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Offline vikram

Truthcoin: Decentralized Bitcoin Prediction Markets
« on: February 25, 2014, 04:55:24 AM »

Dan, take a look at:
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Abstract. 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.

Haven't read through yet but looks interesting. Someone brought up BitShares in the thread, and the author replied:

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what is the difference to new bitshares approach? - read their (new) whitepaper and for it sounds like a very smart system of implementing prediction markets
Just from glancing at it now, it seems that BitShares would be for a continuous price/time-series on an asset that we expect to never be removed from popular exchanges such as the DJIA, Oil, Gold, whereas Truthcoin is for binary (settling in finite time at 0 or 1) events which do not have to exist anywhere else.

From what I can tell, BitShares is actually not a prediction market. How I can use BitShares to bet on the Election of Hillary Clinton as US President in 2016? How do I collect money if I am correct? etc.

Instead it appears (and claims) to be a fully collateralized bank for paper assets, using a custom currency they can suck away from you. Debt seems to be created with every transaction so it will be interesting to see how stable these markets are.

Offline bytemaster

Re: Truthcoin: Decentralized Bitcoin Prediction Markets
« Reply #1 on: February 25, 2014, 05:02:53 AM »
Interesting take on what we are doing... 

BitHillaryWinsIn2016 would do the trick :)

For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline yellowecho

Re: Truthcoin: Decentralized Bitcoin Prediction Markets
« Reply #2 on: February 25, 2014, 05:12:34 PM »
Interesting take on what we are doing... 

BitHillaryWinsIn2016 would do the trick :)

Any thoughts on the whitepaper?  If done correctly, could such a prediction market be a real competitor for BTS? 
From what I've read, it sounds similar to the proposed "bitsharesVOICE" DAC.  Is that accurate?
« Last Edit: February 25, 2014, 07:38:24 PM by yellowecho »
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Offline bytemaster

Re: Truthcoin: Decentralized Bitcoin Prediction Markets
« Reply #3 on: February 25, 2014, 08:44:56 PM »
Their system depends upon voting with the consensus or it punishes you.  Because it uses voting to reach consensus it is fundamentally flawed in my opinion. 
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline Pixar

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Re: Truthcoin: Decentralized Bitcoin Prediction Markets
« Reply #4 on: February 26, 2014, 01:57:00 AM »
Their system depends upon voting with the consensus or it punishes you.  Because it uses voting to reach consensus it is fundamentally flawed in my opinion.

I haven't yet read this whitepaper yet.  I'll take a look at it sometime soon. 
But I think I should offer my two cents...

In contrast, it seems off putting in my opinion that people would trade on bitshares, just in the belief that someone else would will buy it at a higher price.  This sounds like the greater fool theory.  I buy an asset because I believe that other people are buying it too, and that nothing underlying the asset is what is fundamental driving the price.  Why should anyone trade bithillary2016.  Prediction markets because its strictly a betting market.  The winner of the bet is guaranteed to get all of the winning pool.  Its clear to me how prediction markets reflect fundamental event/ idea probabilities. 

How do you suppose Bitshares Prediction Markets will reach consensus?  What would happen the date after Bithillary2016?  Why would anyone buy it at the higher price that I demand?   If I am the last person to buy bithillary2016 at 90cents and we say she is guarenteed to win, who would buy for $1 after the election is over?  They would lose 10cents per share because nobody else wants to buy it.  Bitshares Prediction Market sounds like it can predict to a degree... just dont be the last person holding the bag. 

Given that one is a continuously traded asset ( Bitshares) and the another (Bitshares PM) is traded until the end of a time horizon: I argue that you cannot develop them the same way.  We already have proof in the Hollywood Exchange (which evidently Invictus had previously used as an example for why competitive trading markets work).  Hollywood Exchange doesn't correlate to the stock price to budget earnings-- just by the bid and ask volume alone.  The only reason Hollywood exchange seems to reflect the box office results is because the employees have to manually have to go in and multiply the price by the exzact weekend box office results on TV.  Bytemaster, do you plan on doing that?  Will you use centralized techniques to go in and make sure BitHillary2016 reflects 1 dollar as it should?  Because if you don't (as already seen by HollyEX), it seems the bitshares prediction market experiment will trade on just "random expectations." And therefore fail to develop a strong correlation to the event. 
« Last Edit: February 26, 2014, 01:59:01 AM by Pixar »

Offline bytemaster

Re: Truthcoin: Decentralized Bitcoin Prediction Markets
« Reply #5 on: February 26, 2014, 03:28:26 AM »
After BitHillary2016 is no different than pegging to any other value.   If you can peg to BitUSD then you can PEG to an event.   After the event the market consensus will be that it should be pegged to 1.0 or 0.0.

