Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Clement Lessage & Federico Ast: Kleros – Crowdsourced Arbitration for Blockchain Applications

Episode Date: August 30, 2018

Dispute resolution is the process by which contracting parties settle disagreements. Whether in the form of litigation, arbitration, or other means of mediation, every contract defines a dispute resolution mechanism and jurisdiction. It is the metaphorical Lady Justice, measuring the strength of each party’s arguments, and reaching a decision based on evidence. Smart contracts are unique in this sense. Unlike traditional contracts, they are rigid and deterministic. Written in computer code, nuances in human language and vagueness of terms do not exist in this realm. There are no judges, no jury, just calculated execution. The DOA hack and other similar events have prompted observers of the space to express the need for smart contract dispute resolution. Some have suggested “exit switches” that would allow for human intervention when edge cases appear. But could the arbitration process be integrated into the smart contract and on the blockchain? We’re joined by, Federico Ast and Clement Lessage, respectively CEO and CTO of Kleros. This dispute resolution layer provides contracting parties with a fast and secure process for arbitration. The system is broken up into courts and sub-courts, each specializing in specific matters like e-commerce, insurance, and transport. In the event of a dispute, parties submit their case to Kleros, where a crowd of expert jurors analyses the evidence. When all votes are cast, the decision is enforced by the smart contract, which may unlock funds, or provide parties with additional time to fulfill the terms of the agreement. Clever incentive mechanisms reward jurors who vote with the crowd, making Kleros resistant to bribe attacks and collusion between jurors. Topics covered in this episode: Federico and Clement’s respective backgrounds, including a crowd arbitration project called Jury. The vision behind Kleros and the problem it addresses The case for crowd-sourced jurors as a means to find the best judgment The game theory and incentive mechanisms embedded in Kleros Kleros’ hierarchical system of courts and sub-courts How jury selection works and who administers courts The system’s built-in governance mechanism and its purpose The Kleros token, Pinkaion coin, and it’s utility in the system “Doge on Trial,” a clever experiment to find authentic doges The current status of the project and roadmap Episode links: Kleros Website Kleros White Papper Doges on Trial Why Decentralization Matters by Chris Dixon This episode is hosted by Meher Roy and Sébastien Couture. Show notes and listening options: epicenter.tv/250

Hi, welcome to Epicenter, the show at Stokes about the technologies, projects, and startups driving decentralization and the global blockchain revolution. My name is Sebasti Kuchio. And I'm Meher Roy. Today, we are having a conversation with Clemo Lesage and Federico Aast from the project Claros. Claros is a project that seeks to merge the field of decentralized arbitration arbitration with arbitration with blockchain technology to create decentralized arbitration where commercial disputes and other disputes can be solved through a group of decentralized crowdsource users Federico and clemo welcome to the show thanks of how in us thank you so we can start with Federico uh federico tell us a bit about your background and

how you, what's your journey towards building Cleros? So my name is Federico Azt. I am from Buenos Aires, Argentina. I studied economics and philosophy in the university. Then I started working in the online media and the biggest newspaper in Argentina. Then, you know, in Argentina, we have lots of problems in institutions. You may have noticed that Argentina had problems with currency. with governance in the history.

So people here became quite interested at a very early stage about blockchain technology, right? So what is this idea of a currency that doesn't depend on a government and a currency that is in control of the people, right? And at a very early stage also in Argentina, people started to be interested in the applications of blockchain not only to currencies, but also to the governance processes. Some projects from Argentina, for example, Democracy Earth started to think of how to use blockchain for improving voting system, for preventing fraud in elections. But no one was really taking a look at a very important part of governance of a society that is justice systems, right?

You have people don't have very good access to justice in lots of the world because access is very expensive. Justice is very slow. So I started looking into that part of governance. And so that's what made me become interested in how blockchain technology can be leveraged for making better institutions, right? In particular in justice. So I started working on a concept I called back then crowd jury that was the crowd source of juries. And so we met with Clement about a year and a half ago. And we were working on quite similar stuff at different sides of the ocean.

And we were introduced by a common friend. I would say that, you know, Bitnation is founder. So she met Clemont at a hackathon and she knew I was working on decentralized justice and she said, hey, guys, you should meet and start building this together. And so here we are. So what was crowd jury and how did your initial ideas differ from Keros?

So the idea of crowd jury was basically the use of, yeah, the main concept was use of crowdsourcing for creating a court. So in the end, you know, if you think of what a court is, it's basically a group of men that they have to analyze information about some event that happened or didn't happen, right? So in the end, a trial is like, so you have some guy saying something about the other

and you have to see what the truth is, right? We have learned through the rights of the Internet that some processes of information analysis can be done faster and cheaper by using the collective intelligence, right? For example, Wikipedia, so instead of building a Wikipedia like Britannica with one centralized agent and different experts writing, so you can crowdsource the information flow through the internet people, right? So I said, what if we could crowdsource the information analysis that's basically a trial

into the crowd, right? Right. So that was the idea of the behind the concept of crowd jury. It was like very, very early stage. So I think when I started thinking about that, so not even Ethereum was launched. It was like a really, really early stage idea. But the technology was not yet there. But some of the of the main concepts were already in place about the use of crowdsourcing. But the idea. But the idea of the main concepts were already in place about the use of crowdsourcing. But the idea of CrowdJury did not have the game theory shelling point principle on which Claros is built. So the engine of Cleros was not present of the early ideas I had about crowd jury. And Clement, why don't you tell us a bit about yourself and your background? You came from machine learning and transitioned over the cryptocurrency, if I'm not mistaken. Can you tell us about that transition? Yeah, so actually in computer science, was in first.

