Dispute Resolution on Blockchain: from the Schelling Point to Aspera and Decentralised Mediation

Blockchain is considered a revolutionary and potentially disruptive technology. Briefly, a blockchain is a distributed ledger among a network of computer nodes where data is stored in a transparent, immutable, and verifiable way to anyone through a consensus protocol. Decentralised consensus and security are achieved through the combination of cryptographic protocols with an economic incentive system. Initially, applications for this technology were only done in financial field until the development of Ethereum platform, which is focused on smart contracts. A smart contract is a code that runs on top of a blockchain and executes itself when certain conditions are met. The use of smart contracts allows to stipulate deals between two or more anonymous parties, or to develop entire platforms or ecosystems within the blockchain. The legal sector has shown interest in this technology: litigation through a national or international court requires long timelines not compatible with Internet reality, and high costs compared to the dispute's value. Besides, traditional systems are more vulnerable to corruption. In contrast, the blockchain is potentially incorruptible because the several steps of litigation can be recorded transparently and are verifiable by parties involved. Smart contracts are efficient in managing the dispute resolution process and ensure the ruling enforcement. As a result, the total time and cost of litigation may be reduced. Moreover, new classes of disputes have arisen; these latter cannot be resolved through traditional legal institutions due to the anonymity of the parties or the lack of clarity about the jurisdiction to be applied. In this master thesis we have investigated the way in which some Blockchain Dispute Resolution Platforms handle the resolution process through the analysis of Kleros, Aragon and Jur protocols that adhere to arbitration models based on a Schelling game scheme, where disputes are settled by an anonymous group of jurors, who vote independently among a finite set of options, which are usually binary. A user must stake tokens from the specific platform in order to be drawn as juror. The plurality system establishes the outcome of a dispute. Thus, the option with most votes wins. Jurors who vote coherently with the majority win a reward, whereas others lose the stake. According to these platforms, the economic incentive encourages users to vote for the fairest option by improving the quality of rulings compared to traditional methods. Arbitration may turn out not to be the best way to resolve a dispute. Aspera is a project that aims to introduce mediation within the blockchain scenario. We propose two different protocols. The first one is based on the use of Artificial Intelligence and Machine Learning algorithms in order to formulate mediation proposals. The second one, defined as Decentralised Mediation, consists in reaching a solution to the dispute through a crowdsourcing mechanism, where platform users, known as proposers, submit at least one mediation proposal based on their idea of justice. Subsequently, the system draws a chooser who elects the mediation agreement perceived as the fairest one and sends it to the parties. Like arbitration protocols, a system of rewards and penalties has been designed in decentralised mediation to ensure the participants’ honest behaviour in the resolution process. As a result, this mechanism should lead to multiple and high-quality solutions.