Messages

Yes, markets need to resolve.

Could you elaborate? What is the worst case scenario that could occur in a market that does not resolve? The way I see it, the worst case is that the winners may have to settle for just a small token under 100% in order to cash out. In my view, any effort at prolonged manipulation of the price will inherently result in a net loss for the manipulators and is inherently unsustainable.

I'm not necessarily suggesting scrapping the resolution system altogether. Maybe the resolution method can be defined by the market author in the definition of the market. As in, whether the market will close with an official resolution using VoteCoins at all, and if so, what the value of phi is. I'm just not convinced that it needs to close. Even if a malicious entity owned 51% of all CashCoins, if they attempted to fix a market price to the wrong end (strong arm it, buying up the orders on the wrong side), you would only need a small minority of CashCoin owners to buy the correct shares cheaply and burn out the manipulators for a huge profit.

If I simultaneously buy both share types, isn't that the same as increasing beta?

Yes, but if you buy both sides (matching with yourself), you would lose because you would have zero net position, and would only get back a fraction of any spent transaction fees if there are any dividends paid to shareholders

No! Really - check it - it will not effect the Beta/ aka. it would not make the market more stable. The same transaction after this buy would move the market the same way as before the buy.

Yes you are right. The only think you would really be influencing is the transaction volume. Although you might be able to get creative and place multiple bids at different prices and only match some of them on the other side. I think that would increase the beta?

If I simultaneously buy both share types, isn't that the same as increasing beta?

Yes, but if you buy both sides (matching with yourself), you would lose because you would have zero net position, and would only get back a fraction of any spent transaction fees if there are any dividends paid to shareholders

Yeah, I do have a problem with BTSX too. For me, mostly because of how it fails to provide an adequate solution to the naked short. You can be forced to provide a certain amount of collateral, but when there is no upper or lower bound on the possible price, no amount of collateral is enough to prevent a short squeeze that is large enough to break the system and crash the value of BTSX. BTSX can't be used to track things that could be highly volatile, which is also why it appears to be somewhat difficult/expensive to create a BTSX asset. I would argue with a prediction market though, there is no need to have any mechanism to control volatility (like their delegation system), because there is always a fixed range on the possible values of an asset. Both the 'long' and 'short' sides have a finite, opposite, risk. They are opposite sides of the same coin. Any attempted manipulation towards the wrong answer would be unsustainable for the reasons described previously. The actual value of the CashCoin, of course, would certainly come into play -- but I'm not sure I'm convinced yet that a malicious attack on a market could cause a crash of the value of the coin so long as the attack is guaranteed to be doomed to failure because of the market mechanics.

BTSX is not built for prediction markets. Nxt has a different approach, but from what I can tell, Nxt assets are not conducive to prediction markets either because they require the asset owner to issue shares as opposed to the shares being created by the market participants and whose properties and txn fee behavior is determined by the definition of the market. See NXT asset id: 10185950182542481875 (DemPOTUS16) and 1115687958997024723 (RepPOTUS16):
"Issuer will seek to maintain inverse parity between the two assets. Issuer will seek to distribute the assets at prices comparable to external prediction markets. Issuer commits to buy back all shares of the "correct" asset upon resolution at 100 NXT and will reserve sufficient funds to do so."
Dafuq? Why should the issuer be responsible for issuing prices comparable to external markets, maintaining inverse parity, and buying back the correct asset? That could all happen automatically in a decentralized manner. No wonder this asset never went anywhere.

I can certainly say, ever since the demise of Intrade, at least in the US there has been a very strong demand for another comparable option that isn't a sportsbook with house odds. It would not surprise me if there would immediately be a significant amount of interest especially in the political markets, if there were a system such as TruthCoin that is built specifically to be a prediction market and also happens to be immediately available to all bitcoin users. Even if CashCoin were to have $0 market cap, because current bitcoin users are getting their initial CashCoins for free. It would be an entrepreneurial chance to gain more CashCoins which have the potential to appreciate significantly in value, while having nothing to lose.

You may still disagree (perhaps for good reasons I am not seeing yet), but I am interested to listen to your continued thoughts whether here or on your blog ---

[ever]

I am curious what would be the effect if an individual could author a market that is open indefinitely and completely exempt from a final resolution via Vote. I've been studying the nature of the bitshares market peg which has been remarkable. If a TruthCoin market were to be open indefinitely, would the market be able to peg the price of the assets at a value very close to their true ending value? Could market manipulators ever really be able to win in the end when they would be at permanent risk of losing a tremendous amount? In order to force a wrong decision, malicious parties would have to keep pouring more and more CashCoin into a truly worthless asset while buyers on the other side would be risking very little. And the only way for manipulators to liquidate their shares which they would have artificially inflated, would be to start selling their shares, driving the prices back towards the true outcome which would almost certainly yield a massive net loss since there will be very few buyers who aren't manipulators themselves. Eventually the manipulators either run out of money to keep propping the prices in the wrong direction, or they have to start selling and collapse the value of the shares they do own. Buyers who know the correct outcome (which is everyone in the world) have every incentive to keep buying cheap relentlessly and burn out the bad guys.

