Who would be the counter-party in that bet? If someone said, "I'll bet you a hundred thousand dollars that I won't blow up that lighthouse", I'd say, "No thanks.", since the outcome of the bet is entirely in the hands of the person making it.
Not to mention the fact that the objection still holds true to the extent that information is revealed. If you say the lighthouse is going to be destroyed in 2015, the police can still give the lighthouse additional security measures in advance of 2015, if not at the specific time. The less information you reveal, the less money you'll make from the market (since you're only trading on part of your private information).
Additionally, while there's nothing stopping a distributed system from allowing death contracts to pay out in the event of a murder or forbidding death contracts in general, it's quite possible that the participants in a market could develop social norms which prevent this from happening (e.g. everyone votes "void" when a dead person is murdered, or everyone votes "void" on all death contracts). I'm not saying I'd rely on it, but I think in mature markets of this nature, you'd actually see some of that behavior.
Who would be the counter-party in that bet? If someone said, "I'll bet you a hundred thousand dollars that I won't blow up that lighthouse", I'd say, "No thanks.", since the outcome of the bet is entirely in the hands of the person making it.
Well of course. Why do you care if the lighthouse is destroyed? The counter-party to the bet is anyone who actually wants the lighthouse destroyed and are willing to pay to see it through.
The other problem when you try to censor this is that the illegality and immorality of these contracts actually depends on the intention, which you can't see on a public network. TruthCoin (or any other anonymous system for doing this) wouldn't be able to tell the difference between a payment to somebody to burn down the lighthouse and an insurance contract to help you rebuild the lighthouse if it burns down.
Likewise, for all you'll know looking at the transactions, a payment conditional on someone's death could be a will, a life insurance policy, a political bet or an assassination contract. These all look the same to the network; What matters is the intention behind them.
wouldn't be able to tell the difference between a payment to somebody to burn down the lighthouse and an insurance contract
A prediction market provides trust that a payment will happen if a specific event happens.
But insurance also requires another kind of trust. If you want to insure your goods, the insurer needs to evaluate the moral hazard in order to determine his rate. But here, he doesn't know if the buyer of the contract is the owner of the lighthouse, so there's no way he can do that: maybe the buyer turns out to be someone who won't suffer from the loss of the lighthouse and who can easily commit a crime. Because the moral hazard is huge, the insurer can't provide insurance at competitive rates.
Insurance contracts where the buyer of the insurance is anonymous to the insurer don't seem desirable to me. They enable assassination markets but have no real use (except for small amounts that won't create moral hazard, but I'd call that betting rather than insurance).
The less information you reveal, the less money you'll make from the market (since you're only trading on part of your private information).
In my example, the private information is the knowledge of the moment of the explosion one second before it happens, coupled with knowledge of a cryptographic secret. It's valuable on the market because you can only get this information if you published the contract and committed the crime yourself: therefore, the contract rewards the person responsible for committing the crime and only that person. The reason people who hate lighthouses will back that contract even if they don't trust the criminal is that they have nothing to lose: they will only "lose" their bet if the criminal destroys the lighthouse, which is what they wanted all along so it's actually a win from their point of view.
But the cryptographic secret is not valuable anywhere else, and the police has no use for it. The only information the police gets from the market is that the lighthouse has rich enemies willing to employ criminal means. Which they probably already knew.
It's quite possible that the participants in a market could develop social norms which prevent this from happening
The market would be even better off if those contracts were banned as soon as they appear. The fact that people can randomly decide whether a contract is valid after you've invested money is a risk for legitimate users (e.g. if you bought insurance against drought, you want to be certain that you'll get paid), and it's not necessary here. To avoid "public bad" contracts, you only need a deletion mechanism.
But for such mechanisms to exist, the possibility of "public bad" contracts must be acknowledged, not dismissed. That's the point I wanted to make.
I think the ability to make these contracts is inevitable, with or without TruthCoin, and it's futile trying to censor them.
You can get these contracts settled by any trusted party, or any combination you choose of trusted parties. There's already someone out there who is offering to escrow money if you want to assassinate a politician. The next logical step is for them to use multi-sig and act as an arbitor, but without the need to hold the funds. It's inevitable that someone will do this, if they're not doing it already.
If anything it would be better to have this activity happening on a public network so that law enforcement can find out who somebody is trying to assassinate etc.
Not to mention the fact that the objection still holds true to the extent that information is revealed. If you say the lighthouse is going to be destroyed in 2015, the police can still give the lighthouse additional security measures in advance of 2015, if not at the specific time. The less information you reveal, the less money you'll make from the market (since you're only trading on part of your private information).
Additionally, while there's nothing stopping a distributed system from allowing death contracts to pay out in the event of a murder or forbidding death contracts in general, it's quite possible that the participants in a market could develop social norms which prevent this from happening (e.g. everyone votes "void" when a dead person is murdered, or everyone votes "void" on all death contracts). I'm not saying I'd rely on it, but I think in mature markets of this nature, you'd actually see some of that behavior.