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Author Topic: [WHITEPAPER] Decentralized Bitcoin Prediction Markets  (Read 26024 times)
gwern
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May 07, 2014, 08:18:30 PM
 #61

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Will a solution like side-chains help to go in and out without liquidity concerns?

Because perfect is the enemy of better.

Once a transaction has 6 confirmations, it is extremely unlikely that an attacker without at least 50% of the network's computation power would be able to reverse it.
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AsymmetricInformation
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May 08, 2014, 09:18:08 PM
 #62

Hello again,

Happy to see that this thread has revived. I've made a lot of progress since the project first started, for example I'm nearly certain we can add Scaled claims (which take a scalar rather than boolean value). Instead of voting .5 for incoherence, voters pick an extreme (max or min, chosen as least-frequent choice within that maturation-ballot [this prevents any possible strategic upward or downward bias]) which robs the author of money in the same way. Check the new excel for my thoughts, the R consensus-code is already written (but I have yet to do an example-test).

First and foremost I would like to thank gwern from the bottom of my heart, for defending the project while someone else submitted it to ycombinator last weekend. I was on vacation and had only my phone, and it would have been tragic if an unexpected publicity-event had gone to waste because no knowledgeable people were participating in the conversation.

Thank you gwern!


A lot of solutions are proposed for PMs but all lack volume. Why no solution is proposed using bitcoin which has already a lot of volume and users? Will a solution like side-chains help to go in and out without liquidity concerns?

In https://github.com/psztorc/Truthcoin/raw/master/docs/1_Purpose.pdf I attempt to explain why Truthcoin would succeed where previous PM attempts have failed.

I actually designed Truthcoin as a side-chain (without knowing the name, and just hoping that someone else would figure out how to make one), so of course side-chains would be great. It looks like, instead of that ideal scenario, I may be forced to use my least-ideal scenario (at first), what I call "BothCoin", which is basically a true altcoin that, in addition to being spent like Bitcoin, can be spent on PM-trades. Its my least-desired plan, but you can't test something that doesn't exist.

Some ideas we had to at least kind of decentralize it:
1. We will publish a hash of every event description combined with the outcome "true" or "false" and sign the real outcome. Thus we can build up reputations and predictions can be placed completely independent.
2. With No. 1 bet amounts can be stored in a 2 out of 3 multi sign address. That would make it impossible for the central PM to run away with the money - just to choose the winning side. (of course this is only a little bit better, since the central PM could act as a bettor as well)
3. We though as well about finding a consensus by the user (to have less work by resolving events)
One solution would be that both sides put 10% more money in a multi-sign address. No the person that looses the bet can admit the loss and sign the transaction to the winner but he gets back the 10%. If none of both admits to be the looser we sign a transaction to the winner but take the 10% of the looser.

We think combining 1. and 2. and having multiple independent entities as described in 1. with a good track recored and betting on a consensus of these would be a good solution as well?

I also came up exactly with idea 3, its not as good as you might think, because in Nash Equilibrium you still need an incorruptible way of determining outcomes (for the holdouts [even if it were never be used on-path, the game theory requires that the off-path reasoning be persuasive]). One holdout can cause you to have to research the issue, and once you've done that, it costs nothing to re-use that research for all other traders. So a losing trader can easily force the administrator to research his claim, if the administrator is not prepared for the possibility that he will be required to research ALL claims, than this can be gamed strategically.

The only way you can lighten that load is if you can actually pull some weight, you see?

2, as you say, won't really work. gwern has already perfectly explained the 'exit scam', which is yet another reason why I went with reputation-tokens (you want to keep them pristine so that you can sell them, allowing for 'non-scam exit').

1 is, I think, consequentially the same as 2, is it not?


