Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Martin Köppelmann: Gnosis – The Ethereum Prediction Market

Episode Date: July 11, 2016

Few things arouse among free market believers and enthusiasts of decentralization as prediction markets do. By allowing people to bet on any range of outcomes they promise more efficient markets and better information. Few people have worked with as much dedication on making the promise of prediction markets a reality as Martin Köppelmann. After founding the Bitcoin prediction market Fairlay, he turned to Ethereum and started the Ethereum-based prediction market Gnosis. We discussed his views on the DAO heist, differences between Fairlay and Gnosis and their upcoming tokensale. Topics covered in this episode: How the DAO heist happened and what we should learn from it The Bitcoin prediction market Fairlay From Fairlay to Gnosis: Building a prediction market on Ethereum The Gnosis architecture Gnosis’ planned crowdsale and DAO Gnosis business model and what will determine the value of the tokens The difference between Gnosis and Augur Episode links: Gnosis Website Gnosis Forum Fairlay 7 Reasons to Make a Prediction The Big TheDAO Heist FAQ - Part 1 The Big TheDAO Heist FAQ - Part 2 EB98 - Robin Hanson: Futarchy and Prediction Markets episode This episode is hosted by Brian Fabian Crain and Meher Roy. Show notes and listening options: epicenter.tv/139

This is Epicenter Bitcoin Episode 139 with guest Martin Koppelman. This episode of Epicenter Bitcoin is brought you by Ledger. Now accepting pre-orders for the all-new Ledger Blue Developer Edition, a Bluetooth and NFC touchscreen hardware signing device. Learn more about the LedgerBlue at LedgerWallet.com and use the discount code Epicenter to get 10% off your first order. And by Jax. Jacks is a user-friendly wallet that works across all your devices

and handles both Bitcoin and Ether. Go to JAWX.io and embrace the future of cryptocurrency wallets. Welcome to Episode of Bitcoin, the show which talks about the technologies, projects, and startups driving decentralization and the global blockchain revolution. My name is Brian Hubbard, Grain. And I am Beher Roy. Today we have a very special guest, Martin Kopelman, who is the founder of Fairleigh and Gnosis,

which are prediction markets on Bitcoin and Ethereum, respectively. Martin is also very involved in the current episode, the debacle that is the DAO. And so we'll get some updates from him as well. So before we start off on these interesting topics, let us have an introduction from Martin. Martin, you're intro please. Yeah, hello. Thanks for having me. Yeah, as you said, I'm for a while into the space.

So my big two topics are, or big topics are prediction markets. I'm also involved with basic income project. But, yeah, prediction markets are kind of the biggest topic. And just recently, I mean, there's no way to overlook the Dow currently. So I would not say I'm heavily involved, but I mean, I'm just observing it, writing about it, and maybe trying to help solve the problem or solve. for us. So you made some long threads on some of the on Reddit about sort of everything that's happened with the doll. Now, can you give us a bit of an update from, you know, we know roughly

about the original heist. I think people are vaguely aware of that. Maybe you can just briefly sort of recapitulate what happened there and what's been going on since then. Like, where are we today. Yeah, I think my main motivation to do those pulls are that I think it's just extremely important for everyone to know exactly what's going on. And especially if we as a community want to do decisions like Hard Fork, then it is, in my opinion, extremely important that everyone is educated and just know. what exactly is going on, what are the reasons.

It's also, I mean, it would also be extremely unfair to those who currently hold DAO tokens and have to make the decision whether or not to sell them or maybe to buy some. So I really think transparency is important. That being said, so concrete answers. Yeah, what happened, yeah, a heck. There was a bucket exploited, it's a so-called re-entry thing that you could do basically multiple transactions or multiple withdraws or multiple splits within one transaction.

So maybe I try to explain very simple. Let's imagine the Tao is now. ATM and let's imagine there are two steps. So the first step is get out, get out hundred euros and the next step would be reduce the balance by 100 euros. So that would be the logic of the ATM. First pay out, then reduce the balance of the user. And that is, and the problem is that those are not atomic steps. So with atomic, I mean, it's not done

in one step, it's done in two steps. So first it's paid out and then the balance is reduced. And that's exactly what the hacker exploited. So he set up or he made a setup that it was paid out multiple times

and then the balance was only reduced or set to zero basically. And so So back to this ATM, say your balance is 100 euros, and there's an option cash out all. And the step is cash out the amount you have, 100 euros, and then set it to zero. Then he called this cash out function like 20 times.