France and the US. And even when I was student, I was interested by crypto, even before the Ethereum sale, mostly like playing a bit with Bitcoin, but nothing professional just like an obese. And when I finished my studies, I had Ethereum, which was offering way more possibility to build application about what Bitcoin was doing at the time. time I started being a Bitcoin hobbyist. And so I was interested by Zeddao. I was interested by

dispute resolution even at the time of Bitcoin. At the time of Bitcoin, dispute resolution was basically multi-signature. You have buyer, seller and an arbitrator which each have a key of a multi-sick address and is a transaction goes as expected, both the buyer and the seller sign. And if there is a dispute, the arbitrator, sign plus the buyer or plus the seller depending of the arbitrator ruling. So it was like the only idea of automating the enforcement of a dispute resolution process. Then I got also interested by e-commerce, this is like e-commerce, stuff like OpenBazaar. And I was, okay, like what is lacking in OpenBazaar is clearly a dispute resolution system,

because it's interesting to buy something to anyone on the internet, but if I cannot trust him, or do I know that I'm not just going to get robbed of my money? And as a seller, if I send the product before getting the money, it's the opposite. It's the buyer which can rob me. And just having one source for Lazavitrator was not a method which was acceptable, because we need to both trust one person in control. common and we can do so, but only if we have large institutions that we both trust. Like PayPal, I trust PayPal not to rob me, and the other party will also trust PayPal not

to rob me. But since those institutions, this company gets so big, then they start to charge monopoly rent. PayPal charge a really high fee, not even when they're a dispute, they charge fee all the time. it was not economically optimum. And so the question was, okay, how can I make a decentralized system of dispute to solve disputes?

And how can I make it scale? And that's how I came up with the early idea of Kleros. The only idea was to draw people once, and then the second time, if there is an appeal, to draw all the court. And then, okay, no, this is not gonna scale. because even if we have 10% of the dispute which end up in appeal, that means that everyone has to review an amount of dispute which is proportional to the amount of dispute.

So this one scale. So the question was how could we scale this kind of dispute resolution mechanism, which were also, um, um, um, which I did not invent like, uh, I think the most important previous work is a, is trust coin, uh, used the shedding point to solve dispute. In this case, it was the Oracle dispute on prediction market, but they were asking everyone to vote on everything. And the question was, how can we make this scale to make a real decentralized dispute resolution system, which will be general purpose, not only to solve Oracle of prediction market dispute,

but to solve every kind of dispute which can be enforced by smart contracts. So yeah, I mean, you mentioned some earlier projects like Open Bazaar and like decentralized e-commerce and all these also needs to sort of decentralize the street resolution system. It was interesting in the early days to see how they were solving that with multisig. I mean, just recently I was confronted by this. I tried this software like a decentralized Bitcoin exchange called BISC and you know, just tested it out to basically just sort of experiment and see what the dispute resolution system was. And it actually worked quite well. So, I mean, but you do have to put some money

escrow in order to secure your, your transaction. So it kind of defeats the purpose, or at least it makes it a little bit more cumbersome to have to put up collateral in order to buy, you know, something. And so having a dispute resolution system that where you don't have to put up that collateral, but there is some sort of a counterparty crowd that can effectively look into a dispute and arbitrate and make a decision is something I think that would be quite valuable moving forward

as decentralized platforms become more prevalent. So you already need to have a collateral because smart contract can only move value like ETIH or token or whatever that has been explicitly given control of by someone to the smart contract. So we could say, okay, we make a dispute resolution system and we don't have collateral. But when there is a ruling, what is going to happen? Nothing because the smart contract will not have control of the asset of the dispute. So requiring a collateral is a,

like a limitation of a blockchain-based dispute resolution system. But on the other hand, it means that when you have a ruling, you don't need to have it in force. It's automatically enforced by a smart contract. You don't need to go to have a court order, to have the police enforcing your ruling, which can be really, really, really more problematic than the need to deposit a collateral.

Yeah, what I meant by collateral was that as a buyer, I also had to put some collateral to secure the other side of the trade, which was then unlocked once both sides agreed to the transaction. But, of course, if you're doing something like web design, the buyer would have to put up the amount or at least some kind of a deposit in order for some collateral to be available if there was a dispute or something of that nature. So let's dive right into it. So the project we're talking about here today is Claros. Give us a high-level overview of the vision of Claros and why you're building this project. Yeah, so as we were saying before, so we have people building this decentralized platforms now,

some of them for e-commerce, for freelancing, for other are building for insurance. So all of them are going to have disputes between users, right? In existing centralized platforms, you have a custom, service team that deals with dispute between users. But we don't have this in the decentralized world, right? So because these companies want to be fully decentralized. And so the vision of Cleros is to build a dispute resolution system

to which all of the decentralized companies of the ecosystem can plug. So they just send the dispute, the smart contracts, Alex Cleros as arbitrator, agreed between the parties, of course. And then when there is a dispute, Cleros and selects, a jury of people who are going to analyze the evidence and they are going to vote who is right about the dispute, right? So this can be used, for example, for a website dispute. I have a, I hire some guy from another country or whatever for building a website for me in a decentralized platform. And we both agree that in case a dispute happens between us, so Cleros is going to be the arbitrator.

