The Aragon project

Aragon is to be the first digital jurisdiction operating on the Ethereum platform in the form of a DAO (decentralised autonomous organisation). Aragon’s developers intend to create a legal environment on the blockchain that is business-friendly. They compare Aragon’s jurisdiction to that of Delaware, which is an attractive place in the “real” world for registering a company.

The Aragon network will enable people to do business, but in a digital world that is governed by different rules. There will be no age restrictions or citizenship requirements for anyone wanting to set up a DAO (the entity corresponding to a company on the blockchain) under Aragon.

The Aragon platform will offer ready-made accounting and legal services. Aragon “ANT” tokens were issued in May 2017. Their holders will have direct influence on the formation of the network. In addition, they will be able to set up their own DAOs, vote on individual legal acts relating to their DAO and the Aragon network, as well as maintain books of accounts and information on their organisation on that platform.

However, this is not all. The project’s developers, Luis Cuende (only 21) and Jorge Izquierdo, also propose the creation of the first decentralised blockchain-based judiciary.

Digital jurisdiction

Aragon’s developers have made the assumption that it is impossible to eliminate disputes between entrepreneurs. Anxiety over the inability to enforce debts and lack of control over dishonest contractors would discourage many potential entrepreneurs from setting up a blockchain company.

That is why Aragon’s developers decided to organise a digital jurisdiction and a decentralised online court.

The Aragon network will be equipped with its own constitution, approved by ANT token holders. They will also be able to amend it.

Within the Aragon network, anyone will be able to create their own DAO governed by its own rules. The premise is that organisations will operate under their internal rules, but within Aragon’s legal framework. Therefore, they will be bound by Aragon’s constitution. They will also have the option of adopting ready-made legal solutions: the Aragon network will provide entrepreneurs with ready-made examples of regulations, statutes and contracts.

Most obligations will be encrypted as smart contracts, and it will be difficult to evade performing such agreements. However, an area will still remain that will not be capable of regulation by smart contracts, and it will require a mechanism for resolving human disputes.

The developers intend to create an opt-in system that would allow use of the Aragon network’s court system.

Courts on the blockchain

The Aragon Network Jurisdiction (ANJ) provides the tools necessary for resolving complex disputes. Since it is impossible to foresee all conflict-causing situations in an organisation and to define them in smart contracts, it would seem essential to create an arbitration institution in which disputes could be settled.

DAOs that surrender to Aragon’s jurisdiction, will have the comfort that they will not be subjected to the absolute objectivity of smart contracts - complicated issues will capable of resolution by a court composed of people.

The first instance

Aragon’s developers’ intention is that the arbitration process should take the following course. To begin proceedings, the applicant must pay a deposit in ANT tokens. Tokens will be returned, if the applicant wins the process. If it loses, the tokens will be retained. In some situations, the application for arbitration may also have the effect of freezing all of the defendant’s contracts and business.

When proceedings begin, five judges will be selected at random from Aragon users who have previously expressed their willingness to settle disputes by filing deposits in tokens. If any selected judge refuses, that person will be penalised and another judge chosen.

The next step of the process is a review by the judges of the case file, the basic rules of Aragon’s jurisdiction, the rules (if any) of the specific organisation and other materials sent by the parties to the dispute.

After reviewing the materials, the judges will make a decision. The judges’ decision process will be in two stages. It is important that the judges keep their decision secret until the ruling has been formally issued. The developers require that they should not influence or collude with each other.

Once they have made their decisions, the judges will pass their encrypted versions to the court, still not revealing what they have decided. Once the deadline for submitting verdicts has passed, the judges will make their decisions known. The developers emphasise that the objective is to avoid collusion between the judges, so if anyone can prove that a judge made a decision public before the deadline, they will be rewarded.

If a decision is not made, the respective judge will be fined in ANT tokens. Judges who make the “right” decision (i.e., most judges) will be rewarded with non-transferrable “reputation” tokens. The judges who are in the minority will then be penalised. At the same time, measures will be taken to penalise the losing party.

The second instance

The Aragon jurisdiction’s judicial system envisages also an appeal procedure. If a party does not accept the outcome of a first instance court, it may request that the case be sent to a higher level, operating under the rules of a prediction marketplace. The party must also pay a larger deposit for this in ANT tokens.

All Aragon judges may take part in resolving the dispute at the second instance. The process itself would take a similar course: judges may not disclose their decisions until after a specific deadline. Again, judges whose assessment of the dispute is similar to the majority’s will be rewarded and the deposit returned to them. Whereas, the judges in the minority will incur financial consequences.

If the decision at the second instance is different from that of the first instance court, the latter court’s judges who voted against the judgment will be penalised (the white paper even says “extremely penalised”).

Supreme Court

However, that is not all. If a party is still dissatisfied with the verdicts in the case so far, it may request the case’s referral to a Supreme Court composed of nine judges. Those judges are Aragon network users with the most ANT tokens who have notified their wish to resolve the dispute. In order for the case to reach the Supreme Court, the party must pay an even greater deposit in ANT tokens. The decision-making process is the same as in the previous two instances. The judgment of the Supreme Court also impacts the judges at the previous instances.

An evaluation of the solution

The solution proposed by Aragon’s developers looks interesting, but raises various doubts. On the one hand, entrepreneurs must be provided with mechanisms for resolving disputes. On the other hand, those proposed mechanisms have obvious drawbacks.

First, the idea of ​the ​financial punishment of judges could discourage potential volunteers. In addition, it could encourage them to attempt to make their decisions fit in with those of other judges rather than boldly considering a just solution for the parties. The developers have assumed that judges’ decisions are to be kept confidential until the judgment has been issued. However, this does not mean that the judges will not try to guess each other’s decisions and thus earn from a “correct” resolution.

Secondly, judges and other users may be tempted to reject an application for arbitration. This is because the tokens that have been contributed as a deposit by the claimant would then be split between the users and the judges. Aragon’s developers argue that this would cause a party to think twice before going to court and will not waste users’ and judges’ time on trivia. They frankly admit that they intend to discourage users from seeking arbitration.

Thirdly, there is still the issue of disputes being settled by random users of the network. Will they be properly prepared? There is a danger that they will be guided by their particular interests and not by the good of other users.

Finally, the question arises as to whether the creation of digital jurisdictions, under which organisations will emerge that are governed by their own laws, will not evoke a response from state authorities and regulators?

Aragon’s developers have registered it in Estonia, a state which is favourable disposed to new technologies; but such a radical and courageous project may face many difficulties, if only to mention tax law. Users operating on the platform will not be able to escape the real world’s authorities.

It is worth observing how the Aragon project will develop. For now, following the spectacular success of the ICO, its developers are planning to hire more team members and to improve and refine the platform.

Aleksandra Lisicka