And then after 20 times 100 euro were cashed out, then it was set to zero 20 times. that was kind of the heck. He even combined it with something that in the end, before it's set to zeros, he could even transfer those 100 euros to another account. So then the account where, yeah, that was already zero, that was then sent to zero,

and then he could do the same thing from the second account. So that's kind of what happened. I mean, it seems to me that, like, whoever the hacker is is like an extremely smart person because when the attack came out I clearly remember that there being a phase

where I was kind of looking at all of the posts that were coming in about the attack and I was like none of these posts completely explain the whole attack because they were as you said like there's this one attack in which you do the

accounting only after the withdraws. This was well known before the Dow hack and everybody was expecting this to be used somehow. But then there was something strange about this attack as in he was able to execute this attack so many more times than he should have been able to. And you were one of the first people to come out with a correct explanation of how he did it. And it seems like he exploited like two different things and combined them to make them very potent. And these two things were, and the second thing was. also not very well known. So this seems like a very, very accomplished guy, it seems.

Maybe a few comments on that. So first, the general attack was described like a few weeks before the hack. So the hacker just very carefully looked at the contract and found the option to exploit this specific attack that no one else found before. And indeed, so he, came up with this, or they or she came up with the thing that they used this re-entry not only to

do multiple withdraws, but then, and the last step to also transferred money to so they had two attacking contracts and they send it, so in one prediction they used the one 20 times and then send it to

the other one to use it from the other one. So yeah, that was smart thing, but you claim that they were very smart? Yes and no. So they also did a big, big mistake in my opinion, and they were basically too greedy. So my opinion is, I mean, we will maybe come to this later, but I think it's quite likely that we will see a hard fork now. But let's imagine the hacker, would have only stolen like, let's say, 100,000 ether, maybe 500,000 ether.

So let's say significantly less than they did. I would assume that in this case, there wouldn't have been a majority for the Hartfork. I think if the goal of the hacker would be to maximize their monetary profit, it would be smarter to have stolen less. Yeah, that might well be the case. So talking about hard fork, there was a soft fork first, right? What happened there? I know there was a lot of criticism that somehow the soft fork wasn't proper and there was some bugs in that.

So what happened there and how did the sort of consensus around the hard fork now emerge? Yeah, so the soft fork actually, I mean, in the end it didn't happen. So it was a proposed, was implemented. And the idea was to basically block specific kind of transactions or censor specific kind of transactions, those who would reduce ether from a Dow contract. And it turns out that it's quite complicated to, or maybe even impossible to censor specific types of transactions with Ethereum. Because you cannot, if you see a transaction,

you cannot immediately see from the outside, from kind of the input data or from we call it the static analysis. You cannot see from the outside what this transaction will eventually do without executing it. So that means you have to execute it. You have to do maybe expensive computational steps to eventually find out, well, this transaction is doing something it's not allowed to do. And then you aren't, you, the transaction wouldn't even have to pay for its gas because it should not be included. So that means it's not, it's maybe not possible or it, so that opens the, that opens the problem that an attacker can just create thousands or millions of those transactions and spam the network at no costs.

And so that, that, that was a reason why. software was not eventually not not activated or eventually not executed is it the case that there's a silver lining in in this soft fork episode so what you are

essentially saying is in Ethereum even in the future it would be very hard for for the developers or anybody or the mining community or anybody to to create a soft fork that allows their

allows the some of the transactions related to a particular address on Ethereum to be censored. Because if they were to implement this kind of feature any time in the future for any other contract apart from the Dow,

the same denial of service vulnerability would exist, right? This in a sense means it's very hard to censor addresses if you want to keep Ethereum working, which is actually quite different from what might happen with Bitcoin. In Bitcoin, it is in theory possible,

but the community is hard against it, but in Ethereum, it just might not be possible at all. At least not with a soft fork. So if you would do a hard fork where you would say those transactions, they would just be invalid, but still would have to pay the gas. And again, that is a hard fork because it would change the rule set. Then those things might be possible. but yeah, with a softbook or the important thing to know about a softbook is minors, in principle miners could do it without asking anyone.

So it doesn't need to be the developers who develop a new version. In principle, miners can always do this kind of censorship of transactions, collusion. And I mean, to some degree it happens in Bitcoin. So some miners would not include transactions that used, what was it, some gambling sites. I don't remember. But this happened at Bitcoin. And yes, it turns out it's harder for miners to do this in Ethereum. So talking about the hard fork now.

Is it correct that essentially this will mean that the miners come to a consensus and the money is essentially taking away from the hacker and giving back to the original dollholders and then they can withdraw it? Yes, but I would say it's important to know that for especially for a hard fork it's more about the whole community. So yes, miners are obviously a part of the community, but also the core developers, also people who write applications on top of, um, um, um, um, um, on on top of the protocol. Also, obviously the exchanges, all those are important in the decision to make a hard fork. So, I mean, just imagine everyone, the miners and so on, exchanges, they would support the hard fork.

But let's imagine all people who built stuff on Ethereum, so all debt developers, they would come together and say, no, we don't support this hard fork. we will stick on the other chain and we will only write applications for this other chain. So that would still have a big influence. So hard fog is bigger consensus

of the whole community. Well, so yeah, so hard force essentially need the consensus of the whole community. But you have also, in this particular field, you have come up with a new set of data and observations that a significant portion of people who own ether, also own Dow tokens.

