Miners Mostly Lose — Bitcoin Prediction Market for Miner Insurance and ROI
24.5k sats \ 31 comments \ @HYPERBITCOINZATION 22 Jun BitcoinPredictionMarket
I discovered Bitcoin mining in 2011. I was on my parent’s macbook pro and found this magical internet money that you could make by just running software on your computer. I loved the idea. Make money collecting magical internet coins by running a computer program and I can just play video games all day. Perfect. I downloaded some Bitcoin mining software and I was off to the races. Then my computer started heating up and slowing down. I couldn’t even move my mouse, much less play any games. I stopped the software and abandoned my hopes and dreams of passive income via computer coins and continued playing video games.
What I experienced was loss. Not actual physical loss, but I didn’t win the competition of Bitcoin mining—I lost. Mining is a winner-take-all contest by design. That means nearly all miners are losers (most of the time). Sometimes a miner wins, but mostly they lose. This loss is such a big problem for miners that mining pools were created to solve it. More technically, mining pools de-risked the variance of winning the block reward by enabling miners to aggregate their hashrate. It’s a great solution, the only problem is now they are critically centralized.
Four mining pools dominate over 75% of the network hashrate. Over 75% of Bitcoin blocks are published by Foundry, AntPool, ViaBTC, and F2Pool. The other 17 or so pools account for the rest of the hashrate. Why are they centralized? Well it’s to do with miner financing and pool payout schemes. Essentially, economies of scale enable bigger players to do better. More money makes more money.
The problem with mining pool centralization is that it threatens the censorship resistance of Bitcoin. America and China dominate 75% of Bitcoin network hashrate. If the CIA and/or the CCP want to start censoring Bitcoin transactions, they just need to have a friendly chat with the CEOs of Foundry, AntPool, ViaBTC, and F2Pool. Then transactions from sanctioned addresses aren’t included in their blocks. Of course, other mining pools can pick up those transactions, but the power of fear has a way of propagating itself. After Samurai devs got charged, Sparrow wallet dropped coinjoin capability. Will the small pools resist if the big pools bow down to the authority? What happens if the authority becomes angry and threatens violence?
StratumV2 can solve the censorship aspect of pools as it enables miners to choose the transactions they include in blocks. If the majority of miners were running StratumV2, the CIA would have a tough time censoring Bitcoin. The problem is that big pools are too slow to adopt the new technology. It’s also tough to convince a miner to redirect their hashrate to a small pool with higher variance and make them do the work to change their setup. Inertia means a miner in motion stays in motion, and will only move for more money. For more miners to mine in StratumV2 pools, they need to economically incentivized to do so. If the net reward they earn will be greater than if they mine in an FPPS pool, they will redirect their hashrate accordingly.
So we know mining pools are critically centralized, and we need to do something about it. Miners need a way to profitably mine in smaller StratumV2 pools with higher variance. That’s where we come in.
Bitcoin Prediction Market enables miners to bet on which pool mines the next block. They can bet against their own pool, or bet on dominant pools like Foundry, AntPool, ViaBTC, or F2Pool. Speculators can also bet and gain exposure to the entropy of the block rewards. By observing the hashrate distribution, and the market odds, clever investors can bet to balance the odds. Bitcoin Prediction Market offers permissionless Lightning native ROI and miner insurance.
Be part of this game-changing moment in Bitcoin's history! Join the revolution and learn more at bitcoinprediction.info
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110 sats \ 6 replies \ @ek 22 Jun freebie
Cool! I just bet on Foundry winning the next block and now I am constantly refreshing mempool.space, lol. I especially like how frictionless it was with no accounts. Simply pay an invoice and receive sats if you win via the lightning address!
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154 sats \ 5 replies \ @HYPERBITCOINZATION OP 22 Jun
Great to hear you like it! 🙏 We sought to create a platform that stackers can share with their friends and introduce them to the technicalities of the Bitcoin network in a fun way! Hopefully, it can be a vessel to introduce more people to Bitcoin and Lightning in a fun and engaging way! If you have any problems or feedback just let me know!
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154 sats \ 4 replies \ @ek 22 Jun freebie
I am actually planning to create my own prediction market on lightning so it's always cool1 to see others working on prediction markets, too.
I need to read the whitepaper linked on your site to understand how betting on blocks helps against miner centralization. My first thought was that this would just make existing centralization stickier. So not increase it, but also not decrease it. The following sentence from the whitepaper seems to also suggest that:
In this section we prove that as long as the market odds differ from the probabilities of the outcomes, there exist profitable betting opportunities. We show that any bet that rebalances the odds to match the probabilities of the outcomes has a positive expected value.
You also mention this which is saying the same afaict:
Bitcoin Prediction Market enables miners to bet on which pool mines the next block. They can bet against their own pool [...] By observing the hashrate distribution, and the market odds, clever investors can bet to balance the odds.
