Allows for the creation of Trustless Dominant Assurance Contracts which allow financing of public goods such as lighthouse, roads, etc. with no counterparty risk.
Interesting. Still not prediction markets. But how? Also, I don't see the no counter-party risk part unless there is a big backer like AIG or a secondary market like Marsh-Mac, or a big-ass escrow account. Or a bond-type thing. Which ... has a counter-party.
Anyway: I like your enthusiasm. I like the applications you are pondering. I can not but help think (and yes, I've read your paper) that you haven't thought through the hurdles of implementation. Or are you simply looking at this as a theoretical economic game-theory model framework?
I don't think you read the document 3_PM_Applications.pdf, because it answers the vast majority of your questions. It explains how you can break up binary predictions into probability distribution functions over subsets of the domain (what are the chances btc will be 500 or above? $600? $650? $700?) all within the same market. It explains how to chain predictions together to define a matrix of probabilities for combinations of outcomes. So if Policy X is not enacted, will unemployment rise by Y%? What about the converse?
Those who do not have specialized knowledge should not be betting, as they will likely lose money in the long run. That is, unless they are hedging. For instance, if you're a farmer you can hedge against a drought occurring if a market exists to predict it. Another example would be for funding public goods. For instance, say you want a road to built from point A to point B and you think the community wants it also. You start a PM, specifying whatever level of detail is necessary, then release it onto the TruthCoin network. Everyone who WANTS a new road bets that it WON'T happen (it's a win-win situation for them), and those with expert knowledge of the local property rights, permits, etc will speculate. If enough capital is raised on the NO-ROAD outcome, then at some point it becomes profitable for anyone capable of actually building the road to go ahead and do it, buying up YES-ROAD shares beforehand.
Finally, the proposal is for a protocol, so it's up to the user to abide by local laws.