Although I'm very happy to see all of this interest, I'm greatly concerned that many people are duplicating work...for example SchellingCoin, which won't work, contains many ideas I had over two years ago. I'm sad to see other people spending their time when I did all of this work and released it to the internet for free. Another cause for sadness is the attitude of many developers, who say "econ people shouldnt mess around with crypto they dont understand", and yet when the tables are turned these devs feel comfortable messing with econ that they dont understand.

I am also uncomfortable with the Silicon Valley style of "just publish whatever you're thinking, even if it sucks". I have basically the opposite style and feel a lot of pressure to rush things out.

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Catastrough
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May 10, 2014, 11:51:29 AM
 #63

I'm no developer but I'm certainly interested in prediction markets - I presume the major difference between what you're suggesting and what already exists (www.predictious.com etc etc) is the decentralised nature of the market. This is an excellent idea and I can see it providing many benefits in terms of futures markets and derivatives. However, could you explain why prediction markets would end contentious debates?
AsymmetricInformation
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May 12, 2014, 12:49:08 PM
 #64

I'm no developer but I'm certainly interested in prediction markets - I presume the major difference between what you're suggesting and what already exists (www.predictious.com etc etc) is the decentralised nature of the market. This is an excellent idea and I can see it providing many benefits in terms of futures markets and derivatives. However, could you explain why prediction markets would end contentious debates?

Plagiarism! Prove to us you aren't a bot.

http://www.reddit.com/r/Bitcoin/comments/1ycjdi/whitepaper_decentralized_bitcoin_prediction/cfjbh4e

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asherp
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May 22, 2014, 04:40:30 AM
 #65

I've really enjoyed reading your work. I'm a physicist, so the very idea that we can generate probability distribution functions for human actions is just mind blowing. I'm actually starting to learn some game theory because of it. Anyway, I have one question - do you think meta-predictions could counter attempts to game your system? For example, we could start a prediction market that predicts a consensus of voters will vote against the truth in one or more markets. The reason I ask is that Nash equilibria are supposed to make law enforcement unnecessary (For example, in the stop light game it's unnecessary to have a law against running the stop light because players have enough incentive not to). In the same way, doesn't the protocol act like law enforcement, and if so could such "second-order" predictions offload some of the work of ensuring players remain honest?
queptiv
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May 22, 2014, 12:41:32 PM
 #66

I am a fan of prediction markets too, after the OP is there more developments on this issue
asherp
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May 22, 2014, 02:48:27 PM
 #67

I am a fan of prediction markets too, after the OP is there more developments on this issue

Narayanan's group at Princeton developed independently a similar concept using with competing arbiters: http://users.encs.concordia.ca/~clark/papers/2014_weis.pdf In their paper they compare their model with Truthcoin:

Quote

Voting as a Keynesian beauty contest. In this approach, each of N shares in a prediction market
confers one vote for market arbitration [7]. In the common case, a supermajority of voters ( k > 2N/3) vote
the same way, this is considered a consensus and the winning shares will be paid out.
Of course, voters holding losing shares have a nancial incentive to vote contrary to reality. To address
this dilemma, all market participants are required to post a bond in addition to the price of the shares
they purchase. Any voters who vote contrary to an outcome with reaches a 2N/3 consensus forfeit their
bond, disincentivizing voters to vote against the likely nal outcome. The market might still fail to reach
consensus if, for example, there are two possible outcomes and all participants holding shares in the losing
outcome form a coalition and refuse to provide any votes necessary for the market to reach consensus. To
disincentivize this, if the market fails to reach consensus after a certain time period then all participants
forfeit their bonds.

The functioning of such a system in practice is unknown. In the case of markets with a genuinely unclear
outcome, the system creates a \Keynesian beauty contest," with all participants incentivized to vote for the
outcome they believe others will consider correct, rather than their own fundamental beliefs.