However, If a small miner bets against themselves, they would currently only lose money:
https://m.stacker.news/36502
So can you elaborate on how that helps against miner centralization?
damn, ViaBTC mined the next block, now I am down 21 sats, oh well, haha

Footnotes

  1. but there is also always some FOMO included, haha ↩
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2054 sats \ 2 replies \ @HYPERBITCOINZATION OP 22 Jun
Cool, I'll take a look at your prediction market idea! I feel like this is the era for prediction markets, so any fun ways we can utilize Bitcoin, Lightning, and nostr to be the bedrock of that technology will be resources well spent!
With regards to the negative ROI, the market currently does not have enough liquidity to support miner hedging at scale. Once we're confident that everything's working smoothly, we're planning to increase the initial subsidy thus enabling more speculators to profitably bet, and enabling miners to hedge their hashrate.
An alternative to our current strategy that can enable positive ROI on each outcome is fixed odds betting. However, we don't want to provide fixed odds betting because it's easily financially attacked and also is suceptable to the same variance problems. The approach we take is we want to decentralize the liquidity in the markets, rather than us being the centralized bookmaker. Then anyone who is comfortable with the risk can place bets, and as long as they have a large enough bankroll, they can strategically bet over time to balance any miner hedging bets. That means we need more speculators betting more frequently to enable miners to hedge.
On your objection to betting markets decentralizing hashrate, I recently spoke with the founders of Demand Pool at btc prague and they were interested in offering hedging services through Bitcoin Prediction Market to their miners. Demand pool is creating a StratumV2 pool that is PPLNS (I believe, I definitely know it is not FPPS). The big problem with mining pool payout schemes is they don't enable smaller pools to grow. Miners don't like variance, and they don't want to deal with it. By betting on Bitcoin Prediction Market, a miner that mines for AntPool (because they get safe FPPS payouts) can switch to Demand Pool and safely deal with variance by betting against Demand pool (betting no). As long as the market has sufficent liquidity, they can profitably hedge their hashrate by betting No on Demand Pool. (Of course, sufficent liquidity implies that we need more speculators betting every block.)
If we want StratumV2 to get adopted, we need miners directing their hashrate to smaller pools. That means they need to feel comfortable doing so. That means they need to deal with variance in a way that is not FPPS (because FPPS is a broken centralizing mechanism). Bitcoin Prediction Market provides them with that path, and that means it can facilitate hashrate decentralization.
I think you might have misinterpreted the quoted section. It means if the market odds do not match the hashrate distribution, then any bet that incrementially moves the odds indicator closer to the actual hashrate distribution has positive expected value. It's just a theorem to show that speculators can indeed generate sustainable yields over time with Bitcoin Prediction Market (that we're not trying to scam you). We wanted to mathematically prove that it's possible to make positive expected value bets so long as the odds don't match the probabilities.
Thank you for your in depth comments! If you have any more I'll be around to answer anything else! 🙏🙏🙏
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0 sats \ 1 reply \ @ek 22 Jun freebie
Cool, I'll take a look at your prediction market idea! I feel like this is the era for prediction markets, so any fun ways we can utilize Bitcoin, Lightning, and nostr to be the bedrock of that technology will be resources well spent!
There currently is not much to look at since I took it down to rewrite everything with new ideas like using the social graph of nostr for "social bets" (bets within a social context) or m-of-n npubs as oracles. But I also think this is the era for prediction markets! That makes two of us, haha
On your objection to betting markets decentralizing hashrate [...]
I see. Let me try to put it into my own words: This basically opens up a new, potentially highly liquid market into which miners can tap into for hedging. This wasn't possible before so this can make switching to smaller pools safer? Did I get it?
If you have any more I'll be around to answer anything else! 🙏🙏🙏
What about open source? I see no Github link. Is it planned? 👀
20 sats \ 0 replies \ @siggy47 22 Jun
Good question. I'm wondering too. I also placed a bet, which I am certain to win.
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210 sats \ 9 replies \ @SatsMate 22 Jun
This is super cool! Brings the betting side out in me. I wonder if there are prediction markets for other areas of Bitcoin (such as price action, base layer sats/vb or L2 volume). Some speculators will definitely move to this area.
In the end though, I think it is good to work towards diversifying these pools even more. We don't want censorship, and the incentive structure has centralized these pools. Let's keep brainstorming and working towards more distribution. Cheers!
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100 sats \ 0 replies \ @HYPERBITCOINZATION OP 22 Jun
Absolutely: difficulty, tx fees, block weight, public Lightning network channel capacity are all super important economic indicators for the Bitcoin network. We plan on creating betting markets around all of them to enable hedging of core risk by any Bitcoin businesses (mostly miners to start). We're starting out with mining pools/block reward just because it's the easiest/most obvious, but we see plenty of very interesting prediction markets that can be created alongside this one!
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0 sats \ 7 replies \ @SatsMate 22 Jun freebie
@HYPERBITCOINZATION Tried it out with a tiny amount of sats (21). I put no for AntPool on block 849103 and didn't get a payout. I think it was 5% for the reward? Curious if payouts are aggregated and end of day? Maybe I did something wrong...