So if everything goes right, the transaction is signed and so the payment is done. And I get my website, but if there is a dispute, so the money will stay locked into the kind of escrow, and then this is going to, the evidence is going to go to Cleros. And depending on how Cleros, jurors vote, the money is going to go to one side or the other. And of course, all the process of selection of Cleros jurors is going to be fully automated based on smart contracts. So, like, nobody can tamper the evidence. nobody can put their friends as jurors or so everything is fully transparent fully yeah it's quite fast and and cheaper than alternative methods so I think that Clarus is going to solve a very important problem that is at this point preventing the growth of the ecosystem that is like the lack of some

this solution mechanism that is yeah accepted by lots of people different projects started to build their own arbitration system because they saw that as an important thing for their platform. But like building an arbitration system is quite hard to do like a society project. If you are building your website for, so your platform for e-commerce, so you have to focus on your platform, right? You can't just build arbitration as a side project because this is a very hard thing to do. And we spend all our time building this. And so we want to build the arbitration system for all of the decentralized ecosystem. So that's like vision of Claros.

So you have already mentioned that one of the reasons for building a decentralized arbitration system is that other decentralized platforms need a decentralized arbitration system because they cannot really depend on the government courts in order to settle disputes. Like imagine if open bazaar needed to depend on the state of New York to settle its disputes. That would be a little weird, wouldn't it? So therefore you need decentralized arbitrage. Are there other advantages apart from this feature that you think justifies the case for decentralized arbitration? So you mentioned that you can make arbitration cheaper, right? Or you can make it faster. You have a sense of why it could be cheaper or faster.

So why arbitration, why decentralization, right? I think that who explains this very well, so there is a very good article. by Chris Dixon, where the title, I think it's, why decentralization matters, right? Why should we do this decentralized? So, of course, one of the reasons is like, so this cannot be controlled like by us, because this should be controlled by the community,

because this is going to deal with lots of, yeah, very high value disputes. So this should be in hands of the community. And also because in the long run, So the goal is not to have Cleros do everything, but have people build platforms or like, yeah, applications on top of Cleros technology, right? So one of them is going to build an application specifically targeting e-commerce. Others are going to target like insurance, other finance, right?

And if you are going to build something on top of a platform, so you want to be sure that this platform is going to be a decentralized one, So that you're not going to be locked in so by a big like monster, like a big future Google or Facebook of arbitration, right? So in this article, Chris Dixon, he argues that, yeah, you have on, in all these centralized platforms, you have this typical curve where you have an early stage where the platform tries to bring users or like developers on top of it

by giving subsidies, and then when it has like enough market power, it becomes like a monopoly and starts to charge monopolistic rents. So the point of building this decentralized way is that everybody that's going to build on top of Cleros can know that they have a say into the evolution of the platform and how it's going to be working in the future. So it's like the same reason why, yeah, we build this on Ethereum because it's decentralized platform and not on top of like Google. So that's an important feature of why Cleros needs to build,

to be built in a decentralized way in order to be, yeah, the focal point, I'd say, of a future ecosystem. Okay. So, of course, like the idea of crowdsourcing jurors is very interesting, right? So the idea with Cleros would be that, If, let's say, Federico and I, we are the buyer and seller, and we enter into a dispute, then the dispute is going to be resolved by a juror or a set of jurors,

and these jurors have been crowdsourced by the Keros Network. They have been picked out of a group of relatively pseudonymous or anonymous people. The underlying assumption in crowdsource juries is that the scale to resolve disputes is widespread in society because like anyone can be part of this crowd that wants to be jurors and therefore anyone can be selected to be one of the jurors that would arbitrate our dispute. Do you think the skills for arbitration are widespread in society or do you think that this is a skill that is specialized and it needs its own specialized people or specialized community? So for now we are focusing on the low-hanging fruit, so dispute which do not require a high amount of knowledge to solve.

So in the pilot, in the example of a created list of the picture, you don't need any kind of particular skill or the skills that you need to learn is really easy to learn to be a juror. So I think crowdsourcing is really efficient when it's task which do not require experts in this particular task. Due to crowdsourcing, that also means that if you have more demand for a dispute resolution, you're kind of people finding the system, people exiting the system in a way smoother manner compared to a company or a state, based institution. And with cross-sourcing, you can lower costs because you can have a draw with are not necessarily expert. They can decide activity.

They can walk before, okay, I have some like one hour in a train to spend and I'm going to solve disputes in this one hour in the train. That's if you were in a centralized company, you would have to hire someone, put him some office hour and it will be he will have to be paid whether or not there is dispute. So it's way less flexible. And so flexibility showed the decrease cost and also the Fagate is a decentralized system and no one is locked in it. It means that you cannot charge a monopoly rent as Federico explained before. So due to these three reasons, we can lower the cost of arbitration by cross-sourcing it for easy-to-solve dispute. So easy-to-solve is not necessarily linked to low value.

So for example, if you make some financial contracts and contract for difference on the price of the ETH, it's something which can be worth a million in the dispute. But the resolution of the dispute is quite easy. It's what was the price of ETH at this particular time. And no one requires require a specific skill to do so. So you have disputes which are good for purchasing, some ways harder to produce. And for now, we will look at the ones which are good and easy to cross source.

