DECENTRALIZED PREDICTION MARKETS

EVENT DERIVATIVES
http://demo.augur.net
http://cointelegraph.com/news/114028/augur-creates-first-contract-with-ethereum
http://cointelegraph.com/news/114228/blocknet-adding-ethereum-to-suite-of-supported-currencies
http://www.augur.net/blog/the-augur-alpha-is-now-available-to-download
https://bitcoinmagazine.com/20724/blockchain-prediction-market-augur-elected-breakthrough-finalist-exponential-finance-2015/
Blockchain Prediction Market Augur Elected as a ‘Breakthrough’ Finalist at Exponential Finance 2015
by Giulio Prisco / June 6, 2015

“Augur, a fully-decentralized, open-source prediction market platform based on blockchain technology, intended to revolutionize forecasting, decision-making and the manner in which information consensus is collected and aggregated, has been selected as one of the five finalists in the “Breakthrough” category at the XCS Challenge at Exponential Finance 2015. The Singularity University and CNBC hosted the Exponential Finance 2015 conference (New York, 2-3 June), which examines how rapidly accelerating technologies such as artificial intelligence, quantum computing, crowdfunding, digital currencies, and robotics are rapidly disrupting businesses throughout the financial industry.

“Prediction Markets have the potential to create more accurate forecasts in so many fields that the applications could go on for a long time. The most exciting immediate application is for political polling as Augur would enable the largest consensus of models possible.” “Harnessing the blockchain, Augur has created the first online platform for a global market of predictions,” states the Exponential Finance website. “Anybody can create a market for an event, and anyone can wager whether that event will occur or not.” Prediction markets harness the “wisdom of the crowds” to create powerful and uncensorable forecasting engines. “This is the future of forecasting,” says the Exponential Finance announcement.

Prediction markets are speculative markets created for the purpose of making predictions. The current market price for a prediction – for example the election of a particular candidate – can be interpreted as an aggregate, crowdsourced estimate of the probability of the prediction. For example, if a prediction market security rewards a dollar if a particular candidate is elected, those who think the candidate had a 70 percent chance of being elected should be willing to pay up to 70 cents for the security. Evidence suggests that such financial incentives make prediction markets more effective than other forecasting strategies. The Iowa Electronic Markets typically predicts elections within one percent, more accurate than polls or expert opinions. Since 1988 it has correctly predicted the outcome of every U.S. presidential election. The Foresight Exchange, one of the oldest active prediction markets, is a public, play-money market allowing individuals to sign up for free and predict the future.

Prediction markets had a moment of fame in 2003, when the Policy Analysis Market (PAM), a proposed futures exchange developed by the United States’ Defense Advanced Research Projects Agency (DARPA), was canceled after a wave of accusations of incentivizing terrorism, which resulted in the resignation of John Poindexter, head of the DARPA unit responsible for developing the project. “The idea of a federal betting parlor on atrocities and terrorism is ridiculous, and it’s grotesque,” said Sen. Ron Wyden. The PAM was inspired by the work of George Mason University economist Robin Hanson, a leading researcher in the field, co-creator of the Foresight Exchange, and author of a seminal paper on “Idea Futures,” who is now one of the Augur advisors. Hanson explains his ideas on prediction markets and Augur in a short video posted on the Augur website. According to Hanson, real money markets such as the Iowa Electronic Markets – and Wall Street – predict election outcomes better than opinion polls. Referring to previous regulatory obstacles encountered by prediction markets such as PAM, Hanson notes that all of our familiar financial instruments: stocks, insurance, commodity futures, options were once forbidden by anti-gambling laws.”

PEER-to-PEER ORACLE SYSTEMS
http://issuu.com/ybitcoin/docs/volume2__issue3/64
https://www.cryptocoinsnews.com/augur-looks-succeed-darpa-cia-dod-failed-open-source-prediction-market/
http://cointelegraph.com/news/112846/bitbet-fairlay-betmoose-meet-bitcoins-prediction-markets
https://bitcoinmagazine.com/20812/openbazaar-receives-1-million-funding-top-investors-launch-decentralized-marketplace/
https://bitcoinmagazine.com/20971/roger-ver-backing-prediction-market-sidechain-may-important-invention-since-bitcoin/
Roger Ver Backing Prediction Market Sidechain: ‘May Be the Most Important Invention Since Bitcoin’
by Kyle Torpey / June 23, 2015