20 sats \ 0 replies \ @BlokchainB 22 Jun
Ahh yes more Degen action!!
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20 sats \ 1 reply \ @Natalia 22 Jun
So we know mining pools are critically centralized, and we need to do something about it. Miners need a way to profitably mine in smaller StratumV2 pools with higher variance. That’s where we come in.
https://www.bitcoinprediction.market/ seems interesting but I still don't understand how these betting can solve this problem? 🤔
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100 sats \ 0 replies \ @HYPERBITCOINZATION OP 22 Jun
So Bitcoin Mining finance is basically broken, and we’re fixing it.
Mining is essentially a globally decentralized provably probabilistic computational race.
Miners compete to be the first to publish the next block, and whoever wins makes money. The mining contest is a winner-take-all, so the losers do not make money. All miners lose most of the time, so all miners do not make money most of the time.
Bitcoin Prediction Market has created a betting market around the mining contest. It enables people to bet on the winners and losers of the next mining contest.
Miners can hedge against the risk of losing the race. They can do this by betting against their own pool, or on a dominant pool like Foundry or Antpool.
Speculators can make money by predicting which pool will win based on their hashrate.
Bitcoin Prediction Market revolutionizes mining finance by enabling miners to protect their cashflow and speculators to profit from the block discovery process.
In the past, miners could only make money by winning the contest, and speculators could only make money by betting on price. Now, everyone can profit every single block!
Let me know if this helps to understand!
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110 sats \ 0 replies \ @siggy47 22 Jun
Perhaps we can get stackers who knows what they're doing to monitor the hashrate and make betting suggestions. I'm sure they will be generously zapped.
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144 sats \ 0 replies \ @grayruby 22 Jun
This is a cool idea.
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31 sats \ 4 replies \ @Coinsreporter 22 Jun
This seems quite interesting!! Listening for the first time that such markets are also available. First, I need to understand it. In simple words, does it mean that we predict that who will win the next block? Right?
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21 sats \ 3 replies \ @HYPERBITCOINZATION OP 22 Jun
Yup! Check out mempool's mining dashboard! Basically all the pools listed there are also listed in Bitcoin Prediction Market, and you can bet on which one will mine the next block. It's purely probabilistic, and nobody can control the outcome. The size of each chunk represents the probability it will mine the next block. The market is provably fair and probabilistic, and providing liquidity over time can enable miners to bet against you and hedge their hashrate! Let me know if you have any other questions and I'd be happy to answer them!
https://m.stacker.news/36510
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31 sats \ 2 replies \ @Coinsreporter 22 Jun
Thanks for your prompt reply! Checked it out and seems like it's fair opportunity for everyone. Gonna give it a try next day for sure.
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11 sats \ 1 reply \ @HYPERBITCOINZATION OP 22 Jun
Awesome, let me know if you have any problems, questions, or feedback! Always here to help!
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21 sats \ 0 replies \ @Coinsreporter 22 Jun
THANKS. Will surely ask you if I need..
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234 sats \ 1 reply \ @BlokchainB 23 Jun
Deposited 50 sats took NO on ViaBTC on block 849162 awarded 52 sats
2 sat gain.
My experience:
  1. Site is easy to understand but not super mobile friendly. First time I tried to use my ln address I noticed I spelled it wrong.
  2. After I made my bet I couldn’t track it. The site doesn’t show the user the position of was taken. I just have to go on faith after payment is made.
  3. After block was not ViaBTC I knew I won but I have no record to confirm this myself. Going on SN I learned payment can take up to 5 to 10 mins due to possible chain splits.
Improvement ideas:
  1. Make it mobile friendly. Make it easy to pay from a mobile wallet
  2. Allow users to login to keep records of their bets. Or do what boltz does keep history in the browser that you can review of delete at will. Also with some sort of user authentication speculators can come in and make bets easily. One thing LN markets does well. Log in and place a position is very easy. Here I have to copy and paste my ln address each time?
  3. Explain how winning and payments work. I didn’t see this anywhere on the site
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100 sats \ 0 replies \ @HYPERBITCOINZATION OP 23 Jun
Thank you so much for the feedback! We'll start by fixing mobile UI/UX, adding a record keeping system for users to see pending bets before any rewards are broadcasted, and getting some sort of authentication system in place to make it easy to place multiple bets!
On how the winning and payments work, we go over it on our landing page (when you click the "How it Works" button), but I can see how it's not entirely obvious. A video is in the works to better explain everything intuitively which can hopefully that can alleviate that knowledge gap!
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0 sats \ 0 replies \ @LaserStack 8 Jul
Why aren't the buttons on the site just plain links? Would be way better that way. Other than that, love the site!
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0 sats \ 0 replies \ @Andrea1 23 Jul outlawed
stackers have outlawed this. turn on wild west mode in your /settings to see outlawed content.