And tell us what data you found and how did you come to this conclusion and what it means for the probability of the hard folk going through. Yeah, I mean, so in principle those data are available on the blockchain. I mean, and the first very simple data point is that what was it, 10 to 15% of all ether is in the Dow. So, I mean, that is already huge. And then you can just look at a few other numbers, so you can look at how many accounts exist on the Ethereum blockchain

with more than one ether. And you can have a look at how many accounts are, or how many accounts do help help help help doubt tokens. And the third, so, so, yeah, The third is so the number of accounts that hold Dow tokens is a third of the number of accounts that have more than one ether. So it's quite likely that the super majority or way more than 50%, or all Dow token holders together are most likely holding way more than 50% of all ether. at least if you include people who, I mean, I guess most people just tried it out, or most ether holders spend at least, I don't know, one ether or something like that,

just to try it out. Let's take a short break so we can go to Paris. I stopped into La Maison de Bitcoin, the house of Bitcoin, at the ledger offices, and I met with Ledger CEO, Eric L'Archeveque, so he could tell me all about the ledger wallet Chrome app. The Ledger wallet Chrome app is the perfect companion app for your ledger, HWN or Nano. We have very powerful and cool feature. You can use multi-accounts.

For instance, personal accounts, business accounts. This is very useful. Also, when you want to make a transaction, we use a second factor verification. You can either use a physical security key or cryptographically securely pair your Android or iOS smart hardware. iOS smartphone to your nano. This way, when you issue a transaction, a payment, the transaction will pop up on your Android or iOS phone, and you will be able to verify the amount and destination address.

Finally, the Ledger Chrome app has an API with which you can easily integrate third-party applications. For instance, if you want to create a multi-signature account with Coinkight or Copay, it will be done using the Ledger wallet Chrome app. Ledger is making hardware wallets easy and convenient without compromising on security. If you want to get a secure setup for storing your Bitcoins, go to ledgerwalt.com and use the code Epicenter to get 10% off your order. We'd like to thank Ledger for their support of Epicenter Bitcoin. You're now working on a prediction market, right?

But you originally got into Bitcoin quite a while ago and you started working on a project called Fairleigh, which is a Bitcoin prediction market. Actually, Fairleigh also was the very first sponsor of this podcast. Right. This was a long time ago. So can you tell us, like, how did you originally get into the space? And what was it about prediction markets and Bitcoin that you saw like a strong fit and you wanted to create Fairleigh? So those were kind of two separate events.

So how I got into Bitcoin into the Bitcoin space, that's quite a part. funny story to some degree. So I think in, well, I'm not 100% sure it's about the year, but it should be in 2011. There was this, in Germany, there was this new movement or the Pirate Party. They became quite successful in Germany. So, so, and one of the ideas of the Pirate Party is this idea of liquid democracy, so everyone can directly vote on, on political decisions. So, I joined the Pirate Party, just was exciting. And so I was therefore, as everyone, every member else, asked to vote on decisions like those bailout packages on Greece. So I just tried to make a good decision. So I tried to inform myself and try to understand what's going on there. And that was kind of the point where I started to realize or start to think about what is money. And I started to realize that money, if you use it from day to day and if you use it on a personal level,

is very different or the properties of money are very different on this personal microeconomic level compared to if you look at it, if you look at money from a global scale. So if you suddenly talking about billions, trillions created in those bailout packages, money has then really different properties. And I guess that was the point where I also discovered Bitcoin and realized, well, money is in the end just a social construct. And if people agree to use something as money, then it can be used. as money. And obviously I have a computer science background and Bitcoin is super interesting

from that perspective as well. How was your experience running fairly? Tell us like, so was fairly like a centralized prediction market based on Bitcoin and how big was the, how big, how many trades did you get at its peak? Right. So, so after I got into Bitcoin, I started to to buy a one of those butterfly miners and stuff like that. I just wanted, or I just wanted to build something on top of it. And I was, yeah, quite interested in prediction markets. And I saw, well, there is an opportunity to build a prediction market

that purely runs on Bitcoin. So I started with, Stefan, co-founder, we started Falae. And FFELA is basically centralized prediction market and the only kind of the only blockchain component or that it uses the currency Bitcoin, but it doesn't use, it doesn't use the blockchain to run the bets or to the logic is not on the blockchain.

logic is in a regular server client model. And so how did that project turn out? Did you see a lot of traction or a lot of interest? Do you feel like it's using Bitcoin was a big benefit to the platform? Yeah. So right now, so I'm not I'm not longer actively involved in Fairleigh. it's someone, someone else took it over, but so quite now, right now, the bedding volume in terms of is roughly a million, a million, or Bitcoin's worth a million US dollar a month.

So, I mean, our initial goal with FLAE was, I was always fascinated in the idea of you could use the prediction market to aggregate information. so you want to do a forecast on something, then the best tool to aggregate all the, and so on. In the end, it turned out sport betting was made way more successful than all the markets I found personally interesting. Will Bitcoin do a increase the block size limit? Will they implement segregated witness before, blah, blah, blah.

