[LINK] Intrade Shuts Down

post by Douglas_Reay · 2013-03-15T09:12:36.925Z · score: 9 (9 votes) · LW · GW · Legacy · 30 comments

Intrade, the prediction market website, has shutdown.  According to their website:

With sincere regret we must inform you that due to circumstances recently discovered we must immediately cease trading activity on www.intrade.com.

These circumstances require immediate further investigation, and may include financial irregularities which in accordance with Irish law oblige the directors to take the following actions:

During the upcoming weeks, we will investigate these circumstances further and determine the necessary course of action.

 

Here's a link to an article on the slashdot website with more information about it:

http://slashdot.org/topic/bi/intrade-shuts-down-under-murky-circumstances/

 

Has anyone looked into the feasibility of creating an open source version of something similar, using a distributed application and a microcurrency (such as bitcoin), that couldn't be shutdown?

30 comments

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comment by gwern · 2013-03-15T15:41:19.179Z · score: 7 (7 votes) · LW(p) · GW(p)

Has anyone looked into the feasibility of creating an open source version of something similar, using a distributed application and a microcurrency (such as bitcoin), that couldn't be shutdown?

Yes: https://en.bitcoin.it/wiki/Category:Predictions_Markets But the current leading Bitcoin prediction market sucks so badly it cannot be safely used.

comment by Douglas_Reay · 2013-03-15T18:06:14.507Z · score: 1 (1 votes) · LW(p) · GW(p)

If by "the current leading Bitcoin predictions market" you mean Bets of Bitcoin, that's a single website, not a distributed application, and is susceptible to being shut down.

comment by gwern · 2013-03-15T18:32:39.786Z · score: 1 (1 votes) · LW(p) · GW(p)

I thought the distributed part referred to Bitcoin or its epigones.

I don't think there's any 'distributed application' which seems fitted for a prediction market, except, well, a website. Really, if Bets of Bitcoin were to change its payout rules and reboot as a Tor hidden service, that'd basically be ideal (at least currently, while combinatorial prediction markets are being worked out).

comment by Douglas_Reay · 2013-03-15T19:10:13.898Z · score: 7 (7 votes) · LW(p) · GW(p)

I don't think there's any 'distributed application' which seems fitted for a prediction market

I don't see any intrinsic reason why one couldn't be written. Splitting the problem into pieces:

Posing questions A distributed database could hold these

Validating questions You'd want some form of reputation system or elected panel of moderators, to verify which newly posed questions had the required properties (eg not a duplicate, clear criteria on how the question is to be resolved, etc). Again, elections and webs of trust can both be handled in a distributed fashion with no centralised authority.

Resolving questions Marking which side of the 'bet' wins, or if it is still unresolved. Similar issues to validating, though more at stake. Need perhaps the possibility of submissions of evidence and counter-submissions.

Placing bets Easiest way would be for the person to place their sum of money in escrow, encrypted with the key spread out and requiring X out of Y holders of the key parts to release it upon resolution. Alternatively allow people to purchase insurance from 'market makers' who, in turn, have large sums in escrow backing the bets. No central authority or website required, though you could certainly use websites as convenience aggregator gateways to the underlying distributed data.

Metadata Keeping track of reputations of who is winning how much, which bets are busy or have a lot staked upon them, etc.

Can you think of an aspect of having a prediction market that REQUIRES there to be a single central website?

comment by gwern · 2013-03-15T19:18:48.602Z · score: 4 (4 votes) · LW(p) · GW(p)

Can you think of an aspect of having a prediction market that REQUIRES there to be a single central website?

Merely a Chesterton's fence: the observation that fully distributed websites are rarer than hen's teeth, there have been recent failures (anyone using Diaspora?), and there's almost no infrastructure anywhere which relies purely on distributed webs of trust and escrow despite PGP and GPG being around for decades. (Debian sorta works on a web of trust for developers; it's also far from the largest Linux distribution these days.)

Why didn't Silk Road spring up instantly after Bitcoin was released? Why is it a single website? Why does it use PGP keys for encrypting messages between buyers and sellers only? Why do all its competitors replicate this centralized single site model?

comment by Douglas_Reay · 2013-03-15T21:31:23.832Z · score: 1 (1 votes) · LW(p) · GW(p)

My immediate thought is: because it is easier

For a distributed service of this sort to spring up 'naturally' would require not just a threat model that requires it, but a critical mass of people who care sufficiently about the threat.

