Quote from: rafsoaken on September 10, 2014, 07:02:17 PM

Quote from: fairlay on September 10, 2014, 06:13:21 PM

Quote from: rafsoaken on September 10, 2014, 06:03:32 PM

Quote from: fairlay on September 10, 2014, 05:33:43 PM

Quote from: rafsoaken on September 10, 2014, 09:25:40 AM

Now the trouble is that if difficulty rises, it rises for everyone. That's eg similar to a situation where a house insurer has to face claims due to flood affecting all of the houses insured. Now typically this is a catastrophy, and the insurer would not be able to pay - that's why he usually is required to be insured himself (Eg in Europe the "Muenchner Rueckversicherung" insures insurance companies for this class of disaster).

You are 100% right. It would make no sense if only miner would pay into this "insurance contract". Miners can insure them selfs against rising difficulty because they suffer from it. On the other site of the contract should be people that profit from a higher difficulty. Basically this are all Bitcoinuser who do not mine for themselves because they profit from a higher security.
It could be also people how do it instead of mining. If people are at the point to decide wether to invest in mining or not the most important task is to make a educated guess about difficulty development. If they came up with a number as a prediction (like 75B at the end of the year) - they can - instead of buying a miner - just place the money in this insurance contract.

All could benefit from such a behaviour (all except asic producer) We wrote a blogpost on this topic: http://blog.fairlay.com/2014/06/7-reasons-why-you-should-predict-on-the-difficulty-instead-of-buying-an-miner/

You could also call betting on red "insurance against red coming up next".

Well, you could also call a life insurance a bet on your death. From a mathematical point of view a insurance and a bet are very similar if not even the same. It only the purpose of placing the money that makes the difference. But in our opinion it is nothing wrong with mixing this up. Be believe the best prices for bets/insurance/derivatives or whatever you call them are achieved on a free market. Some might be participating as gambler, some speculate, some invest and some could use it as a insurance.

You are right, that you only have to find people betting against a certain difficulty rise. And that would be the money for the miners in case it rises above the threshold (or variable payout). Maybe it's useful to "buy" theoretical mining contracts, say 100GH/s @ average diff increase of 20% for 6 months. You then can calculate exactly the expected BTC you could mine. Your site pays out the difference to the actual difference. Eg the difficulty rises by 25%, after one month you pay the holder of the contract an equal amount of BTC that 5% of 100GH/s for current diff would mine. If difficulty falls you draw from his margin account, if margin is 0 you end the contract. This is essentially a futures contract (which are used to insure against an uncertain future).

This kind of future contract you described would be probably the best way to go. However - from our experience so far, it is very important to keep stuff simple and comprehensible. If we decide to build it, it would be a really simple thing. You choose a premium and then you get different prices for different difficulty conditions. All you have to do now is send BTC to the asserted address. If the difficulty condition mets you get the premium. Thats all.

There needs to be another place/site where people can take the other site. First this would be our existing prediction market fairlay: https://www.fairlay.com/event/category/bitcoin/difficulty/