And we tried all those markets, and they had not, not too big success, but in the end sports betting went quite well. So that's kind of the story of FLA. Wow. And then once you cease to be involved on a day-to-day basis with failure, you came up with the idea of Gnosis. And the big difference between Gnosis and failure is, of course, that one is based on Ethereum and the other is on Bitcoin.

So tell us the fundamental reason you are interested in building a prediction market on Ethereum. What's different from Bitcoin? Yeah, I would say there are maybe two big points. So first, with Ethereum, I mean, we had this goal with Fairleigh as well. So we thought about how can we do it decentralized. Basically, how can we set it up in a way that during predictions we, we are we? do not need to hold the money because in the end that's just liability so it's just additional costs it's it's it's took us we would spend so much time to to make it secure or to try

to to yeah secure the bitcoins in the end you you can only lose so so so if it works well then okay, that's nothing unexpected, but if you do a mistake, then it's a big, big downside. So obviously, it would be great to have, to use a decentralized system where you are not responsible for securing a server or securing a cold wallet. So that is one big point. And it's to some degree. Cost efficiency argument, it's also an argument that it's easier or might be easier to gain the trust of the people. But to me, that that is not, that's maybe not the really important point.

the really important point is this decentralized platform aspect. So if I look at the Bitcoin sports betting space, there are, I would say, five, six bigger sport betting sites that have maybe even, or I think a few might have higher volumes than fairly, but so who have a decent volume. From economic or from efficiency perspective, it would be so much more efficient to have them all on one platform. So to have all the liquidity combined on one platform.

So, I mean, I mentioned the other problem for those markets, for those markets will Bitcoin, do this and that, where we could not reach the necessary liquidity to have serious markets. So liquidity is a big issue. So you want to have all the liquidity. You want to have all the markets in one platform. That's just way more efficient. But how do you agree on one platform?

So, I mean, obviously, we want to have FLA, but obviously others, they want to have their platform. So there are two ways, in my opinion. So the one way would be to raise a lot of capital and just to make this big land grab and get 80% on your platform by just outspending the competition. But there might be a new model and this would be set up a decentralized. platform where you have some ownership, maybe, and we can discuss this later, but it's still you can guarantee good conditions, or you can give certain guarantees about those who decide to join the platform. Maybe just to make this more clear.

So the other example is, or if you look outside the crypto space, another platform is Uber, for example. And there's Lyft, obviously, as a competitor. And there is, in principle, no good reason to have two competing platforms. You don't want to have liquidity of drivers split up in Uber and Lyft. As a user, you want to have all in one place. You don't want to have eBay or Airbnb. You don't want to look at five different platforms to find out what you need.

You want to have all the liquidity, all the flats, all the drivers, all the whatever, in one platform, that is way more efficient. However, you don't want to necessarily have this one company that controls everything because then you have the disadvantages that come with a monopoly and too much concentrated power so that they can make unreasonable fees or they can exclude someone from the local. platform who should not be excluded and stuff like that. So here, that is the big thing or big application I see for blockchain and Ethereum in the next years to build those platforms where everyone can agree on because they are not controlled by a single entity. Oh, I think, I think that's, that is a very powerful statement. and yeah I'm even trying to think through the implications of a statement like that

they seem like very multi-dimensional but it does seem to be the case that with a lot of blockchain applications not just on Ethereum but even with people trying to build permission networks it seems to be that you want as many people to join one platform as possible because that is when the true utility of the blockchain shines through as being one IT system on which all of us could coordinate. And yeah, maybe the future does enable a model in which we can not only bring liquidity in prediction markets on one platform or cars on one platform, but all sorts of other things, right? My statement is Uber, Airbnb, eBay, and so on, they will all be replaced within the next 10 to 20 years by, blockchain platforms.

Today's magic word is prognosis. That's P-R-O-G-N-O-S-I-S. Head over to less talkbitcoin.com to sign in, enter the magic word and claim your part of the listener reward. In theory, it's possible to see, it's possible to kind of argue about it. And I'm not aware of any good counter-arguments to this yet. But it does also seem to be the case that the engineering side of this technology is quite immature for something like that. Yeah, I mean, I think that is, there is the internet is a good comparison.

So I think we are now in 91 of the internet. And of course, some people could argue in 91, well, this is too slow. This will never replace. you can never watch movies over the internet and so on and well I guess you can yeah absolutely and I think it's such an exciting an exciting vision and I totally agree I think this idea that you can have a sort of a shared platform that then different people built their businesses on is extremely exciting um going a little bit more in-depth with Gnosis so we had the the centralized prediction market using Bitcoin, right?

