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gwern comments on Open Thread for February 18-24 2014 - Less Wrong
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LWers may find this interesting: someone may've finally figured out how to build a fully distributed prediction market (including distributed judging) 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.
Clever. I haven't been too impressed with the Bitcoin betting sites I've seen too far (some of them like Bets of Bitcoin are just atrocious), but this seems like a fully decentralized design. The problem is it's so complex that I don't see anyone implementing it anytime soon.
It seems to be a straightforward way to implement a new altcoin.
If someone pays 200,000$ for two man years of programmer time to implement this and then makes 10 million$ with the altcoin that seems to me like a valid business model.
Wouldn't evil people farm consensus karma via specifically constructed bets?
Hm, how would that work? If you make 1000 nonsense markets and the majority of people refuse to vote on your nonsense bets, then their votes are recorded as 0.5s/neutrals, and you can't diverge from them without being punished, which eliminates any gain from 'good karma' (and if you likewise are neutral, you've spent a lot of money for no particular point).
After actually reading some of the pdf, I feel that any possible objections as simple as the one I used there have already been accounted for. Disregard me.
Though prediction markets have their potential problems, this could be the first in a long series of ever better decentralised prediction markets. I wonder what the legalities will be, similar to how Intrade got into trouble with the US government over regulations regarding commodity derivatives.
Who do you sue? :)
There is always someone to sue. Maybe the SEC argues that anyone who runs the client is offering services that need a licence.
Then it will be hidden behind Tor.
Maybe the SEC argues that running the TOR client is probable cause.
(Several iterations of "But what if" later...)
Maybe someone rules that encrypted or obfuscated communication is probable cause.
(I don't think this is likely, I just wanted to skip to the end of this line of thinking)
...actually, I wonder if anyone's tried to engineer a distributed steganographic cryptocurrency.