Applications of deposit and prediction markets you might not have thought of

Special thanks to Vlad Zamfir, who helped develop many of the ideas behind prediction markets for content curation.

For the past six years, people have been trying to find hard-to-find applications for blockchain technology that could finally break into the mainstream. In the case of cryptocurrencies, the applications are already mostly known. Of course, it remains to be seen how well traditional payment systems will be able to maintain their advantages as they continue to become more efficient. But what about smart contracts and cryptocurrency 2.0? One approach we can take is to look at where legal contracts are being used today and see where we can increase their efficiency by “smarting” as many of them as possible. But another route is Peter Thiel-ian. 0 to 1 Approach: Use these tools to see if it’s possible to create an industry that doesn’t currently exist. So, let’s take a detour along that route and look at some of the more underrated and interesting applications that smart contracts can offer.

Hashcash meets proof-of-stake.

Today, proof-of-work is primarily known as a feature of blockchain consensus algorithms, but its original functionality was actually quite different. The first major use of proof-of-work was by Adam Back. HashCash, a protocol that attempts to combat spam emails by making it more expensive to create spam emails. Proof-of-stake is best known today for its application to blockchain consensus, and the theory is that the way modern proof-of-stake works allows users to: put in danger In general, security requires enormous economic resources. actually spend -Potentially could be much more efficient. So this leads to an interesting question. Can these benefits be applied to create a more efficient version of Hashcash using Proof of Stake?

Let me start by explaining the problem. Hashcash’s basic principles are based on the idea that email today tends to fall into two categories: These are desirable emails (“ham”) and undesirable emails that people put a lot of effort into writing and get high value from reading. (“Spam”), people usually put much less effort into writing emails and derive spam from them. negative Amount of value read. So the theory goes that if you add a small mandatory fee to each email sent, “ham” can get by with only a little extra burden, while “spam” becomes completely unprofitable. This “cost” is paid in the form of electricity and computational effort used to solve a mathematical puzzle that the recipient’s customer can quickly check before showing the email to the recipient.

The problems with this approach are threefold. First, spammers may simply switch to a strategy of putting slightly more effort into each email (e.g., taking 5 seconds of human effort per message to grab the reader’s attention or increase the chances of bypassing spam filters). And the computational threshold required to actually block most of the spam would be quite large. Second, spammers are more specialized and have better access to specialized computer hardware that can solve these computer puzzles quickly and cheaply, so what might cost 5 cents for an average user may only cost a tenth of a cent for a spammer. . Third, like this The now famous checklist Listing the flaws of widely proposed solutions to email spam, it is considered highly desirable to have a system where “email sending should be free”.

So here is a proof-of-stake alternative. No need to solve expensive math puzzles when sending emails. Instead, send a transaction to the blockchain that creates a contract with a certain amount of money as a deposit. Send your private key to the recipient as part of the email. The recipient can submit this key to the contract to destroy the deposit (or donate it to a standardized charity). if they want. If the deposit is not destroyed within a certain period of time, it will be refunded to the sender. Please note that there is no benefit to the recipient if the deposit is destroyed. The only motivation to do so is pure malice. As a result, we have an asymmetry. The average cost for the average person to send email is small. Because recipients only click “Report Spam” in rare cases. them Although malicious, the spammer’s average cost will actually be quite high, and the special hardware asymmetry will not help the spammer one bit.

You can see your deposit sizes go as high as $1, and you can even adopt a tier system. This means that senders can send any deposit they want, no more than the minimum amount they want. Notification level What the recipient sees will depend on the exact amount. then $If 0.1, it’s just an email in your mailbox. then$

You can create an advanced version of this scheme where you don’t need to send a transaction to create a new deposit for each email. You can imagine how the sender sends a bunch of keys to break a portion of the same deposit, and the receiver posts the signature (but not the key!) to a channel like Whisper along with a signature that those keys are valid. Quickly sample and verify that a particular deposit is not “oversubscribed” with a destruction key (one of the exact mechanisms to do this is to treat only signatures with indices 1 through N as valid, and add a rule that there are two) will). By submitting a signature with the same index, you can transfer 10% to the submitter and destroy the entire deposit. Therefore, we can be confident that at most N signatures exist for that deposit. This reduces transaction load to approximately one transaction per email sender per year. In any case, smart contracts provide almost infinite room for creativity in optimizing the details.