And then we have Gnosis, which becomes decentralized. So can you talk through to us? What does that architecture look like? And how is that different from a centralized prediction market? Right. I guess again, there are those two components. There is one, the component that we can guarantee towards the user, that specific things work like they are written in code and not like,

like we want them. So I mean, in a centralized prediction market, you sent your bitcoins to someone. They stored the bitcoins. And in principle, I mean, in principle they could, or technically it would be possible that they just run away with it. In a decentralized prediction market, during the prediction, during the prediction the ether or Bitcoin tokens, I guess sooner or later there will be Bitcoin tokens on Ethereum and dollar tokens and so on. The money, the collateral, will be held in a smart contract and that contract defines exactly who will get the payout under what conditions. And usually you have an Oracle or you have an Oracle that will set this condition.

So if you do this canonical example, who's an ex-president, will Hillary Clinton be president? Yes, no. You put in one ether. You get two shares, one yes share, one no share. Yes, share will become one ether. If she becomes president, no share in the other case. And you will have an oracle that will just provide this data point. Is Hillary Clinton president?

Yes or no? and everything else will be triggered by the contracts and in a predictable and fair way. So the way perhaps we could imagine it is in a particular market like you took the example of the presidential election market, you might imagine let's say, I don't know, 1,000 people that are willing to bet on it. And there is either one or a set of smart contracts which is like a jack-year. in the middle and basically like like these people are kind of depositing money into that jackpot and getting shares in exchange for it and once the bet resolves people who are right get the get the full full money inside inside the jackpot right

yeah or they're they're part of how many shares they have of this so so basically like out of these 1,000 people like 500 people like 500 people might be owning shares for Hillary Clinton and then when they when they bought the share so they might have sent let's say 50 cent to the jackpot and bought and purchase the share when the result was not out or the price might also have evolved over time but then once the jackpot once the event is out that set of smart contracts takes takes input from an Oracle like Oracleize and then it gives away all of the winnings to the people who correctly predicted that particular event.

Right. Or, yeah, all the people who hold shares of the winning outcome, right? So shares will turn into money. And do you have any particular views on what kind of oracles you will use for prognosis at the beginning? Right. So what we are doing, we will create, or we already create an oracle market so different oracle providers will sign up and and offers their service and we already have

agreements with reality keys we spoke with oracle lies there's smart contracts they also provide an oracle service but also we are talking to well from alpha they are interested in providing their data for Ethereum and also companies like Bloomberg. So I totally expect that in a few years, or maybe less Bloomberg, will provide their data feed with a signature, and that's all you need. So you're not necessarily need, you don't need those oracles to know about this prediction market. So they do not have to interact directly with a prediction market.

They even do not have to interact with Ethereum itself. All they need to do is somewhere publish the outcomes with a signature that everyone knows that belongs to them. And as soon as they do that, then basically the signed piece of data that's a piece of data that says the price of the US dollar compared to euro or whatever was this and this at that point in time and there's a signature of Bloomberg beyond it. Then you can take this piece of data and put it into the Ethereum blockchain. Anyone can do it and the contract can devaluate step by step and say, yes, this is the

right signature and those are the data points and then it can execute whatever is. is built around it. I totally agree. I thought about this quite a lot and mentioned various people and had these discussion. I think Bloomberg is in such an interesting position there to provide exactly this kind of service. Now, I'm curious here, how would the company monetize that? Because if you have that kind of dissociation from publishing the data, signing it and the actual markets, like, there doesn't seem to be a clear way to directly monetize it.

Yeah, that's a good question. And I don't have the perfect answer yet. I mean, the obvious one is to charge per data point. But this model would not allow, this model would not allow to charge a fraction of the market. So it would only, it would not be possible to distinguish between a data point that settled something worth $10 or a data point that settled something worth $100 million. So that might be a challenge for a business model. Personally, I think, I suspect the fundamental feature that can drive, monetization in this market

is reliability. So let's say, let's say I build a prediction market and that prediction market needs the input of some event in the future. Now, I ideally want there to be

a strong guarantee that the data is going to come from a certain source. Right. And if I just choose to choose to take data from Bloomberg without paying them anything, then they have no need to guarantee reliability to me. And it's this need for my reliability

that there's certainty that I get the data from Bloomberg and it will happen that might drive me as the market creator to pay a bit of whatever profit I make to Bloomberg. Now, so that's one thing. And the second thing is, even in this Oracle market, I've actually talked to a few employees at Bloomberg, whether they'd be interested to do something like this.

And it turns out that Bloomberg is a company that is completely focused on selling these Bloomberg terminals. So these are, for people who are not aware, for traders, you can buy a terminal, which is a piece of hardware. And then on this piece of hardware, you can receive all sorts of financial information. and Bloomberg doesn't offer currently any choice if you want to just receive a subset of information. So, for example, you buy a Bloomberg terminal, you put like $2,000 per month into it, and then you receive all of the information over all of the markets. But if I just want to receive, say, data about London Brent crude market,

then there's no way today I can get just Bloomberg data on London Brent crude. I would have to spend the Bloomberg terminal. And they have kind of stuck to this business model for over 10 years, even though many different markets have demanded different solutions. And so it seems interesting that in this market, Wolfram Alpha actually seems a much more interesting player, which is more suited to this kind of application where we need data about very specific things, only at very specific times. This seems to be something that they are already doing, rather than Bloomberg, which is in a completely different field. It's good to have competition. There will be competition, so we'll see. Do you think reliability drives monetization here?