So there's a couple things I'd like to unpack here. So one is, when I was reading a white paper, reading through, I think one of the examples was a website design. As a former person working in web technologies and having worked as a UX designer and work for clients and work with designers in the US, in Europe and also in Asia.

One thing that we observe is that there are, at least in this particular space, some cultural sensitivities that are inherent to each region or specific countries or this sort of thing. you know, this sort of brings up the point that the shelling point or focus point, in my opinion, for certain types of decisions may have cultural implications that would make it difficult to arbitrate. So I'll give you an example. So take, for example, a European company that hires a designer somewhere in Asia, let's just say Thailand.

And that designer produces a design for a website or a mobile app. And there is a dispute. So let's say there's a dispute about whether or not the design is something that would be attractive to customers. And if there could be a fault in the system where, for instance, if most of the jurors were coming from parts of Asia or where they would have similar sensitivities to a tied designer and perhaps little experience or knowledge of some of the sensitivities of European customers where those jurors might favor, might arbitrate in a direction that

would go against the practical reality, which is that this design would not be attractive to European customers. So that kind of brings us to the point is that shelling points may or may not have some cultural or local biases. we could also think of other examples but what your thoughts on so the way that people would converge around a shelling point for things that may have some subjective or cultural biases

so it's not just asking what this design is okay or not so you have the contract the plain English contract between like I think the European customer and the Thai designer. And you can also have specialized subcodes.

You can have subcodes which are specialized by a kind of dispute, but also by way to solve them. So you could have a subcourt with some kind of like Asian sensitivity and some one with European sensitivity in terms of of which customers should the design appeal to. And this can solve the problem where you have a different culture, which will give different answer. So in this case, when you make your contract,

you decide that it's with this particular subcourt or in the paying English contract, you decide that the customer should be, that the website should be appealing for a European customer target. And this information have to be taken into account by the juror. And about the subcourt, you will only get juror which shows to arbitrate in a subcourt with this kind of sensitivity. So that is a way to resolve the cultural difference. And there is another thing that we could think.

So the fact of globalization of business is a reality. So there are contracts between Western people and Thai people. Some of these contracts are going to end in some dispute, right? So what other alternative for solution is there for this? And is that alternative, like non-biased in the way that supposedly the shilling point is? It's like a deeper question that affects, of course, Cleros, but any other system for arbitration between cultural sensitivity? Right. Okay. I see what you mean. There's another point I wanted to bring up, which occurred to me while reading the paper, because I saw that you had a section there about, there was a subcourt which specializes in insurance. Insurance could be one area that this could be interested in for arbitration. And last year, I attended this conference in Munich, which was specializing in insurance.

And one of the things that I thought was really interesting about this industry is that there's a major push in the insurance industry to arbitrate using machine learning and AI. So there's an enormous amount of startups that are building machine learning systems that do things like look at pictures of a car and assess the damage. Or even listen to phone conversations and determine whether or not someone may be being dishonest about an insurance claim or something like that matter. So there's quite an insurance is one industry where machine learning is potentially disrupting a lot of people that are doing this kind of arbitration work. There might be other industries where this is the case. But in terms of cost and in terms of efficiency of arbitration, what are your thoughts on the potential for machine learning and AI to really make arbitration much, much more. much more efficient than any, you know, wisdom of the crowd type knowledge could ever aspire to be. So at some point, you always need some human input because machine learning can be used

to help you in your decision, but not to make the decision instead of you. Because machine learning algorithms are generally easier to trick than human. So, we've seen some research on reverse engineering, some machine learning algorithm, and putting some input which makes them make completely absurd decisions. So you gave the example of the picture, of the car picture to assess the damages. If someone is able to reverse engineer the machine learning algorithm, evaluating the damages, it will perhaps be able to use by changing luminosity in a few places of the car, to completely make the machine learning algorithm give a completely wrong decision.

Same for the phone call by using this particular tone, it's going to be able to treat the machine learning algorithm into thinking that you are honest while you are not. So I think machine learning are really good decision helping tool, but you cannot rely on machine learning as to have the final say on problem which should are adversarial. So if you want to classify images and just to learn from them, it's fine for how to use machine learning. But no, if you want to classify images where you have one person which have an interest into the image to be A and someone who has the interest or the image to be B, they're going to try to bias this machine learning aggracresents.

Very interesting. So we have sort of walked through, we have walked through some of like these interesting design choices that that clearos has like for example crowds crowds crowdsourge judgment we have mentioned this idea of shelling point as the current as the correct judgment in sebastian's questions but we have not actually walked through that in detail maybe this is a good time for us to go through how cleros the platform works or is supposed to work at the end state so assuming assuming that the dispute is between like, okay, Sebastian and myself, and one is a website developer and one is a company giving work, how would the Cleros platform settle our dispute and what

would be our user experience be like? Sure. So before the dispute starts, so you agree with Sebastian, so you're going to build this website for me. These are the conditions. and this is what I expect. And so we agree on that. And then we agree, okay, so if something goes wrong,

Cleros is going to be the dispute resolution mechanism for this, right? And so you make the payment, and so this stays into an escrow, smart contract, and it stays locked there. And if there is a dispute, the money stays locked, right? It stays into the contract. And you both have to pay an extra fee in order to pay for the arbitration, right? For the juries to be paid. You have to make an extra deposit.

