (see the illustration below).

The pinakion and how Jurors are drawn: The pinakion is a token that provides incentives for the work done by Jurors. It also serves as an entry requirement into the Jurors pool from which Jurors are picked to handle each case. Jurors who wants to join the pool stake some pinakion token and the volume of their stake determines the probability of being selected. This system discourages inactivity since Jurors that did not make a stake cannot be drawn into the pool. Also, the tokens commited are temporarily frozen can be unlocked after being selected and at the very end of resolving the dispute.

The Pinakion plays two fundamental roles: (1) It provides an incentive for coherent voting and punishes incoherent jurors by making them lose some of their staked token. The interesting part is that some of the fund collected from the dishonest voters is used to pay the honest ones. (2) It enhances a fair system of selection since each juror MUST deposit some token to be drawn. No one can maliciously increase their frequency of being drawn by the system because the drawing process is not at random.

Selecting Jurors from the pool: The final selection of Jurors is done randomly and the probability of being selected is enhanced if the juror had deposited more tokens during the drawing process. A juror will win or lose tokens depending on how many times he or she is drawn. The number of times drawn also determines how many votes they are allowed to cast.

The Image below shows a sample distribution of 10,000 tokens deposited by 6 Jurors.

For a dispute that requires 5 votes, 5 tokens are drawn out of the 10,000 that were deposited. The drawn tokens (as represented in Figure 3) are number 2519, 4953, 2264, 3342 and 9531. Token owners B, C and F are drawn with a weight of 1. Token owner D is drawn with a weight of 2. Deposited Pinakions (except those paid by incoherent jurors) can be taken back after the court reaches a final decision.

Note: To ensure complete equity and fairness in selecting the jury, the random numbers are produced using sequential proof of work. This algorithm is well adapted to also work for Proof-Of-Stake blockchains. It ensures that each self-selected Juror has an equal chance of making the final Jury to judge a dispute. More insight on this is found on page 5 of Kleros whitepaper

The Jury votes from predefined outcomes: One element that the contracting parties decide on during contract design is the possible options that jurors can vote from. It also specifies what should be done when any option is selected.

The table below shows a sample of possible options and corresponding actions to be taken when activated

The Identity of the Jurors: The identity of Jurors is protected to avoid abuse of the system.

Since decisions made in Kleros affect the allocation of resources, there is an incentive for parties to try to bribe or intimidate the tribunal. Anonimity is intended to protect jurors from intimidation and retaliation. It also simplifies the process of users becoming jurors and avoids the costs of identity verification. By providing a secure environment and simplifying the selection process, Kleros greatly enlarges the pool of potential jurors. This results in lower arbitration costs and the democratization of access to justice.

Other technical features that make Kleros exceptional

There are several other components that make Kleros secure, fast and very efficient. For example, consider other charcteristics of the votes from the Jury:

How Jurors votes are cast and counted: Kleros was built on Ethereum, so the votes are made unique because the are cast using the Juror's Ethereum address. This promotes originality and prevents vote copying.
Jurors can reveal their vote and commitment to another Juror but risk having their pinakions stolen by that one. Ofcourse, they can choose to reveal only their vote, giving the other party no chance of verfying such claims. Either ways, this nice feature discourages jurors from needlessly exposing their votes to other jurors.
At the end of the voting period, the votes are revealed and counted. The option with the highest votes is implemented and the contract executed.
Note: Jurors that refused to reveal their votes at the end of the voting period are penalized severely to discourage this type of behavior.

Token redistribution: After a decision is made and the smart contract executed, the token committed by the Jurors are redistributed to those who voted coherently. Those who voted against the majority loss some tokens.

The illustration below explains a sample toke redistribution event

In case of appeal, the tokens are redistributed at each level according to the result of the final
appeal. If at one level no one voted coherently, the tokens are given to the winning party.

Cost of Arbitration: This is not fully set up but there is a working structure on ground. Each subcourt pays the Jury that handled disputes in that category. The subcourt will also determine who pays the fee - either the party creating the dispute or the one appealing it. The details of the fee structure enshrined in the smart contract is subject to further analysis as the Kleros team works to make this system perfect.

Making an appeal: Either parties of a dispute who is not satisfied with the verdict can appeal. However, the system have been designed to prevent frequent cases of appeal. It achieves that by the following:

• The Jury is given incentives to explain comprehensively how they arrived at a certain decision.
• The Cost of appeal is greatly increased with each appeal made.