“In one of the more exciting developments in the Bitcoin space so far this year, noted Bitcoin angel investor and entrepreneur Roger Ver has given his blessing to a Bitcoin 2.0 application, and it’s one that some may have overlooked in the past. Truthcoin, a Bitcoin sidechain designed by Yale Department of Economics Researcher Paul Sztorc, is described as a “peer-to-peer oracle system and prediction marketplace.” The platform is a decentralized method of bringing external data, such as the price of gold or the weather in a particular city, to the blockchain, which can then be used as the basis for complex smart contracts. Ver is excited about what may become possible through the use of a working implementation of Truthcoin, and shared the following statement via email: “I really do think that decentralized prediction markets may be the most important invention since Bitcoin, and will certainly change the way our world works.”

The perpetual Bitcoin angel investor has been silently funding a C++ programmer who is building a working Truthcoin implementation using a fork of the original Bitcoin codebase. Some of this early code is now available on GitHub. Ver also shared some complimentary remarks in regard to Truthcoin Creator Paul Sztorc’s understanding of the technical challenges ahead. “Compared to Paul, I don’t think there are many people on the planet” who could have created something like Truthcoin, Ver said. “Before meeting him, I already understood some of the benefits and exciting things that distributed prediction markets will bring to the world, so upon meeting Paul, he seemed like the right person to help make it a reality, so I agreed to get involved.”

Sztorc has made it a point to avoid any sort of Truthcoin crowdsale without an actual product to back the offering, and he has noted his discontent with other Bitcoin 2.0 crowdsales in the past. The Truthcoin creator plans to insist that a crowdsale does not take place until the software has been built, tested and operational for “at least three months” without any need for a hard fork. It should be noted that anyone who wishes to place a bet on the Truthcoin network will be able to do so with their bitcoin-denominated sidechain tokens. Any crowdsale for this project would likely involve the sale of votecoins, which are used by individuals who wish to vote on the outcomes of real life events. Holders of votecoins who honestly report the outcome of an event are then rewarded with fees generated from the participants in a particular prediction market. In addition to a possible crowdsale, the monetization model for this project also includes the expected growth in the bitcoin price for holders of the digital money.

In an email to Bitcoin Magazine, Sztorc noted that Truthcoin is currently a testnet “altcoin” with only two people running nodes. “In fact, it really isn’t much of anything yet,” he added. The votecoin in this current setup are not intended to have any value and should be viewed in a manner similar to testnet bitcoin. Sztorc also wrote about how Truthcoin might earliest become a Bitcoin sidechain. “What would (obviously) be really cool is if, at some point, someone from Blockstream would rip it open and graft in something to make this version a ‘testnet sidechain’ so that testnet coins could hop over,” he said. The Truthcoin team doesn’t have the time to deal with sidechain compatibility right now, and Sztorc even mentioned it “might interfere with early testing.” Sztorc also did not want to reveal any kind of release date as he “[doesn’t] endorse that type of forecasting.” In the past, Sztorc has poked fun at Ethereum’s Frontier release due to prediction markets at Fairlay.com that seem to indicate that the release won’t happen until after August 1. This is far off from the project’s original launch date. For now, anyone interested in the project can visit the Truthcoin forums, read the latest version (1.4) of the Truthcoin whitepaper, or follow Sztorc’s blog.”

TRUTHCOIN
forum.truthcoin.info
https://github.com/psztorc/Truthcoin/tree/master/docs
http://forum.truthcoin.info/index.php/topic,134.0.html
https://github.com/psztorc/Truthcoin/tree/master/docs#papers
https://bitcoinmagazine.com/16748/truth-behind-truthcoin/
The Truth Behind Truthcoin
by Kevin Cruz / 09/25/2014

