BANKEX has just launched their new product called Smart Justice on the Ethereum mainnet. It’s a platform designed to facilitate dispute resolution and arbitration of smart contracts. Anyone holding vote tokens can become a judge and vote on cases. The implications for such a system are quite compelling. However, the service has a few potentially sinister points that should be considered.

BANKEX Makes a Shift

BANKEX is a Ethereum-based service that launched its ICO last year. The idea of the project was to allow for the tokenization of real-world assets that could then later be traded or held by investors. The main example was real estate. How the platform was supposed to work is that the owner of a building, for example, could have their ownership tokenized so that each token represented a share in the building. Those tokens could then be bought and sold just like stocks and the ownership would then be represented by the blockchain assets. Holding a token for a building would not give you permission to, for instance, take a nap inside of the broom closet. It simply gives a percentage of the financial ownership and nothing more.

According to BANKEX, almost anything that could be viewed as a real-world asset could be tokenized. So, cars, equipment, machinery, or anything else could potentially undergo this process.

BANKEX plans to hire teams of either direct employees or contractors that would act as real-world verifiers to ensure the authenticity of assets being tokenized, and to verify ownership.

With that in mind, the launch of the new Smart Justice platform does seem somewhat surprising.

What is Smart Justice?

The pitch according to BANKEX goes something like this. Smart contracts are self-executing and always follow the rules. Unfortunately, as soon as people get involved, problems are going to occur.

A recent blog post by BANKEX describing the service gives the example of a freelance contractor and an employer who use the BANKEX service to facilitate a transaction between the two. For instance, the employer hires the contractor to do some sort of work. In the event that the employer is unhappy with the work of the contractor or the contractor failed to do the work at all, the employer could then theoretically use the BANKEX Smart Justice system to effectively sue the contractor.

At this point, the system will randomly select 51 judges from a pool of potential candidates that hold vote tokens.

It’s at this point that things start to get a little strange.

Getting Judgmental

The first question you may be wondering is, why would anyone want to be a judge? Why would you want to not only buy vote tokens at your own expense, but then spend time and effort looking into the details of the case?

The answer is quite simple. If you, as a judge, make a vote and that vote is later deemed the correct one based on a majority of voters, then you will receive a cryptocurrency reward. If you are wrong, or the others disagree with you, then you will lose your vote token and receive no reward.

The logic behind this is that judges will be encouraged to vote for whichever side is inherently more correct. The claim is that this follows the law of large numbers, where the outcome of the truth will inevitably will be reflected in the majority. But there’s also an obvious problem here.

An Example case, Image from BANKEX Smart Justice

Instead of being incentivized to vote on the truth, there could be some cases where a judge may look at both sides and think to themselves, side A is obviously going to win, but I think side B is correct. Should I vote for side A to get the tokens, or should I vote with my conscience and go for side B?

The second point to consider is a little less likely, but certainly conceivable. Let’s imagine that a very high-stakes, high-value case is put on the platform. Millions of dollars are on the line and it will be up to 51 random judges. Let’s say that the platform only has a pool of 2000 judges. Therefore, if enough money is at stake, those with cases on the line would be financially incentivized to set up as many judges as possible into the judge pool so as to increase the odds of having their own people on the case. If you a vote token costs just a few dollars, then overwhelming the pool could be quite trivial when enough money is on the line. In many ways it would be just like a 51% attack.

Not the Only Player

What BANKEX has with their Smart Justice system has many similarities to other platforms that offer decentralized arbitration. One notable example would be Aragon Network which is based very highly around this idea of arbitration by anonymous jury as a central concept.

It’s quite odd as well that BANKEX would choose to enter into this field that seems to have no direct connection to their original core offering of tokenizing real world assets.

If the platform shows itself to be effective and low-cost (or at least competitive with other alternatives) then it could be useful for small cases such as the above example of a freelancer doing work.

What could also be an important growth area for this type of service would be home renovation contractors. This area of work is rife with fraud and complaints, with overcharging and shoddy work being the norm.

If, in the future, cryptocurrency based transactions become normal, then asking for a contractor to provide a service through a smart contract that could potentially face arbitration would increase the likelihood of said contractor doing a good job the first time around. There is also a degree of reputation management that could be tied into this. Specifically, if a contractor regularly uses the same blockchain-based service, then any potential customer could quickly and easily review verifiable transaction records for previous business cases and see if any of them were taken into arbitration. And if they were taken into arbitration, they can see the result in the event that the contractor did a good job and did deserve to be paid.

There’s still a lot of gray area when it comes to this kind of service, and will likely be many decades until blockchain-based arbitration becomes normal, if it ever does.

In theory it’s a interesting idea, but the system needs to be truly stress tested before it’s used on high-stakes cases.