Prediction Markets and Reddit

One of the biggest debates in online communities like Reddit is the question of how much centralized coordination is justified. One view is that the power of the Internet itself comes in large part from its egalitarian, decentralized nature and the fact that no one political party has a higher level of authority than the other. Some people may be more influential than others, but (i) that is a difference of degree, not a categorical distinction of class, and (ii) being influenced is fundamentally a choice of the audience. Another view is that without centralized coordination, communities inevitably collapse into undesirable kinds of mediocrity and chaos. Essentially, eternal septemberSo ultimately, having fewer users in charge is, as it is in many places, a “necessary evil.”

Community voting coordination is indeed very powerful, but a centralized perspective also appears to have some merit. Comments that the community doesn’t want to see are eventually voted down, but that process takes time, especially on Reddit, and it can still take an hour or two for such content to remain on the front page. Within a voting framework, this is somewhat unavoidable. If a barrage of downvotes could remove content from the front page very quickly, it would itself turn into a vector of censorship for the minority. But what if there was a third way to solve this problem using our preferred governance mechanisms? prediction market?

Prediction markets, including mine, have often been introduced as a governance mechanism that could one day be used for very large-scale decisions. Should we bail out the banks, hire or fire certain CEOs, or special trade agreements? But perhaps it would be better to introduce prediction markets to the world as a tool for much smaller, non-threatening decisions worth hundreds of dollars, tens of dollars, or even dime amounts.

I can imagine a design that would work like this: Rather than simply voting, upvotes and downvotes on comments on the hypothetical PredictionReddit would be bets on the prediction market associated with those comments. Prediction markets will be seeded by mandatory bets that opinion givers must make that their opinion will be accepted as good. From there, up and down votes change the “price” of the market depending on how people vote. In 99% of cases, the market will have no effect, except that comments with higher prices will appear more prominently in the interface. However, the remaining 1% of the time, the comment is submitted to a meta moderation panel, which votes on whether the comment is good or bad (or a score in between), and prediction market participants are rewarded appropriately based on how well they predicted this score.

The meta tuning panel can, in principle, be quite large. If an effective anti-sybil mechanism were in place, it could potentially include every single participant in the community. even SchellingCoin Oracle can be used Also, 99% of the market does not need to be abandoned. Instead you can have a model. every The marketplace will be processed, but only a portion of the meta moderation panel will see each individual post. The number of people need only be large enough that they cannot effectively collude for the purpose of insider trading in prediction markets. Another alternative is to make the size or probability of meta adjustments proportional to market size, so that the posts that get the most attention are the ones with the highest risk. In any case, this particular means of combining Reddit and cryptocurrency looks at least a little more promising than simply incorporating the ability to express condolences on someone’s death. By tipping your relatives a little 3 cents..

In principle, either of these two models could be scaled up considerably. Imagine advertising that costs more to maintain the more it irritates the viewer, or a decentralized search engine where anyone can participate and “plug” into the ranking algorithm. Analyze prediction markets and only profit if the algorithms are effective. Oleg Andreyev’s 2/2 escrow This can be augmented with a reputation system through prediction markets on the probability of escrow deposits being destroyed or payments being delayed. Remember that deposits and prediction markets are essentially the same. A prediction market is a deposit market where anyone can object and demand a higher deposit in response, anyone can back the original depositor, and a deposit is a prediction market where certain parties are forced to place mandatory bets..

Perhaps this is a large part of the potential that Cryptocurrency 2.0 technology can offer. information technology to economic information technology By using incentives to more cleverly draw on the information we all individually have, we can potentially radically increase efficiency, at least in some sectors of the digital economy. Anyway, let’s build this tool and find out.