So now this goes to the speed resolution. And maybe Clemón can explain better the system or selection of the juries, how the token works and how, yeah, all the crypt economics work for juries to make an honest decision. So as a juror, you deposit your token. in a particular subcourt, that you think that you have a skill to solve the dispute of these subcords. And when there is a dispute, one token per juror is drawn. And if this token belongs to you, you are a juror in this dispute. So you're going to see evidence of both parties.

You're going to see court policies. You're going to see the plain English contract. And with all those information, you're going to take a decision which can be binary, like party A wins, the party B wins, or perhaps more complex, if we have more party involved or more nuanced decision possible. And if you voted the same way as a final decision, you're going to get rewarded with arbitration fee and potentially some token of the parties which, voted in opposition to the consensus. So if it's just a simple dispute with only one session, where you have two jurors which say party a should win, one juror which says party B should win.

And in this case, party A wins the dispute. So the smart contract execute the enforcement. So it's a case of a website dispute. And party A is a buyer, it will be reimburse party A. And the two jurors which were in the majority win some arbitration fee and win some part of the token of the last juror which voted for party B. Obviously, you have an appeal mechanism. If as a party in the dispute, you believe that the ruling was wrong because the juror were mistaken or because the juror were bribed, you can pay appeal fee and appeal to get. get a moderorer to look at the dispute again.

And in this case, there is an appeal. It's an appeal result which are going to be taken into account by your smart contract for enforcement and by Kleros for a token and arbitration distribution. The specific of the interface can be tailored by case. So if you are with this website dispute, you may have to put the link to the website, the link to the website, the link to the source code in the planning Bish contract, you would have specification. So the user interface is something which are going to depend of the kind of dispute you will be

participating in. Yeah, for example, now that we launched the pilot called Dodge on Trial, the jurors have to decide if an image is a dog or a Dodge or not a Dodge. So basically in this case, the interface is like some screen where you have to see a picture and say, okay, vote. This is a Dodge, not a Dodge. And that's the interface. It can be something as simple as that in this case. And the interface would display this evidence. It's not something which is part of the Keros application.

It's something which is part of the arbitral application. So in this case, like Dozen Trial, it's part of the trial in the case of a freelancer making website dispute, it would be part of the freelancing application. So people which are building or plugging into Kleros have a lot of liberty in all to display cases and evidence to jurors. Of course, like one of the interesting, so there are many different components to your system, right? So the ones that I could spot is there's a component of jury selection. deciding who gets to be the jury.

There's a component of, depending on the case, gathering all of the evidence and like passing the judgments, right? There's a component of economics, which is that once you have a group of juries and they have put in their judgments, rewarding the juries based on how they,

how they followed the process or did not follow the process. So there's a component of economic incentives. And the fourth component that, you have in your system is basically the component of specialization of some kind. So not all juries are, not all jury members are suitable for all sorts of cases. There might be some jury members that specialize in insurance, others in website disputes and things like that. So there's something that Cleros does for, uh, in order to have juries also specialize.

So like Cleros is a pretty complex system, right, which has all of these intermoving parts that connect together to make a dispute resolution system. Specifically, I would like to deep dive into the jury selection. Okay, how does jury selection exactly work? So when Sebastian and I are disputing, how do you decide who gets to be the jury and how big the jury would be in this particular dispute? So as a juror, you choose a pass in the subcourt tree. So this means that you can say, okay,

I want to be a juror in general cases, in e-commerce cases, and in website freelancing cases. So you specialize and specialize as you go deeper in the tree up to this end quote, which would be in this case, the freelancing website freelancing subcourt, and the parent one, is the e-commerce subcourt and the parent of the e-commerce subcourt is a general one. So this means that you can be drawn in those three different courts. When you are registered to be a juror, you have to deposit tokens. So you deposit PNK in those quotes, and your chance to be drawn as a juror is going to be proportional to the amount of token you deposit it. So it means if you put more token, you are more likely to be drawn.

Obviously, if you put a number of tokens which are really, really high, you're going to be drawn too much, and you may not have time to solve the disputes. So even if you are really rich in token, you may not have this much of time to solve the disputes. And when there is a dispute, the arbitrable contract decides how much juror we start with. So in Dogen trial, we start with three jurors. But it's a parameter. You can say, I'm dealing with dispute of really, really low value, and I don't want to pay that much in arbitration fee, so I want to start with only one juror. Or you can say, okay, this dispute has quite high value, and I don't want to lose a lot of time in appeal, because I know that small jury are more likely to get from. wrong and easier to bribe than big one.

So I have a dispute about the price of ETH for a financial contract worth $1 million. So I'm going to start with 100 juror in order to not to lose that much time in the resolution of my dispute. So yeah, number of jurors is something that is decided by arbitrable contracts. I think so the main insight about the selection process is that first jurors self-select themselves, into the court where they think they can arbitrate. So if I am an expert into websites, I'm going to, so I have an incentive to self-select to arbitrate disputes into websites.

If I self-select into insurance, where I don't know anything about that, or if I select myself into a court and then I don't really take the time to make the vote, I just vote randomly. So I am going to lose money because of how the system is structured, right? the tokens that I deposit to be drawn, so since I'm not arbitrating correctly or honestly, I'm going to lose them.

