Welcome to the Juris Project. We’re building a mediation and arbitration protocol for blockchain smart contracts. Start here if you want to know more about the project, and check out post one (“Juris Protocol Use Case — Ziggy Stardust”) or post two (“100,000 Twitter Bots, Bought on the Blockchain”) in the series t to start smaller. Continue on for an example from our whitepaper of how it will work.
Crowdfunding The World
By now, the general public is aware of the idea of crowdfunding. US law has caught up to the extent that regulations have been rolled out allowing a restricted version of crowdfunding in exchange for equity. And in this world, nearly all securities contracts use an arbitration clause, or agreement. We already looked at how things worked with Ziggy, described above. It isn’t difficult to extrapolate the implications for a Kickstarter- like platform, built via blockchain to maximize efficiency. But because ICOs are all the rage, lets take a look at that type of crowdfunding, in which the crowd isn’t quite as large. Just remember, because of how blockchains work, this could happen for one hundred or a thousand people as easily as ten we talk about.
The Simple Agreement for Future Tokens (SAFT) has quickly become a popular funding mechanism for pre-sale Token Generation Events. Sometimes they’re also called Initial Coin Offerings, or ICOs. They are a tool for the early sale of the tokens that will be generated and used by technology protocols for which funding is needed. They require a certain degree of interpersonal trust between founders and investors, as they are essentially a promise to produce and deliver something at a future date. But what if you want to fund a Cambodian team with a promising idea, and you can’t do a background check? What about an anonymous, distributed team? Because of this trust component, the SAFT is a less effective device for unproven teams or inexperienced (or crowd) investors.
Luckily the system is already primed for a trust-less solution, a SAFT built via smart contract, a SCAFT: Smart Contract for Future Tokens. But, like we’ve already covered, even smart contracts can’t always be perfect. Let’s take a look:
Ten investors would each like to pre-purchase 10,000 ETH of AwesomeCoin. Each puts their ETH in to a smart contract which has the following expected behavior: it will release .5% of its contents every day until it receives [the correct number of tokens] from [specific wallet address] at which point it will dump all of the remaining funds into the company’s account.
Due to a technical problem while preparing for the token generation, the AwesomeCoin developers lose access to [specific wallet address]. This means the smart contracts will never trigger as specified in the SCAFT code. Without intervention, AwesomeCoin will never receive the full balance of their funds, and the investors will never receive their tokens. AwesomeCoin does not want to disrupt their timeline, so they push ahead, issue the tokens and distribute tokens manually from their new address, as promised, to the investors. Using the Juris self mediation tools, the developers propose that the money be transferred to their account even through the technical terms of the smart contract were not satisfied. Using the same tools, seven of the investor’s signal their assent; the developers signal their assent, and the transfer executes. Two of the investors invoke the SCAFT’s cancellation terms. Those contracts are frozen, and all of the money left in those accounts is moved into a Juris CDK generated holding account. The parties are unable to talk it out, and they trigger a SNAP Judgement, after which point one of the investors signals their willingness to release funds. Both parties sign off, and the funds are released.
The remaining investors choose to escalate the case further. This signals Juris to begin formation of a panel. The smart contract doesn’t detail what kind of mediation they would like, so default settings are used. The system guides the parties through the process to select a panel of three High Jurists. This panel hears arguments and examines evidence. At the end of that period, the judges find 2-to-1 for the entrepreneurs. Using their dispute mediation tools, without the consent of the investors, they transfer the remaining funds to the entrepreneurs’ account. The panel members split the mediation fee, and rate each other’s performance (those ratings are used to update their reputation scores).