Prediction markets are a wonderful thing. The only problem is that governments keep shutting them down!

The solution is to create a bitcoin-style, decentralized prediction market that can’t easily be shut down. The prediction market could take bets denominated in bitcoin or another cryptocurrency. As with these cryptocurrencies, this prediction market would have a public ledger keeping track of bets, with many computers processing bets and updating the ledger.

A key difficulty is how to confirm whether the event being bet on has occurred. Allowing the person who initiates the bet to adjudicate it presents the possibility that someone could lie about the outcome to make off with people’s winnings. The system would have to allow the possibility for people setting up bets to choose how to adjudicate winnings, and to fix the adjudication method in advance so that bettors can choose the adjudication method they prefer. I would favor setting up the system in such a way that it could randomly ask some number of people to check whether the given event occurred, with those people being paid a small part of the total winnings. Some people would be willing to sit at their computers and check whether 12 Years a Slave won an academy award or whether US unemployment exceeded 8% in a given time period, given sufficient compensation.

[Update: I interviewed Zack Hess on my podcast because he’s working on this very thing!]