
Truthcoin: Trustless, Decentralized Bitcoin Prediction Marketplace - poppingtonic
https://github.com/psztorc/Truthcoin
======
dm2
This could be huge in my opinion, until prediction markets become legal at
least. Is there any real value in it being decentralized other than bypassing
laws?

There is enormous value in prediction markets, I hate that they are illegal in
the US.

When real money is at stake then people make the decision that is most
rational and filter out much of their bias.

I do think prediction markets should be legal and required to be 100%
transparent. The scenario where people bet on something that they have control
or influence over could be dangerous.

The thing that I don't understand about a decentralized prediction market is
where do the results come from? Somebody has to say, "this bet won", right?

~~~
Anderkent
>Is there any real value in it being decentralized other than bypassing laws

You don't have to trust the person running the market.

~~~
gwern
As Intrade reminded everyone, counterparty risk is very real, and wouldn't it
be nice to have a non-centralized trustless prediction market?

~~~
nabla9
The problem with this proposal is that there is single central (but non-
centralized) counterparty risk. If the market grows big, there will be huge
monetary incentives to try to find weaknesses in the system and find to
collude.

I would like to see non-centralized single market that has protocol for
multiple transparent brokers that compete with fees and have their reputation
there for everyone to see and judge any way they want. This way the risk of
large bets could be divided between brokers.

Broker would be just identity and the 'implementation' could be single
individual (anonymous or not), multiple individuals (broker syndicate) who
would vote among themselves and manage their membership. Ability to attach
decentralized algorithms as brokers should be also possible if taken into
account when designing the protocols.

~~~
gwern
> The problem with this proposal is that there is single central (but non-
> centralized) counterparty risk. If the market grows big, there will be huge
> monetary incentives to try to find weaknesses in the system and find to
> collude.

Is this a problem for Bitcoin that there's a 'central' counterparty (the
network)? If it is, then multiple Truthcoin networks could be run.

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gwern
See also the discussions in
[http://www.reddit.com/r/Bitcoin/comments/1ycjdi/whitepaper_d...](http://www.reddit.com/r/Bitcoin/comments/1ycjdi/whitepaper_decentralized_bitcoin_prediction/)
and
[https://bitcointalk.org/index.php?topic=475054.0;all](https://bitcointalk.org/index.php?topic=475054.0;all)

------
bjterry
One problem with these prediction markets is that they don't allow you to make
predictions on margin. Many bets in prediction markets have very large time
horizons. As long as your asset is tied up in the bet, you are losing out on
the time-value of money.

For example, if you bet $100 on Hillary Clinton winning the 2016 election, you
don't get to invest that $100 in treasury bonds or the S&P or whatever, which
is a pretty significant cost. On real futures exchanges this is mitigated with
margin requirements and the legal threat of suing or bankrupting you if you
don't make good on your promise to pay.

~~~
maaku
That's not true. There is absolutely no reason why you can't do this sort of
stuff on margin, by issuing IOUs. You can even use smart property contracts to
collateralize the loan.

However collecting on a non-collateralized loan when things go bad is
difficult if you also maintain pseudo-anonymity. But with some sort of KYC
procedure in place it could work.

------
kylebrown
SchellingCoin is a similar concept:
[http://blog.ethereum.org/2014/03/28/schellingcoin-a-
minimal-...](http://blog.ethereum.org/2014/03/28/schellingcoin-a-minimal-
trust-universal-data-feed/)

~~~
vbuterin
Actually, you can even argue that the blockchain itself is a similar concept.
It's a Schelling-point-based system for determining consensus, except its
scope is limited to the simple question of which transactions came first.

~~~
edmundedgar
Right - I guess the open question at this point is how much weight those
mechanisms can bear. Bitcoin has a very easy version of the problem, because
all they need to do is time-stamping, where you just have to follow the rules
and run your software without hacking it to stay in line with the consensus.

As described the problem TruthCoin is trying to solve puts a lot more stress
on the consensus mechanism, because it requires the participants to do more
work to stay in line with the consensus.

In practice I think what ends up happening is that somebody publishes a feed
and everybody pulls their results from that and "votes" as they're told to by
the feed. This may not be too bad in itself as the feed is probably not too
bad, and the people publishing it probably have an incentive to keep
publishing good data. But I do worry that this system will make it hard to get
off the de-facto default data feed if it starts producing bad data, since it's
designed to punish people who step outside the consensus...

------
pessimizer
[https://en.wikipedia.org/wiki/Assassination_market](https://en.wikipedia.org/wiki/Assassination_market)

~~~
Anderkent
[https://github.com/psztorc/Truthcoin/blob/master/docs/3_PM_A...](https://github.com/psztorc/Truthcoin/blob/master/docs/3_PM_Applications.pdf)

