Dispute Resolution Using Blockchain Technology: The Kleros Example
The prominence of the blockchain has brought about room for even more disputes through its ability to transact and transfer a wide range of digital assets at unprecedented levels of security. More disputes are bound to arise, and suitable and ingenuine dispute resolution mechanisms must exist to resolve such disputes. These disputes arise out of smart contracts on the blockchain, and arbitration on the blockchain has been developed for resolution of such disputes.
Various platforms such as Kleros and Aragon have explored dispute resolution mechanisms implemented on the Blockchain, with the former having settled up to 200 disputes since 2018. Kleros is hinged on the workings of the jury system which is most favourable and efficient to its model. The technology is leveraged on the technologies of crowdsourcing, blockchain, and game theory to arbitrate on disputes and deliver correct solutions at little cost. The decentralised decision protocol arbitrates on a range of disputes with binary outcomes in various contracts, from very simple to highly complex ones and relies on game theory to incentivise jurors to adjudicate cases fairly. It bears parallels with the regular arbitration process in the securing of evidence, selection of jurors, and is fully automated. As opposed to the regular dispute resolution mechanisms, this is fast, convenient, inexpensive, and most of all, decentralised.
Selection of Jurors
In the selection of jurors, the system relies on a process which allows candidates to self-select using tokens to serve as an economic incentive to settle disputes before them. The jurors in the dispute are selected from a pool of jurors, after the jurors have staked a relatively high amount of tokens. Essentially, the higher the amount staked, the higher the chances of being selected as a juror. Just like the arbitrators in arbitration, the jurors have an economic interest vide their roles as arbiters in the dispute: collection of fees in exchange for their work as arbitrators. The rationale behind this system in this online dispute resolution mechanism is that it provides the jurors the incentive to vote honestly, by making incoherent jurors i.e. jurors who do not agree with the ruling, to pay a part of their stake to the coherent ones. The Incentivisation Model dictates that the majority carries the vote and jurors must vote honestly, because a juror who votes inconsistently with the other jurors will not receive arbitration fees, and all his staked tokens will go to the other jurors whose votes are widely consistent.
Juror’s Votes
After the jury has been selected, its function is to weigh the evidence available, and pass its verdict based on the facts and evidence available. Upon assessment and weighing of evidence, a timeline for voting is set, and the jurors commit their votes to one of the options as presented by the Smart Contract within the set timeline. Once the date for voting elapses, jurors are to reveal their votes, and any juror who fails to do so is penalised. Throughout the voting process, the juror’s votes are invisible to the parties and the other jurors to prevent the vote of one juror from being seen by another juror. After the votes have been compiled, the votes are aggregated, the smart contract is executed, and the option with the highest number of votes is considered the presiding one. Each juror who delivers a coherent final ruling is entitled to a fee to be determined by the sub-court where the dispute is solved, and the arbitrable smart contract will determine which party will pay the arbitration fees.
On the flipside of the system, there may be incidences such as bribery, where a party may bribe the jury in the court of first instance. Even on appeal, the briber will have to bribe all jurors at an increased cost (because of the amount staked and arbitration fees) and spend a fortune to keep bribing on all appeal juries, whilst standing a strong chance of losing in the end.
Appeals
As is the case with the conventional court system, if a party is aggrieved by the jury’s decision, such party is entitled to an appeal, and each new appeal instance will have twice the number of jurors in the previous sitting and an additional one, ultimately increasing the number of jurors and the arbitration fees. Simply put, the more the appeals, the higher the amount of jurors, and the higher the amount of arbitration fees to be paid.
Conclusion
Kleros, patterned after the jury system, works for the benefit of the public, instead of centralising adjudicatory powers in a judge, who may not be well versed in the subject matter of the dispute. It ensures that the justice system is not centralised in one part of society that may easily manipulate results or abuse the justice system, but for the public good, and is decided by the public. Furthermore, fact finding is easier and does not require legal knowledge or the hiring of lawyers. It is indeed expected that resolving disputes related to issues as technical as this will require professional insights, such as additional expertise and specialization in blockchain and smart contracts. However, blockchain arbitration is flawed by its failure to recognise the provisions of the New York Convention, 1958, which provides that parties undertaking to submit to arbitration shall do so by an argeement in writing. This means that agreements in code run afoul of the Convention and are unenforceable. Furthermore, the Kleros model dictates that decisions are only made based on the evidence provided on the blockchain, and not directly from the disputants. This conflagrates The New York Convention, 1958 which provides that parties should be given the opportunity to present their case. These frailties are what have made conventional arbitration the most suitable dispute resolution mechanism for smart contracts. Using this approach, the smart contracts can be tethered to an arbitration clause, the formal requirement of a written agreement is fulfilled.
As the blockchain space keeps expanding, more disputes will inevitably arise in affected sectors, notably finance, e-commerce, intellectual property among others and most certainly, complex disputes will remain within the purview of the traditional dispute resolution systems such as litigation and arbitration. However, with huge technological advancements gaining new strides and building its own ecosystem, certain disputes will be best resolved using these systems. In fact, weight may even be lifted off the shoulders of the conventional systems, as less complex and small claims disputes may be resolved using this system because of its advantages in flexibility and automation. However, until the frailties in blockchain arbitration are overcome, conventional arbitration will remain the most preferred and suitable solution for dispute resolution.
