Cryptocurrency exchange Hodl Hodl has announced a new Bitcoin-based prediction market called “Predictions”, which will use multisig contracts to settle predictions markets on its non-custodial trading platform.
The multisig Bitcoin contracts look to incorporate ‘Oracle’ signatories to make sure the markets will be fairly settled among prediction contract participants.
— Hodl Hodl (@hodlhodl) February 27, 2019
In a blog post, Hodl Hodl first outlined how it defined a prediction market, saying: “It is essentially a marketplace where you can go to and create a contract with someone else where the conditions of the payout depend on an outcome of a certain event.”
The exchange went on to outline a simple example of how a user could “claim that the price of Bitcoin is going to be above $5,000 by May 2019. The other party may disagree with you on that. The condition of the contract states that each one of you lock 1 BTC into escrow and whoever turns out to be correct in the prediction on the price of Bitcoin gets 2 BTC in May.”
Sounds simple, right?
A non-custodial betting market
Hodl Hodl won’t have direct access to the funds and is not actually in possession of Bitcoins at any moment of the trade or settlement transaction.
The exchange said: “The prediction market implementation we came up with can be called a ‘peer-to-peer’ prediction market.”
This philosophy is in line with the exchange’s slogan as the “peer-to-peer cryptocurrency exchange that doesn’t hold users’ funds,” as well as the self-sovereignty aspects that are seen as best practice for any crypto or Bitcoin HODLer.
Not just predictions on crypto price movements
The exchange said that users won’t just be limited to prediction contracts that predict Bitcoin price, and you can employ this tool for various prediction markets.
The blog post states: “If you’re a Mt Gox creditor (a Bitcoin exchange that was hacked and went bankrupt back in 2014) and awaiting the payout, you might be interested in creating a contract that says ‘creditors of Mt Gox will not be paid anything in 2019’, even though your expectation is that they will be.”
In making a prediction like this, the exchange thinks that you would “be hedging your risks”. Hodl Hodl went on to say that “if you get paid by Mt Gox, you receive Bitcoins from them, but lose the ones you locked with your contract. If you don’t get paid by Mt Gox, you’d get some of the Bitcoins that will be sort of compensation for a longer wait period.”
What will Hodl Hodl be doing?
Hodl Hodl will make sure of two things for the prediction conditions of any markets hosted on its site. Firstly, that “conditions do not contain anything illegal”, and secondly that the terms in a particular prediction market are “not ambiguous”.
With the Bitcoins locked in multisig escrow, the exchange concluded that it should be “safer than keeping money on centralized exchanges” or other crypto-based prediction markets.