Granted, the bitshares market peg system does not attempt to peg prices at a final fixed value at one end of a fixed range. A market open indefinitely with no resolution could probably never actually achieve a perfect ending, but would it still work? I guess I'm wondering if the VoteCoin and human decision process is even necessary for any particular market at all.

Of course, if that kind of magic did truly work, it would cut out a massive amount of complexity from the specification. It would also make it much more difficult to raise funds for more development (no VoteCoin auction). Although, devs would still have an opportunity for fundraising by authoring some potentially very profitable markets which would be immediately accessible to all bitcoin users. Not quite the same bang as an auction, since CashCoin value is not guaranteed, but such a plan change would add credibility by demonstrating that the devs truly believe in the coin as opposed to cutting and running with auction proceeds.

[ever]

I am curious what would be the effect if an individual could author a market that is open indefinitely and completely exempt from a final resolution via Vote. I've been studying the nature of the bitshares market peg which has been remarkable. If a TruthCoin market were to be open indefinitely, would the market be able to peg the price of the assets at a value very close to their true ending value? Could market manipulators ever really be able to win in the end when they would be at permanent risk of losing a tremendous amount? In order to force a wrong decision, malicious parties would have to keep pouring more and more CashCoin into a truly worthless asset while buyers on the other side would be risking very little. And the only way for manipulators to liquidate their shares which they would have artificially inflated, would be to start selling their shares, driving the prices back towards the true outcome which would almost certainly yield a massive net loss since there will be very few buyers who aren't manipulators themselves. Eventually the manipulators either run out of money to keep propping the prices in the wrong direction, or they have to start selling and collapse the value of the shares they do own. Buyers who know the correct outcome (which is everyone in the world) have every incentive to keep buying cheap relentlessly and burn out the bad guys.

Granted, the bitshares market peg system does not attempt to peg prices at a final fixed value at one end of a fixed range. A market open indefinitely with no resolution could probably never actually achieve a perfect ending, but would it still work? I guess I'm wondering if the VoteCoin and human decision process is even necessary for any particular market at all.

I like this concept.

If some portion of the transaction fees could be allocated to pay dividends at certain intervals to those who hold an open position in the market on either side? This rate could be either fixed globally, or potentially specified by the author when a market is created. Allocation of dividends could be based on each participant's CashCoin cost basis of their open position. This would provide an incentive for individuals to open positions in a market early, and an incentive for market participants to encourage others to participate as well, increasing transaction fees and also the market liquidity. This way when you open a position in a market you also hold an interest in increasing the liquidity of the market itself.

If the rate were variable per market, then market authors might set the rate low for markets where they think they can do a good enough job generating interest in the market themselves (thus increasing their own transaction fee payout); however higher dividend rates are more appealing to potential participants to enter the market in the first place.

This would have to eat into the percentage of transaction fees allocated to other parties, but it might be worth it.

one other thing I forgot is: miner censorship of votes.

So forget about publicly visible votes.

How does encrypting the votes help with miner censorship?
Miners could censor the decryption steps that they dislike just as easily as they could censor the encrypted-vote steps.

If votes would be not encrypted (or hashed) miners could influence the outcome of the vote by not adding votes they don't like into the blocks/blockchain. Since votes are hashed/ encrypted they don't know what they are adding.

miners could influence the outcome of the vote by not adding decryptions they don't like into the blockchain. Since the decryption is not hashed/encrypted, everyone knows what is being added.

The assumption in Pauls paper is that voters can not reveal their vote early to others without loosing control over their vote /(publishing a private key). I guess in your implementation that does not hold true since voters CAN PUBLISH THE VOTE ON AN EXTERNAL SOURCE before the official vote reveal phase.

However - as mentioned earlier - since they still could change their vote in the last minute I think the assumption from the paper that trustless collusion is not possible still holdes true.

You are correct. It is also possible to write an incorrect vote to trick people, and then refuse to decrypt the vote later on.
Everyone has strong incentive to trick each other.

I'm a bit late to the party here, but I can't help but think about koeppelmann's comment. Who says that the malicious collaborators are all independent entities that have no idea who each other are? All you need is a single malicious group, or single malicious person (with enough wallets), to acquire most of the VoteCoins. Do you think the market cap for VoteCoins would be so high that it would prohibit a single person or single group from accumulating a majority of the VoteCoins on the open market? It seems to be that it is a lot easier to launch a 51% attack on TruthCoin PMs by simply accumulating a majority stake in the VoteCoin market, than it would be to, say, launch a 51% attack on Bitcoin by accumulating 51% of the hashing power.

I just read through the whitepaper and associated documents yesterday. Really, really intrigued by this project. I keep seeing the voting system as the weakest piece though, which is the key that everything else relies on. In order for people to put trust into this decentralized system it has to be a practical impossibility that an incorrect outcome could ever be decided.