Yes. So reliability is, of course, extremely important. However, we also have thought about things to kind of make a system work, even if the oracle is not 100% reliable. So the default setup we want to use in NOSUS is that you use a centralized Oracle like Bloomberg or like Waltham-Alpha in the first days, reality keys. But there will be a short kind of challenge period. So the Oracle will publish this data point. And then there will be a short challenge period.

And if everyone agrees with this outcome, it is fine. And it will just be executed. Money will be paid out. And then it's kind of irreversible. But if during this challenge period, someone puts up some security deposit, they can trigger a decentralized Oracle. and they could, if this challenge is successful, they could revert the outcome.

So even if the Oracle is not 100% safe or trusted, then you could still use it in the model. However, you still have a point if the Oracle is not 100% safe or trusted, then you could still use it in the model. However, you still have a point if the if the Oracle, is more trusted than you could have this challenge period shorter and that would free free capital earlier so you have a little bit less capital costs so of course reliable oracle and uh yeah basically your reputation as an oracle will be something you can monetize let's take a short break to talk about jacks jacks is a cryptocurrency wallet created by the people at the central now there are Two cryptocurrencies that matter at their moment.

One is Bitcoin and one is Ether. But using them can be tricky, what wallet do you use? How do you secure them? Where did I leave my umbrella? It's all a big mess. And that's where Jacks comes in. Jacks is a unified wallet. It works across all your devices.

It works for their Android phone, Apple, iPhone. It works for your desktop computer. And they have browser extensions for Chrome and Firefox. And it works for both currencies at the same time. It works for Bitcoin. And it works for Ether. One of the things that makes Jacks as delightful as walking through the 5th, that Hongji Small of Paris on a Sunday morning and getting a whiff of fresh pastries,

is how they leverage HD wallets. So they use a 12-word single backup seed for all three currencies and make it super easy to sync your wallets across all your devices. So if you're using the Chrome extension or the desktop app, you just can whip out your phone, scan the QR code, and boom, your wallets are synced. And plus, the people at Jacks take your security very seriously. It's open source so anybody can look at the code. And plus, they never hold any customer funds.

All the keys are stored locally on the client side. So go to jacks.io, that's j-a-doublex.io, download the jack's wallet right now and understand what it's like to use the next generation wallet. We'd like to thank Jacks for those support of Epicenter. Martin, there's also been plans about agnosis, Dow, Agnosis Fund and a crowd sale.

Can you tell us about those? Yeah, of course. So to build this decentralized prediction market platform, our, yeah, our pass forward will be to also do a crowd sale. And of course, part of the reason is to raise money to do this. but also it's also about creating the right incentives to have this one platform that aggregates all the liquidity. To build such a platform, you want to have as much stakeholders and shareholders as possible. You want to align the incentives of everyone who is in the space to agree, let's coordinate.

on this platform and let's achieve by this the maximum possible efficiency. So yeah, that's why we will, that's why we will announce, I are announcing now that we are preparing a crowd sale. So we will, we aim currently for the weeks around the DEFCON, the next DEFCON 2, Shanghai, the big Ethereum. big Ethereum conference and we we want to fund two two entities. So first the NOSES DAO that will that will build the platform, that will run the platform, that will some degree govern the platform, and the second entity will be

the NOSES fund that will fund projects and we call it skins that that can or will be built on top of the platform. So you can build

kind of endless things you could do with the prediction market so you can do insurance, you can do sports betting, you can do forecasting of the weather you can do forecasting the next Supreme Court decisions

so there are endless possibilities you can do with the prediction market and each of them although they are fundamentally using the same mechanisms they will have very different user bases they will need very different

interfaces is super important to create interfaces that people understand and are easy usable. And they maybe even need to, they need to be in different jurisdictions to comply with different laws and regulations. So those, so that is our second entity. We want to crowd fund, this NOSIS fund that will invest. in those ventures. So let's say I'm a I participate in the crowd sale and I send some ether and get some

tokens in the gnosis Dow. Now does in the gnosis though do I expect a dividend of some sort in the future? Is it the case that the Dow will make profits of some sort and give me a dividend or is it like Bitcoin which is which has no dividends? So it will have some. some utility. So the tokens you will get in the NOSUS DAO will have three properties. So they will first be used to govern the platform. They will be second. Secondly, they will give you the right to create markets on top.

on top of the platform and they will give you the right to create markets without paying a fee on those markets. That's super important. I will go into this a little bit deeper, but yes, they will also give you a fraction of the shares, of the piece that are earned on the platform. So maybe let me describe a little bit, this fee model and why we think that that is super important. And it plays back to this idea, how can you create a platform where everyone can agree on? And as much as people could agree on such a platform. So you could have a model where you would charge, specific fee, 1%, half a percent, whatever, and distributed to the token holders.

