Kleros Escrow: Crowdsourced Justice for Secure Online Commerce

In the last decades, the world economy has gone through an accelerated process of globalization and digitalization. Clients hire freelancers from other countries and backers participate in crowdfunding campaigns from teams distributed around the globe.

As work and capital become transnational, cross-border disputes become more frequent. In particular, small claims which can't easily be solved by courts or traditional dispute resolution systems.

As cryptocurrencies gave us the infrastructure for a global and seamless financial system, smart contracts will provide the legal infrastructure for these transactions to happen securely.

Let's take an example: Alice hires Bob to conduct a job online. But they only met on an online forum and don't really know each other's real identity. How can they trust each other?

Should Alice send the payment and then wait for Bob to deliver the job? But what if he vanishes with the money? If Bob delivers the service first, how can he make sure that Alice will send the payment?

And what if Bob does deliver the service, but Alice deems that it was of lower quality than agreed?

Situations like this are extremely common in today's online economy. The only solution so far was using some e-commerce platform with an expensive escrow service, and these companies usually charge up to 15 or 20% of each transaction.

A trustless system to create escrow transactions backed by dispute resolution is a fundamental part of this new piece of global infrastructure. That is why I'm happy to introduce our new product: Kleros Escrow.

Let's see how it works...

An Unfortunate Website Agreement...

Alice and Bob make an agreement for building a website.

Alice sends Bob's fee to Kleros Escrow. Funds will stay locked in there until the transaction is completed. Now, Alice has a safeguard in case Bob does not comply with his end of the bargain. And Bob knows that, if he does the job, he will indeed be paid.

A dispute starts and funds stay locked in the escrow. Kleros selects a panel of jurors who analyze the evidence and vote.

Alice wins. The escrow releases back the funds to her.

An Unfortunate Cryptoasset Transfer...

Federico and Stuart have agreed to make an over-the-counter exchange BTC for ETH. This is what happened...

The Sky Is The Limit

These are but two simple examples of how Kleros Escrow can become a fundamental tool for securing online transactions.

Other notable immediate use cases for the Kleros escrow are:

Marketing services. A PR company promises to have a client mentioned in The New York Times. The client sends the money to Kleros Escrow, which will be released only if the PR agency delivers on its promise.
Video production. A freelancer promises to do a review of a blockchain project. They agree with the client on parameters of editing quality, resolution and length. A dispute arises when the freelancer sends the video and claims the payment. The agreement stated that the length had to be at least 1 minute 30 seconds, but the delivered piece was only 59 seconds long. Funds are sent back to the client.
Written content. A freelance writer promises to write a press release for a blockchain project. The client requires that the press release meets some quality standards specified in the contract. If the quality of the delivered product is not up to standard, the dispute goes to Kleros jurors.
Exchange listings. An agent promises a project that it will have its token listed in X exchange. The client sends the money to the escrow, which will be released if the coin is indeed listed where promised.

These are the initial use cases of the Kleros escrow, seen as the lowest hanging fruit. These are, of course, not final, or even close. Our escrow solution can cover a wide range of cases, notable being:

Website integrated payment. Websites can display payment buttons allowing their customers to make escrow payments. If customers do not receive goods and services as they should have, they can request a refund. The decision is made by Kleros jurors.
Milestones in crowdfunding campaigns. Project managers pledge to develop a product and set up milestones. Each milestone releases a specific part of the funds raised in the crowdfunding. If milestones are not reached after a deadline, funds are reimbursed to contributors. Kleros solves claims based on milestone completion. Should the next payment be released or not? To learn more about this use case, read this post.
Car Insurance: Bob rents Alice's car for the weekend. Bob sends $1000 into an escrow which will be refunded after the car is returned in good condition. Alice claims the car was damaged. Jurors estimate the damage at 300$. That amount is then sent to Alice from the funds deposited in escrow and the remaining $700 are refunded to Bob.

The whole Chapter 5 of our book, Dispute Revolution, has a section that explores potential use cases for Kleros Escrow.

OTC exchange, freelance production, crowdfunding, e-commerce... What all these cases have in common is that they are disputes about how funds held in escrow should be awarded between parties claiming to have right to them.

Start using Kleros Escrow today!

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