Quote from: tonyk on April 30, 2014, 06:35:40 PM

BUT this is not the issue I am talking about here.
The Truthcoin layer is utterly unnecessary for the PM! The prediction market (PM) exists in its own layer, following its own rules and inputs The TRC layer is added below it only to take 50% of the trading fee. TRC does not provide backing or input feed to the PM layer.(or any other usefulness to the PM layer that I can think of) It exists to serve its own existence and follows its own rules for shares redistribution -rules that decide who will get more of the next round commissions from the PMs trades
Let me put in different way being right or wrong how the others will vote determines how much you will get from the next trading fees on the PM. I still do not get what utility of truthcoin entitles it (its holders) to those fees in the first place.

I don't understand what you're trying to say. Let me try to explain the chain of reasoning and maybe you can specify where you object.

Prediction markets are obviously useful, so that's not your problem.

Centralized prediction markets are useful, but not as useful as they could be - since just like all centralized services, they can be attacked, self-regulate into uselessness, or corrupt: IEM survives in the USA only by being useless, and Intrade illustrate both the weakness to attack (by the CFTC and US government in general) and corruption (embezzlement by employees drove it into insolvency).

Hence, a decentralized prediction market, where embezzlement is impossible, where USG cannot regulate it to death, is highly desirable and likely necessary if we are ever going to get very large liquid prediction markets with contracts on many things of importance to the world.

Now, it's relatively obvious how to implement most of a decentralized prediction market on a blockchain: the currency part is like Bitcoin, the contracts and purchases are doable with public keys. The one part which is not obvious is: how are contracts judged? This is very important since it's where the rubber hits the road and the prediction market is forced to mirror the real world and keep being anchored to facts. If the judging isn't done well, the prediction market will be completely useless.

You could have one person appointed to judge. They sign a message etc. But now you've reintroduced centralization and allowed for corruption or coercion: the judge can simply buy up a bunch of shares on the losing side, which will be cheap because they're going to lose, and judge the opposite of truth, and make a ton of money. If they've become trusted enough to judge many contracts, they get a nice big 'exit scam'. As the black-markets show with centralized escrow, this can sort of work, but it still isn't great, and it limits the growth of prediction markets: no one is going to invest, say, $10m of capital if it can all be stolen by one judge pulling an exit scam.

This sort of partially-decentralized prediction market might work, but it's not a very compelling vision and that may be part of why no one has done it. If you're willing to trust the judge not to scam you, you might as well go use Bets of Bitcoin or another Bitcoin betting service: they'll scam you at some point, but at least it'll be a conveniently-done scam.

How could you improve on this? Well, what if there were some way to 'spread out' judging across a lot of people? And incentivize them to judge honestly? And to defect against any conspiracy to manipulate votes? *That* is what Truthcoin tries to do. And that's the value that the SVD part of Truthcoin delivers: it removes the last and large part of centralization, producing a prediction market system you can genuinely rely on and not worry about being attacked by the government, embezzling employees, corrupt judges, etc.

gwern

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