|
|
Reality Keys
Bitcoin’s third-party guarantor for contracts and deals, Reality Keys provides real-world data in a form that can be used to complete or disregard bitcoin transactions, based on quantifiable facts. Reality Keys provide public keys when you register a fact, then the appropriate private key when the date comes around. That's it. They don't interact with the contract at all; The parties have to do that themselves. They don't necessarily even know that there is a contract, and there could be many contracts using the same reality keys.
For bitcoin purposes one can think of them as performing the same role as a magical extension to the bitcoin that allows miners to check actual things about the world, instead of just hashes and digital signatures. The effect is that as well as being able to script things like "these coins can be spent by a transaction signed with the private key to the public key xyz", you can script "these coins can be spent by a transaction signed with the private key to the public key xyz, but only if Hillary Clinton is President".
Contents
How it works
- An event is registered to track. They can currently monitor exchange rates, crypto-currency transactions or topics in Freebase, all based on publicly available APIs.
- They issue two keys, one for Yes and one for No. They keep the private keys and publish the public keys, which the registrant can use to create an encrypted message or a Bitcoin contract.
- They wait until the date the registrant specified when the registrant created the fact.
- They perform an automated check against the appropriate API and publish the result.
- In the event that anyone thinks the result from the API was wrong, the plaintiff can pay Reality Keys a fee and a human will double-check. Otherwise the result provided by the API will stand.
- They publish the private key for the winning result. The registrant can use it to decrypt their message or complete a Bitcoin contract. The private key for the losing result is never released.
Counter-Party Risk
If Reality Keys published the wrong key for whatever reason, they couldn't take it back, and the wrong person could get paid. It's possible they may screw up and do this, as Edmund Edgar of Reality Keys says, their humans are only human and their bots are only bots. To mitigate this risk:
- They provide a preview of the result they intend to publish before publishing the key, and give the registrant some time (they default to a week but you the registrant set it themselves) to object by paying a fee. This should make the final result fairly robust for any key that anybody cares enough about to pay the fee.
- If the registrant is using their keys for a bitcoin contract, they can require different combinations of keys. (This is a bitcoin feature, not a Reality Keys feature. They aren't involved in bitcoin contracts beyond publishing keys.) The obvious setup envisaged for a bet would be that the registrant would need two of three keys to spend, one for the registrant , one for your counterparty and one for Reality Keys. That would mean that the registrant and their counterparty could settle without the reality key, and if Reality Keys published the wrong key the registrant could appeal to their counterparty's reputation.
But the registrant may also want to add more layers. One might be competing service, with its own keys for the same fact, another might be a more traditional general-purpose escrow / arbitration service, etc etc. You can combine as many keys as you like in whatever combinations you can get into transaction script. To extent that each layer is better than useless, this can allow you to reduce the risk as much as you like.
Prediction Markets
Reality Keys isn't a prediction market. Reality Keys is a service that provides information about what happened in the world, in a way that makes it usable in bitcoin contracts. Think Bloomberg with cryptographic keys.
If you want to make a prediction-market-like bet on an outcome, you'll need to find somebody who wants to be on the other side of the bet. Maybe you already know that person, because you ran into them on Reddit.
If you don't already have a counter-party you want to enter into the transaction with, you're going to have to find one somehow. There are all kinds of ways this might be done; Somebody might make a hashtag on Twitter and post their offer. Alternatively somebody could make a piece of software that created an order book with a p2p network. Or somebody could make a centralized site like Intrade to handle the order book.
The regulatory exposure of someone running an Intrade equivalent but with user-to-user bitcoin contracts backed by Reality Keys would be similar to that of Intrade itself. Intrade got into trouble for running an unlicensed futures exchange (allegedly, it never went to court), and I guess you'd still be running an unlicensed futures exchange even if you were only keeping an order book and matching up buyers and sellers, and buyers and sellers were concluding the contracts themselves, backed by reality keys. With that arrangement if the exchange got shut down, its customers would still be able to conclude any outstanding bets and nobody would lose any money.
See Also
