

Truthcoin prediction markets for Bitcoin: fully distributed trading and judgment - gwern
http://www.reddit.com/r/Bitcoin/comments/1ycjdi/whitepaper_decentralized_bitcoin_prediction/

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gwern
Whitepaper:
[https://raw.github.com/psztorc/Truthcoin/master/docs/Truthco...](https://raw.github.com/psztorc/Truthcoin/master/docs/Truthcoin_1.pdf)

"Where Bitcoin allows for the decentralized exchange of value, this paper
addresses the decentralized creation and administration of Prediction Markets
(PMs). An alternative proof-of-work blockchain collects information on the
creation and state of PMs, with the winning state of a market determined by a
modified weighted-vote. An incentive mechanism attempts to guarantee a) that
all voters vote honestly, and b) that PM-creators act as entrepreneurs,
bearing the economic costs and benefits of the PMs they create. Bitcoin users
can create PMs on any subject, or trade anonymously within any PM, and all PMs
enjoy low fees and infinite market liquidity through a LMSR market maker.
Scalability and customizability can be achieved via ‘branching’ (controlled-
fork). The paper closes with a discussion of implementation details."

Bitcointalk:
[https://bitcointalk.org/index.php?topic=475054](https://bitcointalk.org/index.php?topic=475054)

My summary: someone may've finally figured out how to build a fully
distributed prediction market (including distributed _judging_ , which is not
left to the contract author) on top of blockchains, dubbing it 'Truthcoin'.
The key idea is how judgment of a prediction market is carried out: holders of
truthcoins submit encrypted votes 1/0 on every outstanding market, and rather
than a simple majority vote, they're weighted by how well they mirror the
overall consensus (across all markets they voted on) and paid out a share of
trading fees based on that weight. This punishes deviation from the majority
and reminds me of Bayesian truth serum.

