Difficulty wagering

[TTBit]

I have received some interest in re-opening the difficulty factor wagering at bitcoinsportsbook.com (BSB) therefore:

BSB will offer pari-mutual betting on the difficulty factor 3 months in advance. Wagering closes at the end of each month. Example: Wagering is now open for March 2011 difficulty, and bets will be frozen 12/31/10 11:59pm ET. April 2011 difficulty settlement will have betting closed 1/31/11 11:59pm ET, etc. There are NO FEES with this wager at this time.

I have created an opening line for the following difficulty levels to expire 3/31/11:

25,000 98.7%
50,000 88.9%
75,000 72.1%
100,000 56.1%
125,000 42.0%
150,000 32.4%
200,000 18.6%
250,000 11.5%

I'm basing this off of my calc of a 50/50 of difficulty at 109,820.

Quick tip for pari-mutual wagering: If you don't agree with the current market, the best solution is to bet the percentage you believe it to be.
Example #1: You think the 50/50 mark is 50,000. Your best solution is to wager 20 on 'OVER' and 20 on 'UNDER' on the 50,000 wager. You are only required to put up 20 coins on this wager. Once a line is set on 12/31 you are refunded coins above the worst case scenario.
Example #2: You believe the difficulty will be over 200,000 40% of the time. Your best wager is to put 20 on 'OVER' and 30 on 'UNDER'. You need 30 coins in margin to do this. Again, you also are returned coins above the worst case scenario.

Once the betting is closed a worst case scenario is calculated and you are then free to wager/withdraw unused coins. In Example #2, if the odds went off at 2:1, you would be able to withdraw another 15 coins. (either win 40/lose 30 net +10 OR win 15/lose 30 net -15).

Good Luck!

[1713951922]

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[FreeMoney]

Thanks for the tip, I was thinking parimutuel was a bad system, but I just didn't understand.

It is a little counterintuitive to bet on both sides. Someone could make a little tool that says "The current mass of bettors thinks the odds are XX%, what do you think the odds are? _____" and then "What is the most you are willing to risk? _____" then "Wager placed."

[ribuck]

... betting on the difficulty factor 3 months in advance.

Three months is a long time in Bitcoin land!

Three months ago, TTBit speculated that the difficulty level would be 1000 by year end.  FreeMoney replied "2000 at least imo, but my guess is 8500" and here we are at over 12000 already with some difficulty adjustments still to come before year end!

Those wagering on this one might be interested in the previous wager. I wonder if anyone other than TTBit took a position on difficulty factor > 50,000?

[mpkomara]

+1 ribuck.

why not list a 1-month, 2-month, 3-month and 1-year contract?  also, why are we dealing with years and not block numbers?  call me insanely optimistic, but maybe we will be replacing the Gregorian Calendar with the Bitcoin Block Calendar sometime in the future.  i digress...

[TTBit]

... betting on the difficulty factor 3 months in advance.

Three months is a long time in Bitcoin land!

Three months ago, TTBit speculated that the difficulty level would be 1000 by year end.  FreeMoney replied "2000 at least imo, but my guess is 8500" and here we are at over 12000 already with some difficulty adjustments still to come before year end!

Those wagering on this one might be interested in the previous wager. I wonder if anyone other than TTBit took a position on difficulty factor > 50,000?

I am open to suggestions. My thinking is that 1 month difficulty is almost predictable, as it is only 2 changes away.

Oh for the days of triple digit difficulty and CPU generation...

[TTBit]

+1 ribuck.

why not list a 1-month, 2-month, 3-month and 1-year contract?  also, why are we dealing with years and not block numbers?  call me insanely optimistic, but maybe we will be replacing the Gregorian Calendar with the Bitcoin Block Calendar sometime in the future.  i digress...

That is a great idea - use block numbers instead of dates. I should switch to that.

Right now I'm a majority of the market, and I might not be the most talented in predicting future difficulty levels (I will lose btc). If the contracts become self-sustaining, I'll open up more markets.

[FreeMoney]

+1 ribuck.

why not list a 1-month, 2-month, 3-month and 1-year contract?  also, why are we dealing with years and not block numbers?  call me insanely optimistic, but maybe we will be replacing the Gregorian Calendar with the Bitcoin Block Calendar sometime in the future.  i digress...

That is a great idea - use block numbers instead of dates. I should switch to that.

Right now I'm a majority of the market, and I might not be the most talented in predicting future difficulty levels (I will lose btc). If the contracts become self-sustaining, I'll open up more markets.

Is there any reason not to offer the wagers with no initial bet of your own? I would have thought so before your tip, but now I realize that anyone can lay their own line down any time so a popular one should get started without you seeding it. I'm sure seeding helps though.

+1 to monthly instead of 3 months. It'll be more predictable, but that just means your ranges should be tighter.

If this gets big action it could be used by serious generators to hedge themselves.

[Grant]

If this gets big action it could be used by serious generators to hedge themselves.

A nice hedge for miners right now could be:

MtGox price UNDER $0.25 End of Jan 2011 ET    +0.2    197.44    2.1278 [+113]

I would personally buy a bunch of over $0.25 if there's enough at the other side of the trade.

[nelisky]

Funny, I was sure I had posted this... anyway, why not every 6048 blocks representing 3 difficulty adjustment steps? Maybe 2 steps, as that is closer to one calendar month even.

[TTBit]

I bumped this to say that there has been some activity on the MtGox ending price of January 2011. Currently about 5,000+ coins if anyone has an opinion. Zero fees for this new contract, so feel free to bet both sides.

The price will be settled with an average price weighting at MtGox for all trades at MtGox on January 31st 2011 Eastern Time. Note this is a weighted price average. I will post all MtGox trades for Jan 31st on bitcoinsportsbook.com.

[TTBit]

MtGox wagering settled at 0.5161 for the month of January. January 31st trades totaled $32,649.75 in value over 63,263 contracts.

All OVERs hit for January, including:
10 cents: 1.1460 for 1
20 cents: 1.2187 for 1
25 cents: 1.4576 for 1
30 cents: 1.9609 for 1
40 cents: 3.9937 for 1
50 cents: 8.5206 for 1

February OVER/UNDER wagering is open until February 1st, 11:59pm ET. There are no fees on MtGox wagering, so bet both sides to protect yourself. BSB is looking for market makers on this contract.

Over $0.80 is currently paying almost 3:1.
Over $1.00 is currently paying over 9:1.

[mpkomara]

"bet both sides to protect yourself".  not sure what you mean.  can you give an example?

[TTBit]

"bet both sides to protect yourself".  not sure what you mean.  can you give an example?

Sure,

You would effectively make a market. If bitcoins close today at $0.6000 and you feel there is a 50/50 chance they will close 2/28 at $0.6000, you should bet equal amounts on each side of the 60 cent strike price.

So if you be 100 coins on each side at 60 cents and the wagering ends at 2.15 (+115) on the OVER because a miner is trying to hedge against lower prices, you effectively will make 15 coins if over, and lose 15 coins if under.