Note: The capacity to appeal many times protects the system from abuse and greatly reduces the possibility of an attack through bribery.

How Jurors are assigned courts and subcourts: Users who sign up as Jurors start from the General Court and head to a subcourt which deals with their area of specialization. The transition follows a specified path. On the general court where their token is committed, each Juror can register a maximum of one subcourt. See the chat below for a clearer insight:

Governance Mechanism: Kleros is designed to grow with the users and their transactions. The system will need to be updated with additional features to cater for the needs of new and existing users in each subcourt. Token holders are given the right to vote for these changes using a liquid voting mechanism. The weight of a vote is proportional to the number of Pinakions they have. Each user can chose to vote directly or delegate the voting.

This chart illustrates the liquid voting mechanism:

in Figure 6. Vote delegation can also be subcourt specific. 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).

Does Krelos Work?

YES! Krelos works perfectly well. To prove it, here is an experiment that illustrates the working principles of Krelos. This experiment is called Doges on Trial. In this experiment, users can upload images to the site and challenge any image to prove whether its a Doge or not. This creates a dispute. The site uses the uploaded image as evidence and passes it on to Jurors who make the final decision.

Here is an illustration of the entire process:

If you have an Ethereum wallet, you can play this game by clicking here.

Kleros token Sales

For Kleros tokens sales, the Interactive Coin Offerings (IICOs) method will be used. To understand how (IICOs) work, click here to read an article that explains it.

The token crowdsale is divided into 3 phases. They are as follows:

Phase 1. Full Bonus Phase. May 15 to June 15. If you make your bid during this stage, you will get a 20% bonus. If you withdraw your bid during this stage, you will be refunded your entire contribution. For example, if you contribute 10 ETH on May 15 and then decide to withdraw on June 14, you will be refunded the whole 10 ETH.

Phase 2. Partial Withdrawal Phase. June 15 to July 1. On June 15, the bonus starts to decrease linearly. If you decide to withdraw during this phase, you will only be able to do so partially and you will have a ⅓ penalty on your bonus for the part that is not withdrawn. For example, if you make a contribution of 10 ETH on June 20, you will get a ~16.666% bonus. If you withdraw on June 25, you are refunded 3.75 ETH and your new bonus is ~11.111…%.

Phase 3. Withdrawal Lockup Phase. July 1 to July 15. Starting July 1, voluntary withdrawals are no longer permitted. Also, new contributions must have a personal cap that is strictly more than or equal to the current valuation.
At the end of the sale, tokens are distributed to participants who stayed in the sale and ETH is refunded to participants whose personal cap was exceeded.

To find more information about the token sales, click here.

Kleros token allocation

Team Members: 18%
First Round of Token Sale: 16%
Airdrop: 4%
Subsequent Rounds and Juror Incentive Program: 50%
Kleros Cooperative Development Reserve: 12%

Use case

Charles does dropshipping and specializes on delivering perishable canned foods to his clients. He has lost consider money in his recent deliveries because the package delivery services he contracts usually delays making the deliveries. Charles charged his package delivery company and contracts a new company to deliver the goods. All has gone well until last week when a delay resulted in delivering spoilt food to the client which was rejected.
Charles decides to find a solution online. He stumbled upon Krelos and decides to give it a try. He used Krelos to design a smart contract with a new package delivery firm. Charles is rest-assured that they package delivery firm will be held responsible for any losses resulting from package delay.

Conclusion

Krelos is a perfect dispute resolution platform built on the blockchain. it can handle all trade disagreements. It is fast, transparent, secure and cheap. Business partners are rest-assured that only experts look into a dispute without the bias, or lots of compromises found in traditional court systems. Krelos has redefined conflict resolution!

The Team

The Advisors

Strategic Partners

Media Report

Get firsthand information about Kleros

Kleros Website
Kleros WhitePaper
Kleros Medium
Kleros YouTube
Kleros Telegram
Kleros Twitter
Kleros Github
Kleros Forums

Watch this short intro video

Who Organized this Contest?

This contest was organized by @originalworks. You can participate in the contest by clicking here.

Image credits

Unless otherwise indicated, all images in this article were taken from the Kleros Website and whitepaper.

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