However, if you aren't today a new, let's say you raise $2 million to build the sport betting thing, the question is, would you really build on top of a platform where you would forever need to pay, even if it's a low percentage of fees. So it's to some degree questionable. And often whether you would build on platform where you would have to pay fees forever. It pays an incentive to split now into four. Right, right, right.

So often a question that comes is, why cannot someone just copy the platform and remove the fee from it? and then run without the fee. And that is why we want to offer an option to buy into the platform as a long-term stakeholder and shareholder, and then use it without paying a fee. And in our claim, to make it simple is,

the oversimplification is the claim, We want to build a platform that creates value and does not extract value. What do you mean? What do you mean by this? So the idea is you have your money. You want to build something. And you might decide, well, instead of forking it and having the costs of forking it and then maintaining my own fork and having the disadvantage of not sharing the liquidity pool,

not sharing the same platform, I just buy. into the platform, so I buy so much tokens of the platform, and that gives me the right to create, let's say, a hundred markets a day, and I don't have to pay the fee on those hundred markets. So what does this mean? So that means that there will be, as long as people will want to use this platform, there will be demand for those tokens, because you need to hold those tokens and you need to hold hold them for, maybe you need to even lock them down to create those markets for free.

So the tokens only by this, by this demand, will have a value. Even if no fees, even if no one would do the other model. So the other model is if you don't want to invest capital and you don't want to make an upfront investment, you still can create markets and then pay your, 1% or 2% fee on those markets. But even if everyone would use the tokens and no revenue would be generated whatsoever, the tokens would still have a value because you just need them, you just need to hold them. There is this by demand for them.

So if more and more people want to use the platforms, the tokens will also gain in value. And that's our claim. We want to create value instead of extracting value. Yeah, I mean, so what you're saying is you can imagine this as like a country club or gentleman's club or whatever, right? Like, so there's a, there's like a club of people, a group of people that can create markets and do trades for free. But in order to enter that, enter that group, you need to have tokens above a certain amount, I assume. Right. Okay.

And so this is the argument that, um, The utility of the Gnosis token is like an entry ticket. It actually reminds me of the utility of Ether itself that you hold Ether because you want to pay gas fees. It's like an entry fee in order to do things on the Ethereum platform. And very similarly, Gnosis tokens will be an entry fee for this club in order that you can trade on it for free. Yeah, although if we would stick to the ether example, then it would be like, let's say, you would need to hold those ether and you would need to lock them down. And that would give you the right, let's say it would be like if you hold one ether for one day, that gives you the right to do one transaction for free. So that would be kind of the analogy.

So then there would be still demand for Ether and it would be still have value, although it would not be spent or there would be no transaction fees. And I guess that would be also for Ether and an interesting model. Okay. So do you have any interesting governance proposals for the DAO itself? Right. So obviously as a prediction market, we, We are super excited of the model to use the prediction market itself as the governance model.

And I mean, I guess that has been, this concept of few putarchy, where I never know exactly how to pronounce it. This has been, well, discussed for quite a while. And I guess we want to be the first entity that actually uses this, is using it. So the model we believe that this model of Turkey will not and cannot be used for small day-to-day decisions. And I would argue even voting is not is not suitable for. So it's in my opinion not a suitable model to have 10,000 token holders and to let them vote on every small decision. And with Furtaki, it's even more problematic because you can only, in my opinion, make good decisions with Futaki if there are longer, bigger long-term implications of a decision. So the way we will set our DAO up is that we have a core team, and this core team can make by default proposals.

And by default, those proposals will be accepted. However, it's always possible to challenge or to kind of veto such a proposal and start this Futarki. mechanism. And this Futarki mechanism would work. Let's say there's a proposal, a bigger proposal to spend so and so much over the next years or over the next month on those projects. And someone disagrees with that. Then this Futarki mechanism would basically create two versions of nosis tokens. It would create nosis tokens under the condition. and that's kind of how a prediction market works. It would create two tokens, one under the condition that the decision is implemented, and one that it is not implemented. And then there will be a trading period for a week or two. And then automatically that decision will be made that would maximize or increase the value of NOS tokens.

So if NOSC tokens are more, have a higher value under the condition that it will be implemented, then it will be implemented, otherwise it will not be implemented. And eventually, this mechanism can also be used to exchange the core team. So we will suggest that we will be the first, or we will be the core team that can by default make. decisions and make those proposals however with this futarkey mechanism it will be possible to challenge or to exchange the core team with the same mechanism so if NOS tokens would have a higher value under the condition that there would be a different core team then that can be done yeah that's that's very exciting and I look forward to to actually seeing the the future key

mechanisms in action and see how they play out. I'm sure it's going to take quite a lot of time and playing around and figuring out, especially user interface and user experience to get this right. But I think once we get it right, it will be super powerful. So you mentioned a core team and that kind of brings up an important issue here, right? So as you're now doing a token sale, what's going to be the relationship and the kind of business model for you guys? the founders and the company, and how does that relate to the token holders?