In the case of a true prediction market for events like this I would probably structure it like this...

The value of BitAsset X should be pegged to the probability of Hillary winning in 2016 with the value of 100 being she loses, and the value of 200 being she wins.   Now once she wins the longs have incentive to cash out (and allow the shorts to cover) because their position is still worth 100 BTS. 

The real question you must ask yourself is this, as someone who is SHORT you want to cover so you can exit your position.  Meanwhile, someone who is long wants to exit.  They each want out and no market participant will accept anything other than the truth.   If no one will sell then a new short will take over and get a premium for waiting for one of the longs to sell at the fair price.    Eventually all of the longs will choose to sell because they know the whole market will keep the peg near 100 or near 200.   
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline Pixar

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Re: Truthcoin: Decentralized Bitcoin Prediction Markets
« Reply #6 on: February 26, 2014, 05:10:36 PM »
 If no one will sell then a new short will take over and get a premium for waiting for one of the longs to sell at the fair price.    Eventually all of the longs will choose to sell because they know the whole market will keep the peg near 100 or near 200.   

Can u mathematically express this, using bitshares long shorts and collateral?  I don't understand what u are trying to say

Offline vikram

Re: Truthcoin: Decentralized Bitcoin Prediction Markets
« Reply #7 on: February 26, 2014, 07:55:18 PM »
Interesting take on what we are doing... 

BitHillaryWinsIn2016 would do the trick :)

Their system depends upon voting with the consensus or it punishes you.  Because it uses voting to reach consensus it is fundamentally flawed in my opinion.

Responses from author: https://bitcointalk.org/index.php?topic=475054.msg5375501#msg5375501

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Thanks for getting this additional info.

Regarding quote 1: I personally don't find a string of text "BitHillaryWinsIn2016" to be a convincing explanation. My understanding of BitShares is that it relies on infinite term arbitrage. However, if Hillary wins, who would then buy my shares from me for 1$? Who will trade them at all? Future value = 0, present value = 0. Is it not that simple?

I admit my low interest in exploring BitShares, as I was only trying to answer 'What is the difference [between Truthcoin and] the new BitShares approach?'. If anyone feels I could do more to answer THAT question please let me know. I am still of the opinion that BitShares is not a prediction market, defined as a place where people buy securities which are worth a certain value should an event occur, and zero otherwise. BitShares doesn't even seem to limit prices to a (0,1) range, but perhaps I have misunderstood this.

Regarding quote 2: I am (for the time being) personally more than willing to spend my valuable time answering ANY questions people have about the work I published. However, this is an entirely different matter from attempting to convince everyone of the merits of the idea. I do not expect everyone to agree, certainly not at first.

Reinterpreting that comment as the question "Doesn't the fact that the system use voting to establish consensus make it fundamentally flawed?": Firstly, the system does not use 'voting' to establish consensus, the consensus algorithm uses a SVD-modified weighed-vote for coin-owners only. Coin owners have the highest ROI when future trading is maximized, a proof-of-stake system. The most significant multivariate-outlier-voter loses the most coins in the following period, and has the lowest relative influence within the current period. When voters lose in this way, honest voters gain, so every single actor has an incentive a] to vote honestly, and b] to lie about their voting intentions, discouraging cartels. The (required) accumulation of several votes into a Ballot is also a powerful decentralizing factor.

Figure 3 (page 28) best disproves the claim that 'only voting' is used. In it, the weighted votes for contracts C2 and C3 are split between Yes and No 50%-50%, yet the mechanism determines that C2 was 'Yes' and C3 was 'No'. This is because of SVD.

I doubt that Mr. Larimer seriously read and comprehended the paper in the 3.5 hours which separate those posts. His answers paint him as disinterested (which is fine by me).

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[...]

From what I've glanced through of that extremely lengthy discussion, I finally would add to my comparison to say:
1] Truthcoin (in attempting to directly model a traditional prediction market) makes an extremely direct attempt to ensure that the winning state of a market will sell for 1 and losing states sell for 0. BitShares does not attempt to ever directly influence the price, and you have to hope that market participants give you the price you want.
2] Creating a new market appears to be much, much easier in Truthcoin (designed to do this all day, liquidity guaranteed) vs BitShares (apparently requires a whole new blockchain and new participants).
3] Finally, BitShares can force you to sell at the current market price, which seems unstable and manipulable. Truthcoin cannot force any trade.

It is very important for this community not to duplicate work, so it is good (and not a derailment of the thread) to have these discussions. However, I now feel that I've made a strong case for Truthcoin being an extremely separate and valuable project.

