October 13, 2022

The Birth of a New Legal Era: Decentralized Justice

I.            Introduction

Nowadays, phrases such as ‘the justice system can not be trusted’ have become common language. The extremely long and dense processes often lead to unresolved conflicts and miscarriage of justice. The traditional system has many times been proven as inefficient, not only for handling domestic cases, but also a large number of cases across borders. Thus, the appearance of Web3 which features are decentralization, openness, and greater utilization for individual users, has led many to aspire for an alternative manner of resolving disputes; and that’s when decentralized justice was born.

Decentralized justice has come to show us a way out, an alternative way of doing things; through the usage of game theory, blockchain and crowdsourcing applied to different particular cases, which highly shortens the period in which conflicts are resolved and helps achieve justice.

II.            Decentralized justice as an idea for solving disputes differently but effectively

Let’s firstly turn our attention again to smart contract. Smart contracts “can be identified as programs that execute tasks based on specified logic and agreements. These programs run on decentralized networks whose ledgers cannot be altered or changed after a transaction is pushed. This self-execution feature is what differentiates smart contracts from traditional contracts, which on the other hand, are sets of agreed-upon terms which are enforceable by law and are described in a natural, human language.”

The ability of smart contracts to self-execute brings legal certainty to these interactions. Nevertheless, it also has its limitations. For instance, smart contracts are unable to deal with subjectivity. What does this mean? It means smart contracts ––at the moment–– are specific and objective. If ‘A’ occurs, they execute ‘B’ according to pre-determined rules (algorithm). Nevertheless, they are unable to determine more subjective legal criteria that characterize traditional contracts, such as whether the party has satisfied the required effort standards or whether an indemnification clause should be triggered.[1] This is the key point where decentralized justice takes an essential role. Let’s provide an example to clarify this.

Imagine Alice contracts Bob to build her a website. If Bob finishes the website, but doesn’t comply with the aesthetics Alice asked for, the smart contract would automatically execute anyways, leaving Alice without a way to correct this and to certify Bob will get the job done as promised. In this manner, the code cannot assert the subjective things such as certain standard of aesthetics has been delivered, which leads us to the need of an alternative manner of solving the disputes that might arise. Here is where smart contracts must incorporate a decision-making mechanism to assure Alice’s interest is fulfilled.

Thus, during negotiations and the making of the smart contract, all involved should consider to include a clause and establish technical possibilities of accessing a dispute resolution platform in case any conflicts arise directly into execution of smart contract process.

III.            How should the decentralized system guarantee legal certainty and fair outcome?

Each legal system needs to guarantee and maintain the procedure to which the justice is achieved. This means: (i) the procedure should be public, (ii) the decision making should be logical, understandable and according to the rule of law, (iii) judges decision should be accurately justified, (iv) there should be a consistency in the resolution of similar disputes, which allows for predictability of future outcomes, (v) and judges should be impartial, which means they shouldn’t be biased due to a close connection to the parties or the subject being treated.

Fulfilling these requirements is not difficult when the system is decentralized and based on the blockchain. This is because, for starters, the blockchain guarantees transparency by storing information that cannot be altered without recording the changes made. This enables objective and immutable decision making. Such courts or rather dispute resolution tribunals are usually built as DAOs. In simple terms, a DAO —decentralized autonomous organization— is composed of a collection of smart contracts that work according to specific procedures and rules.

In this manner, the utmost strength of DAOs is that the decisions are made by the community, as if it were a democracy. Every member of the DAO has voting power over the decision making process and the next steps for the organization to flourish. This also ensures a diversity of thoughts emerging together, as well as democratic decision making. Thus, the combination of inmutable decision making and transparency, as well as the governance right in the hands of the community are the essence of decentralized justice. These features provide a greater effectiveness to the justice system as it allows for everyone to participate on the decision making process, which prevents from future power abuses, as well as enables a fully transparent procedure without any possibility for corruption or tampering with evidence.

Two other key elements of decentralized justice are: (1) crypto economic incentives, (2) and reaching a fair solution.[2] Crypto economic incentives are usually given to agents in order to assure a fair ruling. Decentralized dispute resolution platforms don’t rely on the ‘good morals’ of judges or juries, but rather offer economic incentives for those who prove having fulfilled a desirable behavior; which means they will earn a profit only if they provide a justified decision that’s coherent with the vote of the majority. As regards reaching a fair solution, all the previously provided arguments have been trying to acknowledge that doing so requires the fulfillment of specific conditions, such as an impartial judge, transparency in the procedures, immutable decision making, among others.

To sum up, basically, decentralized justice systems should comply with the following features [3]:

Now, let’s go back to the example of Bob and Alice. How would they benefit and solve their case through decentralized justice? If Alice would have included on the smart contract that, in case of any dispute, it must be resolved with a certain decentralized tribunal, such as Kleros or Jur, then she would have had the possibility of resolving the issue through the process such tribunals offers.

Every court system is different and presents its own requirements and processes. In this manner, depending on the chosen court, the matter would be resolved through diverse procedures. Nonetheless, there are some features that every court share, which are the transparency the system provides as well as a quick decision making process carried out by experts on the matters being discussed.

Instead of judges, these decentralized courts are composed by a jury ––usually of three members–– expert on the subject. Hence, as previously explained, each jury will earn money if their response is coherent with the majority.

In this manner, Alice would be able to find a quick resolution to her complaint and, thus, the satisfaction of her interest as payee of a certain service owed by Bob.

IV.            What comes next?

Transitions from traditional dispute resolutions to decentralized ones won’t happen by night. The justice system is well-known for its unwillingness to evolve and change its traditional manners. Nevertheless, a new generation and new mindsets are arising, which proves there’s a possibility of change that will come along with the adoption of Web3 in all the other industries that need it. As most believe, a new revolution is coming and the justice system shouldn’t be left behind. It should follow the wave and become a better one to assure justice is achieved.

[1] LEVI, Stuart and LIPTON, Alex, “An Introduction to Smart Contracts and Their Potential and Inherent Limitations”, Harvard Law School Forum, 2018.

[2] AST, Federico, “When Online Dispute Resolution Meets Blockchain: The Birth of Decentralized Justice”, Stanford Journal of Blockchain, law and policy, 2021.

[3] AST, Federico, Op. Cit.

This Article was prepared by Maria Fiorentini.

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About Maria Fiorentini
Maria is a law student from Argentina who has deep interest in LegalTech. She gained knowledge through different courses, such as Legal Tech & Start Ups or The Disruption of Blockchain, etc. Her eagerness to contribute to this industry increased as soon as she started testing this technology by herself on her work, mostly related to future regulations that could be implemented on these technological advances. Thus, she encourages everyone to investigate and test them by themselves in order to discover the potential it hides.

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