Ignoring such cases though and assuming a market with a clear outcome, this system produces an iterated
game of chicken between coalitions of voters holding shares in each outcome. If either coalition is able to
convince the other that they are absolutely going to spend their
N/2 votes on their preferred outcome, the other side is incentivized to back down and concede to prevent losing their bond. It is only be repeated play, in which participants have a reputation to maintain that will be damaged if they vote for a patently incorrect
outcome, that this game can be avoided. Thus we think this approach is less desirable as it requires tracking
reputations for all participants in the market and not just a small number of adjudicators.
Giulio Prisco
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May 25, 2014, 09:51:07 AM
 #68

Very interesting. I started a similar thread some time ago (see https://bitcointalk.org/index.php?topic=139227.0 ) and I am giving some thought to implementation strategies. I will read the whitepaper with great interest.
RepublicSpace
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May 25, 2014, 01:52:18 PM
 #69

Use the combined knowledge and intellectual ability of mankind to construct and refine the most accurate possible prediction of the future.

This is the traditional role of prediction markets. Pretty fascinating at predicting "group" consensus with a group of people not just being polled. They were a self-selecting group that entered a poll because they were confident enough to put their money where their mouth was. For binary events, such as Romney vs. Obama's election, they were pretty good .... but really hovered around 45c/55c for a long time (out of a $1 pay-out). then rapidly shifted about a week or so before the election.

The government didn't know how to deal with them, so both the gaming (gambling) regulatory folks and the SEC ganged up and shut down prediction markets (esp. InTrade) in the US.

How do you think they will treat bitcoin? If it's money, your violating securities law (if not set up correctly). If it's not money (poker chips), you are violating gaming laws. And of course, the IRS doesn't care: they just want 40% of your winnings. Which is pretty crazy. You bet $0.60 for a $1.00 payout. And they take $0.40. No return. How do you see getting around this?
RepublicSpace
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May 25, 2014, 01:58:38 PM
 #70

End debates about the contentious issues of today, such as climate-change, heritability of IQ, effect of GMOs etc.

I'm not sure this works. Heritability of IQ isn't something that the lay-person knows enough about to place a bet. CAGW, GMO, (vaccines), people "think" they know enough ... but really they have bubble-think opinions. And any market would have to be placed around a binary event. Such a specific statement being proved factual or counter-factual within a time-frame. So, "Global Average Temperatures as measured by satellite, and not urban "hot-spots", will go up 3decC by 2025." Or something. That is a bet I would take if someone wanted to bet on it. I'm not sure how to structure this with GMOs.
asherp
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May 26, 2014, 06:47:41 AM
 #71

Allows for the creation of ‘Trustless Dominant Assurance Contracts’ which allow financing of public goods such as lighthouse, roads, etc. with no counterparty risk.

Interesting. Still not prediction markets. But how? Also, I don't see the no counter-party risk part unless there is a big backer like AIG or a secondary market like Marsh-Mac, or a big-ass escrow account. Or a bond-type thing. Which ... has a counter-party.
Anyway: I like your enthusiasm. I like the applications you are pondering. I can not but help think (and yes, I've read your paper) that you haven't thought through the hurdles of implementation. Or are you simply looking at this as a theoretical economic game-theory model framework?

I don't think you read the document 3_PM_Applications.pdf, because it answers the vast majority of your questions. It explains how you can break up binary predictions into probability distribution functions over subsets of the domain (what are the chances btc will be 500 or above? $600? $650? $700?) all within the same market. It explains how to chain predictions together to define a matrix of probabilities for combinations of outcomes. So if Policy X is not enacted, will unemployment rise by Y%? What about the converse?

Those who do not have specialized knowledge should not be betting, as they will likely lose money in the long run. That is, unless they are hedging. For instance, if you're a farmer you can hedge against a drought occurring if a market exists to predict it. Another example would be for funding public goods. For instance, say you want a road to built from point A to point B and you think the community wants it also. You start a PM, specifying whatever level of detail is necessary, then release it onto the TruthCoin network. Everyone who WANTS a new road bets that it WON'T happen (it's a win-win situation for them), and those with expert knowledge of the local property rights, permits, etc will speculate. If enough capital is raised on the NO-ROAD outcome, then at some point it becomes profitable for anyone capable of actually building the road to go ahead and do it, buying up YES-ROAD shares beforehand.

