Computer scientist Ed Felten has done a lot of work on Bitcoin over the years, but his latest project looks to step beyond mere currency, applying the principles of Bitcoin to the broader spread of information through the world. In a blog post today, the Princeton professor announced a project to build a prediction market based on the anonymous and self-arbitrating principles of Bitcoin. Similar to Intrade, the market will trade shares in possible event outcomes (a particular candidate winning an election, for instance) that only pay off if the outcome comes to pass. Felten says the contract-signing and consensus mechanisms that power Bitcoin are ideal for establishing a prediction market free of centralized authority.
Predictions markets are often discussed by economists as a way of formalizing the spread of information — but when brought into the real world, centralized markets like Intrade have frequently been shut down by the authorities as de facto gambling. Felten's setup would be harder to shutdown, since the transactions would be peer-to-peer and there would be no central authority to target. More broadly, Felten is a skeptic of Bitcoin, saying the current system may not be as stable as many proponents believe, but that skepticism hasn't slowed the commodity's skyrocketing value. The going rate for a single bitcoin cleared $1,200 this morning.