I have read the awesome contract proposed recently and I think it is a must for the Bitcoin in the future. However, I do not understand how your proposal can avoid the mediation if any conflicting occurs?

You proposal seems need the network to access external data. So, who decide whether condition is matched? If the external data is used, how can you sure that the network determine the result are honest? and I dont know why you said that your network is more resistant from the regulation.

Yeah, bitcoin is a dangerous idea, too. Any powerful technology is dangerous.


There's no conflict possible, everybody agrees to the terms ahead of time. The network doesn't have to access external data, since payout is based solely on closing prices, which is internal data. It's an unorthodox approach so you might want to reread the original proposal. It should be more resistant to regulation because regulators like a few high profile players, and they like to prevent everybody else from getting in the game. With this, there are no high profile players. Like bitcoin, if you want to shut it down, you have to shut down everybody.

Heh, kind of like throwing an opposing home run ball back. Interesting.

It seems pretty simple to do this with no third party verifier:

1) To place a bet, you place a transaction that can be claimed either:
 A) By you, up to a certain time in the near future.
 B) By the person you're placing the bit with, after a certain date just before the event.
 C) By you, at any time well after the event. (1 day, say)

2) To accept the bet, your partner places a transaction that can be claimed either:
 A) By him, any time after a time just before the event.
 B) By you, at a time well after the event. (1 day, say)

3) If he doesn't accept the bet, you claim back your money per 1A. Make sure to take back your bet if it's not accepted. If you take back your bet after the bookie places his, he takes back his bet using 2A (he'll have to wait a bit).

4) If you win, you claim both transactions using 1C and 2B, a bit after the event.

5) If you lose, he claims both transactions using 1B and 2A as soon as he knows you lost.

Yes, your bookie can cheat you. But that's much less of a problem than trusting a central authority.

Re-reading some of this thread I realize my grammar goes way down hill when I type from my iphone.


There isn't a central authority just an entity that you and your counter party agree to trust for a single transaction.

Competing "authorities" is way better than trying to use a block chain for external data. Lets use the intrade example.
(I'm not an internet gambler so I may not describe how intrade works correctly)

Intrade has a prediction market with enough saturation in the market that it reaches a critical mass become a reliable indicator.
Alice wants to place a wager with Bob on an intrade event. Alice does not trust Bob and vice versa.
They want the bet to be settled in bitcoin and both will cheat the other player if given a chance since that's the way it seems to go on the internet.
Ben starts an anonymous intrade settlement service on TOR. There are many, this is Ben's.
Ben publishes a public key and claims to honestly sign and report the outcome of every intrade event. (This could be done by intrade directly but lets assume they aren't interested.)

To decide whether to trust Ben Bob and Alice each examine the Bitcoin block chain proper looking for all script contents containing Ben's public key. They each independently verify the results against their known list of intrade outcomes. Each is satisfied that Ben reports results honestly. They also decide on a time oracle using the same process.

Using a combination of the techniques on the contract wiki entry Bob and Alice exchange a transaction with the following properties:
If the event happens Alice wins, if not Bob wins. If the agreed upon time has passed each gets their money back. (This handles event cancellation but it could be done directly by Ben without the time oracle.)

Benefits of this scenario:
Neither Alice nor Bob can cheat each other.
Ben cannot collude with either because he doesn't know about the bet.
Bitcoin becomes the escrow agent.
Charlie and Dan don't trust Ben's intrade service. They are not forced to use it.

Variations of this scenario:
All miners are owned by governments that do not allow gambling. Because of this Ben charges a fee for each event pairing. The fee covers the generation of a unique public key for each matched bet. Ben does not publicly publish paring results until a few days after the event has occurred. In the interim he only provides event results to Alice or Bob. The bitcoin network still validates all betting transactions because they appear no different than regular transactions. By the time event results are published the transaction is too far down the chain to reverse.

You are right. I meant more in the practical sense that he could collude once but then it would essentially kill his business since the falsely reported outcome would be openly visible in the block chain.

As far as locking the money up so it can't be spent I'm assuming the technique from the contracts wiki would work:

The biggest problem is figuring out what a valid trade is. Using pure block chain activity to determine what is going on will be extremely unreliable.
There is nothing stopping people from trading with themselves to make it appear like any price and volume they want.
If you could make intrade bets at any price and volume without risk by trading with yourself then it would not be a very reliable indicator.
It would be akin to placing a bet that there would be at least x transactions on the bitcoin network on a given day. Anyone can push that number as high as they want.
Also, since the binary event will be decided without real world measurements the person with the most money can force the outcome to whatever they want it to be.

Prediction markets work because at the end of the day an arbiter will make a final call on whether the event did or did not occur.
If there is no arbiter of the event then you are just in a competition to see who can most effectively game the system.

Mt Gox does not offer really illiquid markets. Is the final closing price of your local college swimming team competition really of interest to enough participants to create a deep, 'non-movable' market? You might have won according to your local newspaper, but someone's bot has gathered sufficient trades (maybe with itself) to make a gain after paying fees? That would according to your rules not even be illegal or wrong, if I understood you correctly?

I don't necessarily agree with you here. Conceptually I'd prefer to treat all prediction markets the same whenever possible, giving up somehow artificial classifications. Also, I don't suscribe to that liquid  or large (not deep) markets suffer more from regulation or avoid tinkering if you sit on Digital payoffs. As an example, market making on something like basis spread swaptions might currently be harder than getting matched for a popular horse race on Betfair - still the former quite possible is of more interest to you and  already subject to more regulation.