So in the long run, the system is structured for those guys who try to abuse of it are going to lose money and eventually live. Maybe it's interesting also to mention that this is loosely inspiring how Kurds worked in ancient Greece. So the, you know, the Athenians of the classical period, they have this interesting concept. that every citizen of the police had the right to judge, right? But they didn't want for anyone to go to the like the agora and become like a mob justice kind of stuff. So they developed this very sophisticated mechanism for selection that was based on token that every citizen had.

It was an ID token that you had like your ID as a citizen and you went on the court today and you put your token into this machine like a two meter high machine with slots called Clorotterion. That means the altar of randomness. So it's like the place where randomness happens. And this was an allotment machine that selected. So some guy threw some white and black dice on a tube affixed on a side of the machine.

And if you had on your row a white dice, you went to the jury. If you had a black dice, you went home. So that dice, that 20-phases dice, it called Icosidron as one of the platonic solids. It's actually Cleros, yeah, logo. So Clero's system is like loosely inspired in something that was tested before like 2,500 years into the past.

And so that's where the name comes from also. One of the differences between the Athenian system and Cleros that I can see is that in the Athenian system, when each citizen gets a token, it's one citizen one token and then the tokens are used to select the jury. Whereas in Claros, the token is the coin, Pinakian coin. And the holdings of Pinakian coin can be very different between people, right? So somebody might have very little pinnacian. And if you look at like how the other tokens have panned out, the majority of coins are actually held by the crypto hedge funds.

Like you see a system like Tesos or DFINITY, I don't know, like 10% of the supply is owned by Polychain. Right? Because like polychain is the biggest crypto hedge fund and there is no no way around such an

unfair distribution. So in Claros, my odds of being selected as a juror are proportional to the number of tokens I have. Right. So somebody that has a lot of tokens in a particular court, let's say I own 5% of the supply and I go to the website design code, there's very high odds that I'm going to be selected as juror repeatedly, even though I might

not be the best juror. So do you actually feel that like with this incentive structure, the jury will end up captured by all the crypto hedge funds, right? Because the crypto hedge funds might end up owning 30 or 40% of your supply pretty easily. And so the crypto hedge fund managers end up becoming the jurors. Do you see that as a risk to your selection process? They are only capped by the amount of worth they can provide. So if you get 20% of the token, yeah, you can deposit all of them and get drawn in 20% of the cases. But ruled as a crypto hedge fund, do you have?

the time to solve all those cases? Probably not. So either you're going to solve them in a sloppy manner and be incurring a lot of time and lose money, or you're going to need to basically hire more people to solve a dispute instead of you. So now it starts to look more like more like pulling than someone having 20% of the vote. In the ancient Greece model, what you had a different is that you can easily get identity of people because you get to see them. Why in the crypto world, if I split my balance into two accounts, no, I'm two persons and you have no way to know if I'm two person or if it's just me which is civil attacking. So you cannot base the chance of being drawn on being someone because you can be a lot of people online. You can have

have a lot of identities, the civil attack. Now, because of the non-one, one person wants to be drawn, you can see, okay, that's mean that there is a problem, there is some kind of democratic problem. And the democratic problem is solved in a different manner than how it could be solved in like ancient Greece and kind of like state system, because of the possibility of walking.

If you're in ancient Greece, and there is a dispute, dispute, you have no choice. You're going to be brought to this ancient Greece court and you have no say in who is going to rule on your case. While on the centralized system, on the Russian world, everything is opt in. So, the democratic choice is not made at the dual level, but it's made as a party level in a dispute which can say, okay, I want this system to arbitrate my dispute. And I don't want this one because I think this one is a corrupted system and I don't, if you only accept this system as a dispute resolution mechanism, I don't want to make business with you. So that's where the decision, the democratic decision, come from, from parties in dispute and not from the draw side. You are more likely, it looks more like a DAO, like a dispute resolution cooperative, and then it will look as a, it doesn't look like a state-based institution at all. So, like, we use this as inspiration because it's easier to understand.

But so it's not that we are like just replicating the ancient Greece institutions into the crypto world. So it is loosely inspired in the sense that this little solution uses some of these crowdsource model. So the Greek had this very interesting insight about every citizen has the right to be a judge. And Claros is based on this peer-to-peer philosophy. of everyone who wants to participate in the arbitration process as a juror can do so under these conditions that are defined by the crypto economic system. But it's not, so of course there are many, many differences between like Cleros and the ancient Greek system.

So in the white paper, there's an interesting section that I wanted to ask you about. And so we'll have the link to the white paper in the show notes and anybody looking to understand at a deeper level how Clarus works under the hood should definitely read it. And that was a section about random number generation. The process of selecting jurors implicates some randomness, and there's a mechanism within Clarus to generate random numbers in a decentralized way. Could you explain how that works? So in the current release, it's for no, it just some block hash,

but in next release we will use sequential proof of work. So the idea of sequential proof of work is that you start with a value that everyone can modify but no one can fix to a particular value. So this means that you may start like with zero, with a block cache or whatever, and then anyone can give a local random number to make this seed value change. but you cannot fix it to a particular value. Then what people have to do is to apply sequential proof of work on it. So they have to hash it repeatedly, some amount of time, which are going to take computational time.

