How Kleros Can Disrupt the Legal Services Industry

What benefit does blockchain really bring to the planet? Boiled down, it’s the decentralization of trust.

The principle of mass trust can be applied to many core aspects of our everyday lives. We trust our cars won’t spontaneously combust. We trust our college degrees will get our foot in the door to good professions. We trust our legal system to be judicially balanced.

Some of these socioeconomic machines could be improved or supplemented by cryptocurrencies, especially as the internet continues to expand into many aspects of our lives.

In this article, we look at how blockchain technology can improve millions of lives by doing what it does best: decentralizing trust.

More specifically, we’ll look at how a blockchain dispute resolution company called Kleros is looking to disrupt the legal service industry by incentivizing honest dispute resolution with financial rewards.

Where traditional court systems fail the public, Kleros is looking to pick up the slack by putting control of the courts into the hands of everyday people like you and me.

Small Claims Court Isn’t Small Enough

Hiring a lawyer is expensive! Court cases, in general, are expensive. Consider the scenario where there’s a dispute over a few hundred dollars and both parties live in different countries.

Without even considering the headaches involved with international court cases, the cost of the court case could simply be greater than the amount of money being disputed over. And this type of scenario will likely happen more and more often as online business continues to expand.

The steady advancement of technology is in the process of creating a more globalized world. There are more people working remotely than ever before — almost 3% of the entire US workforce (at least half the time).

On top of that, if cryptocurrencies are worth their salt as an asset class, global online payroll will be streamlined by their existence.

As more business is handled completely online, there needs to be a way to quickly (and cheaply) resolve a large number of small disputes in real time.

Furthermore, if cryptocurrencies become the go-to asset class for online business due to the superiority of decentralization and smart contracts, it only makes sense that an online dispute resolution system would take advantage of these same secure, trustless mechanisms.

In that case, we would need a blockchain project that provides an opt-in dispute resolution service.

That’s where Kleros comes in.

Just as Bitcoin brought “banking for the unbanked”, Kleros has the potential to bring “justice for the unjusticed”.

— Kleros Whitepaper

The truth is many people don’t have access to a fair court system. Many also don’t want to go through the hassle of hiring a lawyer for the traditional court system. What’s more, some disputes just aren’t made for the traditional court system and need other resolution methods.

The demand for dispute resolution is certainly there, but only if they can be sure it’s based on a fair, secure process.

Let’s take a look at what Kleros will base the integrity of their court system on.

How Kleros Works: The Basics of Focal Point Game Theory

The Kleros ecosystem is based on a game theory concept called Schelling Points (also known as Focal Points).

Imagine a situation where a group of 5 people needs to coordinate their behavior with one another. The problem is, communication between them is either impossible, or nobody can be certain the others are telling the truth.

How is it possible to ensure the group of people is able to coordinate?

This question led the founder of Ethereum, Vitalik Buterin, to suggest the idea of a ‘SchellingCoin’ back in 2014.

Without going into depth, the concept is pretty simple. Imagine the 5 people mentioned earlier each have 1 SchellingCoin, and are asked “Has it rained in Paris this morning? Yes or No”.

Each person then stakes their 1 coin in order to secretly cast a vote that answers the question above. Once all 5 votes are cast, the results are revealed.

The members who voted with the majority are rewarded 10% of the amount they staked. Those who voted with the minority lose 10% of the amount they staked.

Source: Kleros Whitepaper

There’s much more to the Kleros ecosystem, and we’ll cover more of it next, but the Focal Point game theory is at the core of it all.

The Kleros whitepaper explains how they’ve expanded on the theory, stating:

The incentives design underlying Kleros is based on a mechanism similar to SchellingCoin, slightly modified in order to answer to a number of specific challenges regarding scaling, subjectivity, and privacy to make agents engage in adequate behavior.

So now that we know the basics, we’ll take a quick look at a Kleros’ native token allows the entire ecosystem to remain balanced.

Pinakion Token

The Pinakion (PNK) is the ERC-20 token that allows for financial incentive within the Kleros court system. Its name is a reference to the bronze plaques that citizens of ancient Athens used to identify themselves.

Pinakion plays 2 main functions:

  1. Protects the system against a sybil attack.
  2. Provides an incentive for the jurors to act honestly and coherently.

When a juror wants to help with a relevant case, they’ll stake their PNK. The probability of being drawn as a juror for a specific dispute is proportional to the number of tokens a juror stakes.

After PNK submission has been finalized, a random number generator is used to select the Jurors that will take the case.

Keeping everything covered in this article so far in mind (the trend toward increased online business and a method for ensuring justice is served) — let’s take a look at how the Kleros court system is currently out and working, right now.

Decentralized Token Listings on Ethfinex

It’s one thing to talk about theoretical use cases for a crypto project (which we’ll briefly cover next), but Kleros has already rolled out a working product that’s being used.

For context, consider that only 36 out of the top 100 cryptos by market cap currently have a working product being used.

Kleros has partnered with the ERC20-focused exchange Ethfinex to create the first ever decentralized token listing process.

The traditional listing process required the Ethfinex team to pick the projects they deemed fit for their exchange, then put the winners up to a community vote.

With the Kleros partnership, cryptocurrency projects (or any user) can submit their own tokens (or favorite tokens) to be considered for listing. Their tokens are then exposed to a vetting process, and finally, a community vote.

Ethfinex token listing

You can see which tokens are currently on trial, and otherwise check out the platform by visiting the Kleros token listing dapp.

Right now there are jurors working on approving tokens to be listed on Ethfinex, as well as jurors taking on cases in which real money is involved — sometimes thousands of dollars. All of this is happening in real time at the Kleros Court.

Here are just a few of the ways this decentralized court system can be applied to real-world use cases.

Kleros Use Cases

Kleros can be applied in many instances which are not (or even are) covered under existing court systems or dispute resolution methods.

Arbitration

Two people from different continents decide to work together on a project. One owns the project, the other is a freelancer being hired. After the scope of work is defined and terms are agreed upon, the freelancer gets to work.

Upon delivery, the project owner notices the work is not satisfactory. A jury of experts is drawn to analyze evidence and vote on a verdict.

Insurance

In the case where there’s a dispute between an insurer and the insured, a resolution needs to be made to determine how the funds will be split up. Also, there are situations where an insurance claim is linked to multiple insured parties, and an opt-in dispute resolution system could be used to settle the case.

Crowdfunding

Imagine the founders of a successful Kickstarter crowdfunding campaign take off with everyone’s money, without delivering a viable product. Those funds could have been locked in smart contract escrow and returned to the investors.

E-Commerce

Ever purchase a product online, only to find it doesn’t come close to advertised standards? If you’re buying from a reputable website, returns are usually taken care of without a problem.

But if you’re purchasing from a new website, opting into Kleros would give you peace of mind to go forward with the purchase.

Want to learn more about Kleros? Check out their website, read the whitepaper, follow their Twitter and blog, and join their Telegram group.

Leave a comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.