But to gently move the subject away from storing bets in the Bitcoin block chain - how can an anonymous exchange or escrow agent for conditional transactions perform margining or offsetting? I haven't been able to come up with a clear concept and  I'm not sure how to interpret earlier suggestions (could be in the context of the separated oracle and escrow set-up)?

Most traditional financial exchanges and OTC deals offer some kind of margining or collateralisation. That's not only good for counterparty risk but also helps you fund the bet throughout the life. How can that be dealt with in an anonymous setup, simply running huge offset positions until maturity? I can't even say how the simpler set-up sport betting exchanges take would work: they offer only bets with pre-known maximum loss/win. Then the bettor has to fully fund upfront that maximum liability. The mitigation is that they allow offsetting: you could enter an exactly offsetting bet  a different stakes and they'd recognise you've reduced or removed exposure to the outcome and release your funds prematurely. Both systems - margining and offsetting - seem to rely on knowing the customer - how can that be done for anonymouse exchanges?

(I've mostly unsuccessfully tried around with chains of bets on bets; basically synthesizing Futures by construction sequences of forwards with wide initial margins rewarding the non-breaker, but that creates all kinds of additional problems)

Too many aspects around anonymity/non-regulation and transactions I don't understand, and too much daytime distractions. Please share share more of your thoughts around match making on exchanges and preventing timing issues (prevent double spending by double-signing with trusted 3rd party?), multi-node conditional transaction escrow, advantages/disadvantages of multi- versus single- entity market data fixing etc. I guess you guys have a lot more thoughts on things needed to create a proper prediction market, apart from scripting in the block chain!

ben-abuya - your time to think through these issues and share your ideas with the forum is much appreciated. I find your earlier exchanges in this thread with dacoinminster etc. very enlightning, In my opinion more of these types of 'visions' are required. It looks like rather sooner than later the first prediction market or Futures exchanges etc. annonunced on the forum will hit beta. Without thinking the bigger picture I fear we end up with 'Betfair Bitcoin edition', or 'BTC settled CME Futures' etc. and that would really be a shame, given all this potential right now!

Hopefully you take my continue nagging below in that spirit, hope people on this forum find some more time to explain their ideas.

I personally would love an open market system without accounts, without building reputation or trust (on the user side), without unreasonable regulation by unsuitable regulatory bodies, and most of all without all the time somebody telling what is best for me. Technologically, with the arrival of Bitcoin and all these ideas here, there seems to be quite a bit of progress going on.



For me margining/offsetting/netting is key to prediction markets in general. There's really no distinction between a hedger with 'legitimate interest' and the 'bad' speculators/investors/day traders just selling to gain. Most hedgers will take both sides over time, in most cases fire-n-forget static hedging is impossible. Also, without the liquidity provided by participants other than hold-to-maturity participants most markets will struggle badly. Markets where you cannot get out before maturity won't attract deep volume. Why forgo additional liquidity if there could be a (technological) solution to have it both ways?

The topic of integrating conditional-transaction settlement in the blockchain has found lots of interest but also a lot of resistance here. I'd love to learn more about ideas how to allow anonymous offsetting or margining. Surely somebody has thought of it?

My take for offsetting would be that maybe you could prove to the conditional transaction settler (who admittedly is then not the blockchain itself) via revealing access to recieving addresses that you will gain a guaranteed pay-off regardless of the outcome, say of long/short positions in identical bets or deals? Then they could release portions of the funds  to the recipients addresses prematurely.

And for margining, if you continue your thoughts about self-settling transactions in the blockchain: in a liquid market you could probably enter into forwards on forwards of ... of the actual deal? And each forward you would give a wide but finite initial margin built into the transaction. The side breaking the chain would automatically lose the remainder of its wide margin to the opponent, who then hopefully can close out in the liquid market.

Anyway, this are just crude and broken fragments. I really need the some of the smart people who discussed earlier in this thread  to come forward and explain things clearly for the benefit of my tired and slow brain...please.



On the same note, I cannot see slowing down a market being a good thing. Somebody trying to make a market on a slow prediction platform will be taken apart by bots arbitraging out on traditional markets I guess, reducing liquidity and increasing bid-ask spreads needed in the first place? I think everybody profits from fast markets - the ones who like it fast can use it, the ones who don't care about speed can trade at any slower speed they want. Isn't that win-win?

The problem is not in the match-making bit of the system (I will try to write a more legible post later today to explain what I understand the 4 core components of a traditional prediction markets are). That can be made arbitrarily fast without Bitcoin confirmations. But as the guy running the exchange how do you guarantee your client that the match that hit his bid will follow through (maybe some kind of double-spending problem in Bitcoin language?) By the time it becomes clear the other one - who doesn't have a fixed account with the exchange - didn't deliver a confirmed transaction the first guy is pissed off because he is now unhedged and the market has moved or whatever his problem now is. You probably don't want to end up absorbing the loss, and you cannot ban the offender because you don't require them to register with you. Waiting for blockchain confirmation is probably fine if you can hold off shipping that flat screen TV, but I don't think it will fly for exchanges?

I think there could be simpler solutions to this particular subproblems, there were loads of discussion long time ago (Snack Vending machine problem),  but maybe you don't need the nuclear option of an upfront escrow or similar techniques. Generally, I like to understand better how one could leverage of the possibilities offered by the existing Bitcoin we have now. I fully understand the resistance people have against changing it without need or without clearly thinking it through. If there is a half-way solution leaving core Bitcoin alone I already would be perfectly happy.