“A Prediction Market (PM) is a place where people can bet on the outcome of an event. If they guess correctly, they win money. If they guess incorrectly, they lose money. People care about their money, so the market price of an event gives us a good answer to the question “Will this outcome happen or not?” It’s not magic. It’s the economics version of the “wisdom of the crowd”. Intrade became the first provider of this form of market online. It was closed down last year. Paul Sztorc has begun to develop Truthcoin, a prediction market based on the blockchain. Part 1 of Paul’s 5 part introduction to prediction markets highlights some of the problems of traditional Prediction Markets: “There are several problems with PM’s: mainly the fact that when persuading others of something complex, [people tend] to highlight true statements when they support their own argument, and hide them away when they support an alternative argument. [Also], If you make a bet with someone, you have to trust them to pay up. Tradable-Predictions, defined as “assets with a definite future value based solely on their future accuracy” have never existed. Instead, the value of PM-Predictions depended substantially on the behavior of the counterparty (ie, the guy holding the money). You can’t “own” a prediction, only a paper claim to money held by the PM administrator. The PM administrator has proven to be unambitious at best (accepting only a few bet-topics) and unreliable at worst (losing funds and/or going out of business, see Appendix). PM-admins rely on trust (as they hold their customer’s money) yet are prevented from accessing trust-forming institutions (law-enforcement, brands/advertising) because of their regulatory/legal/awareness challenges.” He goes on to say: “Bitcoin operates independently of a nation’s legal framework, and might avoid closure or regulatory interference. If so, competing “Bitcoin InTrades” would appear to fulfill market demand. Unfortunately, PMs require a way to store up money and pay it out based on a real world outcome, which implies trusting a third-party with your money. Use of supra-national Bitcoin would prevent the use of any legal guarantee (to justify this trust).” Bitcoin demonstrates that a blockchain can provide scalable, censorship-resistant, and trustless solutions to value-transfer problems. Blockchain solutions also generate efficiency by cutting out middlemen and avoiding overhead costs (no brick-and-mortar, compliance, administration, etc.). They are egalitarian and immortal.“

Paul expanded on these ideas and told me a little more about himself by answering these questions I had for him.

What is Truthcoin?: “A marketplace for the creation and trading of ‘event derivatives’, which have a final value based only on the-state-of-the-world (such as election results or stock prices) and nothing else. Truthcoin’s markets might resemble “smart contracts”, where the focus is not on “performing the math calculation of the contract”, but instead on “getting accurate reports from people”. Where a user would ask Ethereum to solve an equation using some algorithm, a user might ask Truthcoin to honestly-uncover “what was the solution to that equation” from users. Although users would be free to lie about what that solution was, an incentive mechanism discourages this. The emphasis is on “the solution itself”, not on “the process of solving”.”

How was it formed?: “InTrade.com was possibly my favorite website on the internet, but, tragically, it was forced to close for a variety of reasons. I felt that the closure of InTrade resembled the closure of Liberty Dollar and e-gold. Just as the latter inspired Bitcoin, the former inspired me to try to do something similar for Prediction Markets. I thought about it for a while, and wrote down some code and a whitepaper at the beginning of this year.”

What is your professional background?: “I double-majored in Economics and Psychology (undergrad) and then dual-degreed (graduate) in Operations and Finance at CWRU. I’ve worked at Interactive Brokers and GE/NBC in technical/programming roles, worked on Six Sigma operations consulting, and Healthcare IT consulting. I currently work as a ‘Statistician’ or ‘Visiting Scholar’ doing grant-supported research (unrelated to Truthcoin) at the Yale Department of Economics.”

What are you currently busy with?: “Currently, a few people want to raise money for Truthcoin, or work as volunteers. Figuring out who is a good fit, exactly what I can reasonably promise to investors, what I should do with people who have already put in work, who I can trust to do a good job, and how to reward all of those people, are questions that consume my time. I also have a communication problem where most people (despite the whitepaper and code) don’t “get” the project. Right now I would like to make more demos, slides, infographics or videos.”

What is your vision for Truthcoin?: “The short term dream would be that people who know C++ Bitcoin very well would find Truthcoin, decide how to combine the pieces (the existing Bitcoin code + the new parts which I’ve coded), and help me release and maintain a version for discussion. The medium term dream would be widespread discussion of the costs and benefits of the core idea. Can the risks be mitigated (with sidechains/treechains, some kind of firewall, a multi-round test process)? Are the benefits substantial? Ideally, this would lead to the question: do enough people feel that it is sufficiently-valuable to actually switch from Bitcoin to this (or transform Bitcoin into this)? Currently, few have discovered Truthcoin at all, so such an ambitious question can’t even be asked. The long term dream is nothing short of a second Scientific Revolution restoring the virtue of empiricism to the public discourse. A world with optimally-accurate forecasts (“Will X be a problem in the future?”), optimal advice (“Which of X would produce more Y?”), stable-value cryptoassets (“BitUSD”), a world where CEOs and politicians have to work competitively for a living, where organizations of all kinds are unable to lie to the public, where smart contracts are widely available, where Public Goods can be financed quickly and at low cost, and where anyone with an internet connection has access to the combined intellectual powers of all mankind.”

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