"Public Bads, for example “The ‘New Haven Lighthouse Point Park’ lighthouse to
be destroyed before date X” are unlikely to be funded this way, because the
Winning State must be made public somehow, and criminals must remain private.
Attempts to shift the Schelling-indicator from “Number 1/2/3” to something
else, such as “on a Monday/Tuesday/Wednesday evening”, have the disadvantage
of alerting law enforcement in advance of the likelihood and manner of a
future crime. Trades made just before the crime would, for free, alert law
enforcement to an imminent threat of crime. Such ‘tip-off trades’ would be
made by any profit-seeking members of the crime group themselves. Therefore,
(surprisingly and fortunately) this feature cannot fund anonymous goods such
as crimes"

~~~
simple_logic
This is absolutely not true. Unfortunately, a well-designed claim can
circumvent this restriction: "The lighthouse will be destroyed in 2015 and the
criminal group will broadcast a string hashing to
'cc9a1595600ebb745ec2cea73e80aad5' one second before the explosion".

This gives no useful information to the police, but it's enough for the
criminal to unambiguously identify himself.

I'm disappointed that they didn't consider such scenarios.

~~~
x1798DE
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.

~~~
chongli
_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.

~~~
edmundedgar
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.

~~~
simple_logic
_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).

------
saalweachter
Two potential problems:

1\. People are punished for _failing_ to rig the vote. If a collective does
manage to push through a counterfactual vote, everyone who tried to stop them
is punished.

2\. Voters in smaller betting pools will be low-information voters. Take a
local election: there may be a few dozen or hundred local participants in the
prediction market, enough to support betting, but there may be only be one or
two legitimate news sources. Voters outside the local area could be easily
misled by fake news sources. So throw up a couple of fake websites, use them
as sources in a Wikipedia edit-war, and you might be able to trick the low
information voters into voting your way and drowning out the local voters with
personal knowledge of the event. Your deception only has to last long enough
for the bet to be settled, and there is no way to punish it within the system.
(If it falls through, the dupes will be punished.)

------
grimtrigger
Very cool. But this has me worried:

> through a weighted vote based on present and past consensus

How can Truthcoin protect against votestuffing?

~~~
Humjob
From what I gather, in a weighted vote PM system the 'weighting' of the vote
(AKA, the expected likelihood of the event occurring) is based on how much
money you invest for or against the event occurring. Hence, 999 'for' votes of
$1 are worth less than a single $1000 vote 'against.'

~~~
gwern
It's not quite that simple: it's not just a weight based on voting, since
that's obviously gameable by anyone who can accumulate enough coins to
guarantee a win on a single contract, but it's a weight based partially on how
each voter reflects the majority in all the _other_ contracts. So anyone
trying to corrupt a particular contract has to deal with the combined
opposition of everyone who wants weight for every other contract.

~~~
maaku
So this relies on an identity system?

~~~
gwern
No more than Bitcoin does.

~~~
vbuterin
Bitcoin does rely on an identity system; it's called proof-of-work. It counts
hashing cycles rather than humans, but it's close enough since the final goal
is decentralization and not perfect equality. Here proof-of-work or proof-of-
stake are also equally necessary for bootstrap purposes; otherwise you can use
whatever mechanism nodes use to get into the system in the first place ten
thousand times instead of one time and thereby massively magnify your reward.

TLDR: proof of voting is a good consensus algorithm, it's not a good
distribution model.

------
gojomo
Last I looked, this seemed exciting but a little hand-wavey with regard to the
ability to have a rig-proof/blockade-proof vote.

Really wish the documents were in text/markdown/HTML instead of PDFs... would
be much easier to review (and help improve).

------
kordless
I'd call this consensus for consensus. You put your 'vote' in for a given
outcome and the votes in aggregate are weighed to determine expected outcome
probabilities. By tying the vote/bet to a store of value (stored POW) you
might eliminate vote fraud.

I wonder what the effects of desired outcome manipulation by using large
amounts of POW to vote? Ideally, you'd want 1:1 connections into the network
by individuals.

~~~
dm2
What do you mean by "1:1 connections into the network by individuals"?

It would be required to have the same amount of bets bought and sold, just
like the stock markets.

------
EGreg
How do you prevent sybil attacks? Most reputation systems are vulnerable to
these things, where someone can just pay for a bunch of fake ratings to boost
them above the rest and pay for itself.

------
beefman
See also: [http://bitbet.us/](http://bitbet.us/)

~~~
gwern
bitbet seems like an example of why one would want Truthcoin in the first
place:
[https://bitcointalk.org/index.php?topic=339544.0;all](https://bitcointalk.org/index.php?topic=339544.0;all)

~~~
stevengg
[http://trilema.com/2013/why-i-nixed-p2p-colored-coins-and-
al...](http://trilema.com/2013/why-i-nixed-p2p-colored-coins-and-all-that-
jazz/)

~~~
gwern
What does that have to do with Bitbet scamming its users?