Right. So also there, we came up with the innovation. So our idea is that those who buy the tokens can voluntarily decide in the moment they buy a token. So they will spend one ether get 100 tokens. And then they have the option. they can decide on their own to create another more tokens up to 100, so ranging from 0 to 100, that would be issued in addition and would be sent to the core team. And the idea or the reasoning behind it is that maybe tokens are more valuable if there is is a core team or I mean it's like a startup so

so you can if you want to if you want to invest in a startup of course you on the one hand you want to have as much equity as possible but it's also it's also a good idea

or some people say they would only put money into something where there is a core team that has at least 10 or 30 or 40 or 50% in all an interest. Okay, that is super fascinating. So essentially what you're saying is people put in money, right? I get my hundred tokens and I say, okay, I'm going to give 10 additional or 30 additional

etc. to the team. So essentially it's sort of a choose your own dilution model. But also, of course, what this brings up is that you have a big free rider problem. So economically, probably the rational thing to do for me. me would be to not give any tokens to the core team. So it's not the free rider problem because you will get, if you put in one ether, you will get 100 tokens anyway.

Anyways. So you don't have to use your own tokens to give a fraction of your own tokens to the core team. You would just generate another X token. So if you decide that ratio is fair, then to some degree everyone, everyone will. what would a solution. Yeah, yeah, you're totally right. Yeah, no, I got that wrong.

No, that's very true. And that that's an extremely interesting model. Does that mean those additional tokens would go to the founding team sort of as like equity in the thing? And then they would get paid from the ether, you know, their salaries and things like that? I guess it's important to note that those that we try to go or we will go through that we see those tokens as something as a software that is necessary to use the platform or you with so but but yes it will go it will go to the core team so the idea is that and we will have kind of long-term vesting so only people who

at least spend three years working on it, and the core team will eventually get those tokens. But yes, in addition, the money that is collected will be used to pay regular salaries. Now, a last topic that we should probably address because many people will have that question, there is a prediction market or a project for a prediction market at least on Ethereum already.

that has gotten quite a lot of attention because they did a successful crowd funding campaign as well, which is Auger. Can you just very briefly address, like, what's the difference between Gnosis and Auger? Sure, sure. So I would say there are maybe three differences. First, of course, they're a similar thing. It's also working on Ethereum, and they also have the goal to build a decentralized prediction market. However, so our Oracle model is very different.

So they have this model where every auger token holder would vote on every and every outcome. And we think that is simply not efficient. So for a fair lay, for example, currently there are 2,000 events created. per day. And the claim of auger is every month, every token holder would vote on the outcome of events. You can simply calculate 30. So in 30 days, only Falay and Falay is not that big yet. It would be 60,000 events where you would vote on. So that would not work. in my opinion, or in our opinion, or at least it would be very inefficient.

So again, our model is to use this as a default, use centralized oracles, like again, Bloomberg, Wolfram Alpha, and only have as a backup mechanism the decentralized, decentralized and decentralized oracle. So that is point number one. Point number two is that we focus on being a platform where it should be super easy to build your applications on top. So again, there's so much you can do with the prediction market, some insurance, flight insurance markets, some bounty markets for finding bucks in a contract,

some credit peer-to-peer lending, credit default swap market, and so on and so on. And we want to provide a tool set to make it very easy for developers, and eventually even make it so easy that you don't even need to develop. to build such market. So our claim is eventually it should be as easy as today setting up a WordPress blog. So if you're interested in a topic with a few clicks, you can set up your WordPress block on a specific topic. And similar to that, it should be as easy to set up your prediction market on a specific topic with noses. Okay, that was point two and point three is I guess this other platform.

platform model where it hopefully will be easier to coordinate on to agree that those rules that you would like to make midterm or long-term commitment to those rules because you know if I am a share token holder to that degree then I can create unlimited markets without losing value to the platform and still giving the platform value that that That's a beautiful part of it, in my opinion. Okay, Martin, thanks so much for coming on. There is extremely interesting talking about Gnosis, prediction markets fairly, and the exciting future that's ahead of us.

Now, of course, we will link to the website, and we look forward very much to the news and the developments that will come up with the crowdfunding campaign. And I'm sure a lot of people that might not be as familiar with Gnosis, at the moment we'll become a lot more acquainted as the project kind of comes out and and does a crowdfunding campaign that hopefully has a happier ending than the last tao so thanks so much for coming on martin right thank you thank you and with that that's it so thanks so thanks so thanks so much for listening we will be back next week so episode of bitcoin's part

of the ltb network you can find this show and lots of others on let's talkbbccom we put out new episodes me Monday. You can get it, of course, with all your favorite podcast apps or watch the videos on YouTube.com slash episode of Bitcoin. And that's it. So we look forward to seeing me back next week.