So you don't know the result instantly, you have to dedicate one CPU to solve this result. And by the time that someone solve, this computational problem, which is a console. So this means that you cannot put more computer into solving it. It's not possible anymore to modify the Cid. So it's a deterministic process, but it's a deterministic process where anyone can change the point where we start from. And the time to know the answer is long enough

to avoid anyone from knowing the answer to be able to change the seed. So you can know what the number is going to be, but when you know it is already too late. And that's a way to generate randomness under a really basic trust assumption, which is just you have at least one on a party which one the number to be random. So basically, if you think that there is no one honest, you just have to do it yourself. And so since you know that you are yourself honest, you know that the number is going to be random.

So the white paper also makes mention your governance mechanism. Could you lay out the governance mechanism, what is used for specifically and how it works? So it's used for creating the subcote, the specialized code, and setting parameters. So for example, arbitration fee, the amount of token you can win or lose in disputes, if you are current or not. And it's not a voting system, but it's not a classical one. It's a liquid voting system, which means that everyone has the right to vote in proportion of the token they hold.

But it's the right. it's not an obligation or something that is expected from them. Because they can as a vote or they can delegate their vote to someone else. And this someone else can also delegate his vote to someone else. So you can have a transitive delegation. So A delegates to B, B delegates to C, delegates to D and then D votes yes. So this is like if A voted yes too.

Because we want to characterize. of the voting system. The first one is that we want everyone to have the right to influence every decision. So you need to let everyone the possibility to vote on everything if they want to. And the second one is that you don't want the system to be wasteful. You don't want to waste people time. So you allow people to delegate when it's a decision that they are not specifically interested in. So basically you get both of the advantage of the advantage of the

direct voting and election. Let's presume that I want to make a new subcourt about the quality of podcast editing, something like that, right? What would that look like for me as a user? How would I propose this change? And then what would the process of voting that new subcourt look like? So you will propose to create this subcourt.

you will decide what is the parent of this court. So you may have like a parent court which is a media court, for example. So you will say that this court is a child of the media court. You will write basic policies of the court. You will determine how much each juror of the court have to be paid. You will determine how much token they need to put at least, and which percentage of those can be lost if they solve dispute in a incoherent manner. Then it will be put for a view by anyone which can claim that your proposal is invalid.

So if you just like, I don't know, like write a ruby or insuring some people in your proposal, someone who will challenge this proposal as an invalid proposal and it will go to dispute resolution. And so if no one had challenged proposal, know everyone can express interest in your proposal, still in a liquid voting manner. And if your proposal gets more than the interest forum, it's put to vote. And anyone can vote for it.

And people which did not vote for it, their vote couldn't as if they voted the same way as a delegate or the delegate, or the delegate, of the delegate, et cetera, if the delegate also has not voted. And won't the vote, if the vote end up into yes, obviously the court is created and now people with dispute can specify that the smart contract are going to be arbitrated by this particular subcourt.

Actually, so the podcast quality subcourt could be a quite interesting idea for implementing for a curated list use case because no cleros can be used to arbitrate disputes in curated list. So imagine you can upload, you submit your podcast to the list and some user can say, This podcast does not have enough quality to be on this list. So now there is a dispute between you and the user, and this could be adjudicated in Clero. So this is a, even if we usually focus on the use cases of escrow disputes because they are easier to understand.

So Cleros has many applications, and one of them is to solve disputes in curated list. And like the experiment we are running now, Dorches on trial is based on a curated list, case of Claros. There seems to be kind of an intersection here with, once you get in these types of use cases, they sort of start to overlap with prediction markets in some sense. Can you talk about that and maybe explore how arbitration can merge into prediction markets

and vice versa? So prediction markets need dispute resolution. So, prediction market is Oracle dispute. You ask question about the state of the outside world, which is a dispute resolution use case. And I really like the project, which is the most similar to Kleros, is probably Augur. It's not a dispute resolution project, but in their project they have the problem of the Oracle problem

to solve their production market. So they came up with a mechanism which have some kind of similarities with Kleros. It's not the same because they don't draw people randomly. Instead, they ask people to stake on dispute that they want. So everyone can basically self-select into dispute, and we don't really think it's optimum because it means that if you are malicious, you can target your attack on a particular dispute.

Why, if we use a random draw, you can try to attack, but then you cannot really focus your attack on something. But it's also something which augur is basically you have to put a stake in a dispute. And if your side gets the biggest stake for some period of time, you win the dispute. And anyone can put the stake in the other side and they have to put the stake in the other side. So there's the state of the other side is at least twice the stake on the previous side. So if the question is, as it rained today, you may put one rep token on yes, and then someone

say, no, I disagree. He has to put two rep token on two. And then if you have to say, no, no, it's ready yes. You have to put three additional rep tokens such that you have four on the yes. And if no one does anything during one day or one week, I don't know that timeline. The winning side wins the token of the other one. So in this case, the yes side has four token, the no side has two token. So the yes side wins the two token of the no side and yes is considered to be the result of the dispute.

So this also looks like a bit like shedding points because if you put your token like the majority, you get rewarded. If you put them like in the minority, you get penalized. And with that, they also have some forking mechanism. which start automatically. That we also have in Clarote, but in Clarice it does not start automatically. Someone has to say, I think that the current level of the court is too corrupted,

so I want to form the system. But yes, there is a lot of similarities between Claros and Alguyen. Very interesting. Of course, like, if you look at like current legal systems for nations, you see that like many times disputes emerge because contracts are not drafted correctly. Like the contracts under-specify what should happen.

