Lecture 19: Advanced Topics

Topic 1: Smart Property

Manage ownership of some property like stocks on the blockchain. Colored coins allow arbitrary properties on Smart Contract. Similar to Namecoin, there cannot be a light node/SPV for this. Another example is rental, car’s ownership goes from Alice to Carol in a 2-of-2 transaction from Alice to Carol and locked transaction to return the car’s possession after a fixed time. One still has to trust the car’s hardware and manufacturer.

Topic 2: Public Randomness (Lotteries)

  1. Multi-party randomness: Alice sends a commitment to x to Bob, Bob sends y, Alice reveals x and the random number is x XOR y. One can have deposits to force Alice to reveal x.
  2. Public Protocol: Random (unpredictable) beacon, consensus and is manipulation-resistant. One example is weather data coming from a trusted observer. Alternatively, use data from blockchain to get a PRNG. Puzzle solutions are not predictable, but it is not manipulation-resistant since the miner can withhold the block if they don’t like the result (cost is the loss of mining fee). The other issue is a collision. There is a workaround, apply a very slow hash function; for example, SHA-256 applied 240 times for the result. This means that by the time someone calculates the hash, the blockchain would have advanced on one of the chains and then the hash of the block on the main chain counts.

Topic 3: Prediction markets

Idea: Trade shares in future events Share(X) will be worth one if X happens and zero otherwise. Today the share is worth prob(X) assuming efficient markets. Augur is the most famous one on top of Ethereum.

How to trade?

One option is to have order books, so, you need someone else to take the bet on the other side. A better option is “automated market makers” which will always be willing to trade based on a formula.

How to decide what happened?

  1. Arbitration
  2. Reality Keys data feed
  3. m-of-n arbitration
  4. Decentralized approaches - half-baked theories like all stakeholders will vote and if they don’t agree everyone loses.