This could be huge in my opinion, until prediction markets become legal at least. Is there any real value in it being decentralized other than bypassing laws?
There is enormous value in prediction markets, I hate that they are illegal in the US.
When real money is at stake then people make the decision that is most rational and filter out much of their bias.
I do think prediction markets should be legal and required to be 100% transparent. The scenario where people bet on something that they have control or influence over could be dangerous.
The thing that I don't understand about a decentralized prediction market is where do the results come from? Somebody has to say, "this bet won", right?
When the event occurs (the one that people are predicting), the users themselves declare which outcome actually happened. The outcome that was voted most as being true is the one considered to be true. To stop people from gaming this system, your outcome-declaring vote is also tied to a weight based on previous outcome-declaring votes and how they relate to what was considered the true outcome.
The problem with this proposal is that there is single central (but non-centralized) counterparty risk. If the market grows big, there will be huge monetary incentives to try to find weaknesses in the system and find to collude.
I would like to see non-centralized single market that has protocol for multiple transparent brokers that compete with fees and have their reputation there for everyone to see and judge any way they want. This way the risk of large bets could be divided between brokers.
Broker would be just identity and the 'implementation' could be single individual (anonymous or not), multiple individuals (broker syndicate) who would vote among themselves and manage their membership. Ability to attach decentralized algorithms as brokers should be also possible if taken into account when designing the protocols.
> The problem with this proposal is that there is single central (but non-centralized) counterparty risk. If the market grows big, there will be huge monetary incentives to try to find weaknesses in the system and find to collude.
Is this a problem for Bitcoin that there's a 'central' counterparty (the network)? If it is, then multiple Truthcoin networks could be run.
This strikes me as the sort of thing where, if you can have it simply technically impossible to cheat, that beats any legal after-the-fact fixup you might be able to employ.
It reminds of strong typing... sure, you can unit test the heck out of your code, but even better would be simply guaranteeing up front that there's no clever way a user can jam a string in where you expected an int.
Contract outcomes are determined in a trustless and decentralized way, through a weighted vote based on present and past consensus with a unique Nash Equilibrium where all voters report accurately on the state of markets.
Except that analysis only holds when you assume participants are honest, or there are no derivatives. What stops me from making a massively stupid bet, and then rigging the market to diverge from reality?
The same thing that prevents dishonest bitcoin miners from rigging the blockchain to say that coin X went from A->M instead of A->B.
As long as there are more nodes who would not benefit from this particular rigging as there are nodes who would, everyone can act in their own self-interest and the outcome would be correct.
> The same thing that prevents dishonest bitcoin miners from rigging the blockchain to say that coin X went from A->M instead of A->B.
Oh, so it has a built-in mining subsidy that miners are rewarded with? Because without that bitcoin suffers from an even worse version of the exact same problem and is not incentive compatible.
> As long as there are more nodes who would not benefit from this particular rigging as there are nodes who would, everyone can act in their own self-interest and the outcome would be correct.
What counts as a node? Can I spin up a million or a billion nodes on AWS and influence the vote that way?
proof of stake seems to be hardly an answer to the problem. And maaku seems to be pointing out that proof-of-work WITH SUBSIDY so far has worked, but without subsidy the dynamics are quite different.
The Truthcoin_1.1.pdf available goes over it a bit. I had the same question and had to hunt around a bit to find it.
It's a weighted vote, with loss of coin penalties for not voting or for voting against the majority and coin rewards for voting on low vote "decisions" and for voting for the outcome that ends up being the majority.
The defence here is the assumption that the usefulness of the market long term will motivate people to vote "fairly". I think that's incredibly naive but it might still work. There are strong incentives to vote for who you think the eventual winning side will be and the assumption that that will likely be the truth (for well designed questions) isn't crazy.
There are a lot of obvious ways to attack this type of system but I don't have the expertise to know how viable they are.
Sounds a lot like a "synthetic asset" which is constructed from derivatives rather than the other way around. Actually I think that is what it is, but I'll have to read the PDF to be sure.
Synthetic assets are very much vulnerable to manipulation by whales. Ultimately you are just providing some incentive structure to keep the small players honest, and hoping that the small-bit players add up to significant security in aggregate, more than any possible combination of colluding players.
Generally speaking that's not a very safe assumption to make, particularly when the underlying settlement medium is irrevocable.
"The thing that I don't understand about a decentralized prediction market is where do the results come from? Somebody has to say, "this bet won", right?"
I'm wondering about this too. In many instances this would still necessitate a form of "trust" in a third party information provider. For example, if you're betting on the Mayweather fight, then you might be relying on an API providing fight outcomes from ESPN.
The decision is made by distributed consensus. Each decision maker is incentivised to vote with the consensus, so they will vote truthfully if the answer is easy to check, or vote 'void' if it isn't.
Each market creator loses money if the result is void, so it's in their interest to make bets that are easily validated.
Intrade had counterparty risk, didn't offer any kind of return on deposits, had nontrivial fees, limited who it took money from, and restricted what markets could be created. Truthcoin would eliminate #1, #4, #5, seriously reduce #3, and if volume grew could offer a version of #2 through appreciation.
I don't think any of those reasons explain why the Intrade markets were unpopular. The problem wasn't a lack of markets, deposit interest or fees. I don't think there were any restrictions on customers until after the CFTC charges were filed. I have a hard time believing that counterparty risk was meaningful.
In fact Intrade realized that the only markets people were interested in were sports markets and have focused exclusively on that area since the relaunch.
> I don't think any of those reasons explain why the Intrade markets were unpopular.
It's hard to say if any of these are the fatal problem with Intrade, but it's not like we'll know until some prediction market does 'take off', and we should at least address the known problems even if they don't look like huge problems.
> I don't think there were any restrictions on customers until after the CFTC charges were filed.
They didn't make it easy on US customers well before CFTC, as I found out first hand. You had to really want to sign up. It was much harder to get my money into Intrade than, say, Bitcoin (and people claim the difficulty of fiat->Bitcoin is a major barrier to Bitcoin adoption, so...)
> I have a hard time believing that counterparty risk was meaningful.
Even if we assume customers were idiots who didn't believe in counterparty risk before, they certainly do now.
> In fact Intrade realized that the only markets people were interested in were sports markets and have focused exclusively on that area since the relaunch.
Or... those are very safe areas legally for Intrade, and that's why they ban other markets?
There is enormous value in prediction markets, I hate that they are illegal in the US.
When real money is at stake then people make the decision that is most rational and filter out much of their bias.
I do think prediction markets should be legal and required to be 100% transparent. The scenario where people bet on something that they have control or influence over could be dangerous.
The thing that I don't understand about a decentralized prediction market is where do the results come from? Somebody has to say, "this bet won", right?