And the courts need to add interpretation on what the contract parties meant when they were writing the contract. Like sometimes disputes are clear. It's a yes and no question. But many other times, like disputes are more complex. The contract parties did not foresee the particular. situation happening. A particular situation happened that is not specified in the contract. Dispute goes to court. Now the court must interpret what the parties meant when they signed the contract. Right. And so to do things like these, the courts have different ways of handling

such things. The court forces interpretation on the contracts based on the laws. The law of that particular jurisdiction, right? So, like many of the laws are needed, because when dispute arises and the contracts are not specified well enough, you need a legal system to give meaning to those contracts and still be able to handle these disputes. Is there an element like that to Cleros,

where even an underspecified contract could be arbitrated? I think that this is the point where Cleros is really, really useful. right? Because if you have a contract that is perfectly complete and perfectly clear, so you don't need clear because that's code enforcement, like, yeah, was this payment done or not, was done, everything enforces, right? So there is some principle of philosophy of right, as you say, that every contract is incomplete because they cannot foresee every situation that could arise in the future. So there is some kind of, yeah, of subjectivity in should this contract go to A or to B? Who is right about this website thing, right?

The website dispute is not completely subjective because there was a contract stating how many pages the website should have, what time frame should the website be delivered on, etc. but it is not completely objective either, right? Because a website can be done in different ways and many of these ways can be correct, right? So the world we are building of smart contracts and code enforcement still has not solved this space of subjectivity that is really important

for a legal system, right? So, and this is where Cleros can, where Cleros and where humans can do a very important contribution because humans are better qualified at probably AI for this kind of subjectivity questions. And about the question, so how should the contract be interpreted at which jurisdiction? So now you have an ordinary contract, so maybe in some financial contract it says that if there is a dispute, this is going to be settled in New York Arbitration Court, right? So now imagine you and I do a contract about the website.

And we agree at the beginning. So if there is a dispute, it's going to be this assault into a subcourt of website with this characteristic subcourt. So the jurors who are going to participate in that court, they know that the policy of the court says, so contracts should be interpreted in this way, this way, this way. And so when they do the decision about who is right, they're going to use those rules as their guide. for the decision. So that's the jurisdiction where the contract is going to be settled. Interesting. So as we wrap up here, let's maybe talk about the current state of the project. Can you tell us, you know, where are things at right now and what's the roadmap looking forward?

So, well, about the current stage of the project, we did our token sale between May 15 and July 15th. We use a new method of token sale called interactive coin offering that was suggested by Vitalik and Jason Teuch for making distribution more fair between participants. So this ended July 15th. Then on July 30, I think, or 31, we launch our product into the Ethereum Mainnet. This is an experiment called Dodgers on trial where users or jurors have to, arbitrate if an image is a dog or not a dodge, and there is a lot of different mechanisms for incentivizing people and to try to see how resistant Cleros is to different types of attacks.

And so people, we invite you to come to the experiment and submit images and try to fool the system. If you can fool the system by making a cut into the list, so you are going to get chew it. So it's a good incentive for you to try to game Clarence jurors. And so now we are focusing on that and all the learnings that we expect to have from those, yeah, from those submissions and this experiment. And then, of course, trying to go into the main, so in the real world use cases, because we already have a number of partnerships, for example, with Inc protocol to start using Cleros into e-commerce website, did not,

In-commerce disputes, like in the Inc. Protocol, they have this dispute. We have other partnerships with a cryptocurrency exchange called Dether. So the next step for us is try to prove that Cleros can actually work in real world use cases, can actually solve the problem that we expected to solve. So now we are recruiting people. We are completing the team and trying to make this very very very. very exceptional team to tackle this very very big problem. So on the state of the government, so we have obviously the basic version of Kleros,

which is with without support, but with the dispute resolution mechanism, the random drawing mechanism, the token redistribution mechanism, which can be used already by by project which will plug on it. But for now, we just have this, it's a funny game that we're that Fenerico explained to test the system, where we want to test a system in an adversarial condition, where we give people an incentive to try to break it.

Next version, we would have subcodes. We would have some improvement of user interface. We would have the governance mechanism mechanism because for now the only point which prevent the system to be really decentralized is the lack of the governance mechanism and on like in parallel we have improvement of of Kleros and integration with with other projects and other use cases cool so the place at which people can actually use your system is with those on trial right so that's the that's the public facing experiment you're doing that all our listeners can participate in right now yeah you can already use you can already use your PNK to become a juror on the journal trial

and we got something like almost 200 submission for the trial okay that's that's really cool I'm actually curious what your first focus area is going to be. Are you going to focus on some kind of cases at first specifically or will you try to build the general code first? So we already built a general code. It is that we have the general code which now is only plugged to one application, which is the Georgian trial. But if you want to plug another application now,

technically you can do it. It is that since the system is still in the, early day, like it has been launched less than a month before. We advise to wait perhaps one or two months after the lunch to be sure that on those test case, its work as expected before putting real use case with money at stake. But when the system operates for two months straight without any problem, I think it will be ready to put real disputes. Yeah. Very interesting.

Thank you, Federico and Clement, for joining us today. It was great to discover Clairos. It's a super interesting project. One of the leading projects doing justice systems on the blockchain. And we look forward to having you back, let's say, a year or two later when your system is further along and actually processing commercially useful cases. For our guests, thank you for joining us. We release new episodes of Epicenter Bitcoin every Tuesday.

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