Offline Pixar

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Re: Truthcoin: Decentralized Bitcoin Prediction Markets
« Reply #8 on: February 27, 2014, 01:26:11 AM »
Bytemaster replied back to asymmetry information on bitcointalk.  Check it out


"This is a good discussion and I do not want to derail the work presented in the OP as it is good work.   Here are some general concepts to consider:

1) A prediction market does not need to have a 0 to 1 range, though this is one form for a binary event. 
2) All trades are voluntary with the exception of a margin call on the short position when collateral runs low.
3) Once the market reaches a consensus that BitUSD should track USD players on both sides are placing a bet on the future consensus relative to the current consensus.   When the future comes, they will continue to place the same bet.  This process requires a bootstrap phase where an order book can be published without executing trades as well as a min market depth before trading can begin.  This establishes the initial consensus.
4) Given the fact that the BitAssets are created only by pairing short/longs both sides must agree to the price. 

So if there existed a trusted data feed, then it is possible to operate in thiner markets.   I do not believe BitShares functions well in thin markets.

What I would do if I were to build a more general purpose prediction market chain is the following:

1) Select a hand full of trusted data feeds
2) Create a BitAsset on the trustworthiness of the producer of the feeds... keep number of producers small so market depth is meaningful.
3) The BitAsset would be market pegged to below 1 for untrustworthy and above 100 for trustworthy. 
4) All prediction market bets based upon the data feeds would be settled only if the BitAsset of the producer of the feed retained a high degree of trust.

Now someone can simultaneously make a bet and hedge on the trustworthiness of the feed.  This would eliminate voting from the mix."


https://bitcointalk.org/index.php?topic=475054.20

Why are we introducing feeds to a prediction market?  I thought Invictus purpose was to decentralize their solutions as much as possible.  This seems like a shaky precedence to set. 

I'm still trying to figure out how Dan's Prediction Market works.  It seems by the quote above it may have trouble if the market volume is thin.  Does that mean we can't have niche Prediction Markets like "Another man will be cured AIDS by 2016 via bone marrow transplant?"  Hence the prediction market will not be diverse with ideas.  Leaves me wanting for more.  I'm going to read assymetrics whitepaper tonight and come back and give my opinions soon. 
« Last Edit: February 27, 2014, 01:34:09 AM by Pixar »

Offline yellowecho

Re: Truthcoin: Decentralized Bitcoin Prediction Markets
« Reply #9 on: February 27, 2014, 01:56:40 AM »
Why are we introducing feeds to a prediction market?  I thought Invictus purpose was to decentralize their solutions as much as possible.  This seems like a shaky precedence to set. 

No feeds are going to be in the prediction market to my knowledge.  He said (emphasis mine):
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What I would do if I were to build a more general purpose prediction market chain

It was a hypothetical scenario discussing the topic at hand, not an explanation of the innerworkings of BTS.
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Offline Pixar

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Re: Truthcoin: Decentralized Bitcoin Prediction Markets
« Reply #10 on: February 27, 2014, 02:03:18 AM »
Why are we introducing feeds to a prediction market?  I thought Invictus purpose was to decentralize their solutions as much as possible.  This seems like a shaky precedence to set. 

No feeds are going to be in the prediction market to my knowledge.  He said (emphasis mine):
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What I would do if I were to build a more general purpose prediction market chain

It was a hypothetical scenario discussing the topic at hand, not an explanation of the innerworkings of BTS.

Yes, Bytemaster did not say he would use a feed for Bitshares (hes only once said it would incorporate it as backup effort if the experiment does not work as expected), but he is casually alluding that he would use it for a Claim Prediction market - with questions like will the "Raiders win the Superbowl in 2015?" 
"Will Democrats take over the House again in 2015"
"Will the DOW hit all time highs in 2014."  etc etc. 

For the winner to claim all the winning pools, and there to be a threat to direct trade movement--- there seems to be a centralized feed component in Bytemasters proposal. 

Offline bytemaster

Re: Truthcoin: Decentralized Bitcoin Prediction Markets
« Reply #11 on: February 27, 2014, 02:08:09 AM »
Thank you for clarifying my position.  BitShares X does not have price feeds but my current expectation is that it will only operate well in deep markets.   A market with few participants is easily manipulated.  To prevent this manipulation in event-based prediction markets (not BitShares X) you would have a few data sources for many different variables.  Then you would have a prediction market on the trustworthiness of the sources and not the data feed itself.    This gives you security of a deep market while allowing datafeeds to keep thin markets honest.
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Online Bitcoinfan

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Re: Truthcoin: Decentralized Bitcoin Prediction Markets
« Reply #12 on: March 30, 2014, 10:52:19 PM »
To all the members on the forum, I have submitted a post on encouraging Invictus to sponsor the Truthcoin Prediction Market.  As participating members of the DAC community, your thoughts and opinions would be greatly welcomed in that post. 
 
https://bitsharestalk.org/index.php?topic=3916.msg49240#msg49240

 

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