Didn't you know? All the private keys got leaked on this site: http://directory.io/  Bitcoin has been hacked!

Now we wait for search engines to index it, then you can search by Bitcoin public address and find the private key.

</sarcasm>

It's not always possible. In effect that's why you have Oracles, to produce decentralized consensus, where it is not possible to enforce through the block-chain.

If we assume that Oracles will never collude and take over 51%, it is possible to have other Oracles verify the data and slap the bad ones on the wrist.

However with your idea of randomizing and redistributing ownership, this might get even more stable.

Also if you consider that the position for an Oracle is a perpetual auction, you could have the ones waiting in line spank the bad ones as well.

Say you have 5 active oracles at a time (for simplicity only) and you sort them by the total they have deposited as collateral:

O1 | 35 BTC
O2 | 31 BTC
O3 | 27 BTC
O4 | 23 BTC
O5 | 16 BTC
------------- <-- CUT OFF NEXT GUYS ARE WAITING IN LINE TO TAKE THE POSITION AND COULD ALSO PLAY POLICE
O6 | 12 BTC
O7 | 11 BTC

etc.

So let's say O1 and O2 collude and O1 does something bad - then there is the court I mentioned, it gets decided in an off-the record chain, until a verdict is reached.
O3,O4,O5 can verify the same data and decide oh hell no O1 and O2 are lying - kick them out.


Scenario 2 which might even solve the 51%:

Once there is a problem detected by a single Oracle, say O7 detects O1 is being a bad actor, he starts investigation. Let's say during the investigation O2 and O3 collude and defend O1.
Since the oracles in line will also be allowed to vote, they may get the truth correctly even when 51% of the active oracles are colluding.

I will admit I don't have a concrete system that works, just random bits and pieces of the puzzle.

I think there is a way to make this work, but so far none of this is elegant and to my liking.

There are use cases where putting down a collateral actually makes perfect sense and is easy to track/reimburse.

Allow me to elaborate. I was considering using that for a coin 2 coin exchange. Say you wanted to exchange 2 CwapCoins for 5 ShetCoins. Say both of which are closely equivalent to 0.1BTC.

Then an Oracle could facilitate the transaction so long as they have put 0.1BTC as collateral. In other words they could only guarantee transactions in the amount of collateral they have put in.

In the even that the Oracle takes the coins and runs, the collateral is then easily distributed by including a proof that the Oracle has not done the right thing. There could be a separate "Court" chain that can follow those rules without the needs of judges.

Just a thought. I agree though that yes in most cases instead of negative reinforcement, you could provide positive reinforcement and enough incentives for an Oracle to never do bad.

Keep in mind however that an Oracle's machine could be hacked. Even if they mean well others might take advantage of their situation. Just like an eBay powerseller could be shaken and used to scam with fake big ticket items.

In short: I think insurance/collateral has its merit and is not entirely out of the question. Insurance might be easier to implement, than tracking down bad oracles.

There is a kicker to both approaches as well - make Oracles deposit some amount as collateral. Use that then to run some form of insurance policy enforced via contracts, so that affected parties could be remedied.

Also I've been thinking about introducing civil disputes within the chain itself. Could that work? Or is that something that could easily be abused?