Finally, the proposal is for a protocol, so it's up to the user to abide by local laws.
AsymmetricInformation
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May 29, 2014, 02:35:39 PM
 #72

This 'RepublicSpace' guy is some kind of bot which repost reddit comments: http://www.reddit.com/r/Bitcoin/comments/1ycjdi/whitepaper_decentralized_bitcoin_prediction/

I've really enjoyed reading your work. I'm a physicist, so the very idea that we can generate probability distribution functions for human actions is just mind blowing.

Thanks! I hope you'll join our new forum at forum.truthcoin.info

Anyway, I have one question - do you think meta-predictions could counter attempts to game your system? For example, we could start a prediction market that predicts a consensus of voters will vote against the truth in one or more markets. The reason I ask is that Nash equilibria are supposed to make law enforcement unnecessary (For example, in the stop light game it's unnecessary to have a law against running the stop light because players have enough incentive not to). In the same way, doesn't the protocol act like law enforcement, and if so could such "second-order" predictions offload some of the work of ensuring players remain honest?

I don't. I think that people would bet, in the meta-market, that the Decision "Will a consensus of voters vote against the truth?" would itself resolve to 'No'. Moreover, if they thought 'Yes', why would they bet that way (how would they know that the Yes result would itself be accurately resolved)?

I think your example might be mixing some GT topics. For a start, off-path reasoning (usually called off-the-path) must always be considered even if it is never experienced, because there is a clear relationship between the consideration and the experience. Imagine a magical prison, where as soon as anyone commits a crime, the prison magically becomes aware of this and teleports the criminal into a prison cell. In this world, probably no one would ever commit a crime (the 'path' would be No Crime), but this fact results from the fact that the prison has this magic power.

The protocol acts as law enforcement, but it is required in this case to build the payoff matrix. Second order prediction wouldn't offload anything without another Truth-Source.


I hope you ask any new questions on the new forum!

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AsymmetricInformation
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May 29, 2014, 02:37:54 PM
 #73

Hi everyone!

Fielding questions via email, twitter, and multiple sites, is getting difficult, so I've created a special forum just for this project: forum.truthcoin.info .

I hope you will help me grow the forum my putting your questions and ideas there, in a more centralized space where we can all learn from each other. Thank you!

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tonyk
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June 12, 2014, 01:46:45 AM
 #74

"I actually designed Truthcoin as a side-chain (without knowing the name, and just hoping that someone else would figure out how to make one), so of course side-chains would be great. It looks like, instead of that ideal scenario, I may be forced to use my least-ideal scenario (at first), what I call "BothCoin", which is basically a true altcoin that, in addition to being spent like Bitcoin, can be spent on PM-trades. Its my least-desired plan, but you can't test something that doesn't exist."

Why is that? It seems better to me.



AsymmetricInformation
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June 12, 2014, 04:10:43 PM
 #75

It screws up the network effects. There are a lot of smart people working on Bitcoin, merchants accepting it, frontend developers, etc.

That's a lot to throw away. Then volunteers would have to look at updates to Bitcoin and copy them into BothCoin...big hassle.

I check: forum.truthcoin.info much more regularly than this thread.

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AsymmetricInformation
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July 11, 2014, 02:24:06 PM
 #76

Developers are now actively working on this project. One of them is very busy, but wanted to find another C++ programmer to collaborate with.

Visit forum.truthcoin.info or email me for details.

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keystroke
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November 02, 2014, 04:19:12 PM
 #77

Tangential but looking at what happened with SpaceShipTwo if only there was a prediction market... a bunch of people seemed to be sure an accident would happen.

"The difference between a castle and a prison is only a question of who holds the keys."
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