The Kleros Ecosystem: the Future of Decentralized Arbitration
The Business Model of Justice as a Service.
In August 2016, Joel Monegro published a seminal article where he introduced the concept of fat protocols to describe how value creation and capture occurs in the decentralized Internet. He argued that the architecture of the World Wide Web was based on fat applications (Google, Facebook, Amazon) over a thin protocol layer (http, smtp, etc.) Web3, on the contrary, has an architecture of thin applications built on top of a fat protocol layer.
The concepts of fat protocols and thin applications are important to understand the evolution of blockchain ecosystems. Among them, the story of Kleros as a fat arbitration protocol which will support a myriad of dispute resolution applications.
What we Can Learn from the Bitcoin Ecosystem
Satoshi Nakamoto released the first Bitcoin client (v. 0.1.0) on January 9, 2009. Its purpose was to provide a user facing application for interacting with the Bitcoin Protocol. The early versions were not very user friendly (let alone aesthetically pleasing). However, back then, they were the only choice.
In the early days, the difference between protocol and application was not clear. The Bitcoin Core client (application) was the only way to access the network (protocol). But Satoshi’s vision wasn’t that all transactions would go through that wallet. Users should have the choice to access the network through software developed by third parties, provided they all used the same protocol. The goal was building an open protocol on top of which others would build new applications (by contrast with centralized web applications like Facebook, where you have to use Facebook application to access Facebook network).
As the number of bitcoin users increased, new companies entered the space. The creation of Coinbase, in 2011, was a critical industry milestone. It helped people easily buy bitcoin from their bank account and provided friendly user interfaces.
(A similar thing had happened in the early days of the Internet, when Marc Andreessen created Mosaic and then Netscape, putting graphical interface in the hands of users.)
The ecosystem blossomed. Other companies were created and soon enough users had the possibility of choosing among many competing services: Coinbase, Xapo, Jaxx, Copay and many others. Some of them were decentralized, others not. But they shared the fact of being built on top of the fat, open protocol of the Bitcoin blockchain. No one had to ask for permission to the Bitcoin Foundation or anyone else. All these companies were building on a permissionless open source network owned by the community.
From the point of view of users, a good thing about thin applications were the low switching costs. One could switch from a wallet to another almost instantly and frictionless. Since nobody owned the network, there was no lock-in. And applications started to compete for customers by offering better interfaces, a most responsive customer service and by focusing on specific segments or use cases.
What Can We Expect of the Kleros Ecosystem
The history of the Bitcoin ecosystem may give us some clues about the likely evolution of the Kleros ecosystem.
Kleros is a general purpose arbitration cryptoeconomic protocol which selects jurors and provides them the incentives for adjudicating disputes in a fast, affordable and transparent way. In order to test the system and to kickstart the network, we are building a user facing application that we will use to run pilots in the domains of e-commerce and other industries we have identified as early adopters.
In the long run, we don’t expect users to interact with this interface (as Satoshi didn’t expect that all bitcoin transactions would be done on the Bitcoin Core client). Arbitration will happen on customer facing applications built on top of Kleros protocol.
For example, contracts between parties will be created in an e-commerce platform that gives users the option to use Kleros as arbitrator by implementing the smart contract standard we proposed in this post. Arbitration will happen in a juror interface within that website or in a service provider that will access the Kleros protocol through an API. Imagine a decentralized Ebay where you resolve a dispute with one click of a button. It’s then arbitrated and completed using Kleros as a service plugged into their interface (users might never actually know they are using Kleros).
As the ecosystem becomes more mature, some applications will specialize in finance, others in e-sports, others in sharing economy, others in energy disputes and lots of different use cases.
The Kleros ecosystem will serve the interests of different stakeholders.
Parties: This is people doing transactions and potentially having disputes to solve. They will want to participate in Kleros in order to reduce their counterparty risk: the risk of the other party not complying with their end of the contract.
Jurors: These users can use their skills for evaluating evidence and adjudicating disputes. They will want to participate in Kleros because they will earn arbitration fees for their work.
Platforms: These are platforms connecting users supplying some good or service with other users demanding that good or service in e-commerce, freelancing, sharing economy, crowdfunding, etc. They will want to use Kleros because it provides fast, affordable and transparent arbitration. It solves their arbitration problem better than the alternatives.
Entrepreneurs: They will build business’ that depend on the Kleros protocol. As Coinbase built a company on top of Bitcoin, entrepreneurs will build customer facing dispute resolution systems on top of Kleros. They will want to use Kleros because it provides a network of jurors able to arbitrate a large number of disputes.
Developers: They will contribute to the development of Kleros’ open source technology and to the cryptoeconomics of the platform to increase Kleros security and develop more use cases.
Other actors. The ecosystem will surely include other actors such as educators (who will contribute to educating jurors) and consultants who will help platforms implement Kleros dispute resolution technology.
Why Decentralization Matters
In his post, Why Decentralization Matters, Chris Dixon argues:
“Centralized platforms often come bundled at launch with compelling apps: Facebook had its core socializing features and the iPhone had a number of key apps. Decentralized platforms, by contrast, often launch half-baked and without clear use cases.
As a result, they need to go through two phases of product-market fit: 1) product-market fit between the platform and the developers/entrepreneurs who will finish the platform and build out the ecosystem, and 2) product-market fit between the platform/ecosystem and end users.
This two-stage process is what causes many people — including sophisticated technologists — to consistently underestimate the potential of decentralized platforms”.
The success of Bitcoin and Ethereum was based on building an ecosystem. The same will be true for Kleros. This requires offering a compelling value proposition, not only to jurors and end users, but also to the entrepreneurs and developers who will build companies on top of the protocol. Decentralization is important for entrepreneurs and developers to be sure not to be locked into a “bait-and-switch” scheme. They will have a say in the development of the platform on top of which they are building.
This is why Kleros has to be a decentralized, open protocol. Nobody has to own the network. Those building on top of Kleros will compete between them just as those who build thin applications compete: by providing better customer service, by offering lower service fees, by offering products adapted to specific use cases…
Some of the actors will be centralized and some will be decentralized, similarly to how centralized exchanges (like Kraken and Poloniex) compete against decentralized ones (like Kyber).
As the ecosystem matures, Kleros will prove that it can deliver fast, affordable and transparent justice in a growing number of use cases. More customers bring more entrepreneurs, more jurors, more developers and an increasing number of use cases. The community will build the ecosystem on top of an open protocol. And this is how decentralized justice takes over the world.
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