Crypt21 Cryptographic Library - "This ain't your daddy's crypto!"

comment by gwern · 2013-03-15T21:46:59.858Z · score: 4 (4 votes) · LW(p) · GW(p)

For a distributed service of this sort to spring up 'naturally' would require not just a threat model that requires it, but a critical mass of people who care sufficiently about the threat.

And apparently they don't exist. That's a pretty good reason.

comment by Douglas_Reay · 2013-03-15T22:04:50.053Z · score: 5 (5 votes) · LW(p) · GW(p)

sighs Yes, you're right.

I once wrote an open source cryptographic system that would let casinos prove to their customers that the casinos weren't fixing the random generation behind the wheel spins, dice and card deals.

There was no interest in it. Not from the casinos OR from the customers who were betting their money.

There's probably an interesting bias behind whether people properly take into account threats that are low frequency but high penalty.

comment by Desrtopa · 2013-03-16T01:44:36.529Z · score: 8 (8 votes) · LW(p) · GW(p)

I think there's probably not much overlap between the sort of people who would understand the meaning of an open source cryptographic system enough to trust it, and people who frequent casinos, except probably for card counting.

comment by Error · 2013-03-15T22:16:54.115Z · score: 7 (7 votes) · LW(p) · GW(p)

If anything they seem to overemphasize low frequency, high-penalty threats. Or at least low-frequency, high-drama ones. Consider gun murder, terrorism, and child kidnapping; versus car accidents or family sexual abuse.

comment by Viliam_Bur · 2013-03-16T12:32:09.055Z · score: 6 (6 votes) · LW(p) · GW(p)

Maybe it is just a black-and-white thinking from most people. Either you trust online casinos, or you don't. If you don't, you don't use them. If you do, you don't use special cryptography to prove that they don't cheat.

And the few people who understand cryptography and want to use online casinos and have a healthy degree of suspicion... are not enough to create a profitable market.

You could create a software which is easy enough to use, and then it would be used both by people with the healthy degree of suspicion and people who don't care about safety. But 99% of them would also use a software which is easy to use and not provably safe... which is much cheaper to develop.

comment by gwern · 2013-03-15T23:44:39.532Z · score: 6 (6 votes) · LW(p) · GW(p)

There was no interest in it. Not from the casinos OR from the customers who were betting their money.

What's interesting here is that this was, at least initially, the motivation for SatoshiDice: that you could prove their lottery was fair. It's exploded in popularity far more than that seems to warrant. I've never used it, so I don't know how convenient it is, but if it's as convenient as it sounds (no need to register accounts or log in, just send bitcoins to addresses, AFAIK), that's more evidence that convenience is Really Important.

comment by Eugine_Nier · 2013-03-16T02:35:34.947Z · score: 2 (2 votes) · LW(p) · GW(p)

There's probably an interesting bias behind whether people properly take into account threats that are low frequency but high penalty.

Maybe poker players. Also how practical is your system, e.g., how long would it take to shuffle a deck of cards with it?

comment by Pfft · 2013-03-18T16:55:55.469Z · score: 0 (0 votes) · LW(p) · GW(p)

But there is SatoshiDICE, which is designed along similar principles and seems to get some use.

I guess part of the problem is that people who play roulette are not very sophisticated about it, since it's an expected loss anyway. I could imagine poker players being interested, but this protocol doesn't really fit: it reveals what the deck was at the end of the round (players who folded do not want other players to know what their hand was). I think that the attack that online poker places worry the most about is colluding players, and P2P cryptography doesn't help there.

comment by ChristianKl · 2013-03-18T20:33:02.604Z · score: 0 (0 votes) · LW(p) · GW(p)

You propose to create a system that has the potential to be highly dangerous and illegal. In such a system I don't think it's easy to set up a web of trusts and trustworthy elections.

In a straightforward manner, the system would allow anoymous trading on stock options. We have laws against insider trading that you can't effectively enforce when you have an anoymous prediction market.

If I can anonymously place a bet of $1,000,000 that a specific person dies, than I also have an assassination market.

comment by Douglas_Reay · 2013-03-19T10:15:49.191Z · score: 1 (1 votes) · LW(p) · GW(p)

I note that perfectly legal bookmakers in Ireland already accept bets that President Obama will be assassinated while in office. link

It isn't precisely an assassination market, because people other than the assassin can join in the bet, diluting the odds.

But, yes, I take your point. With a single central authority, such bets could be rejected as invalid. With multiple authorities, it would require all of them to reject it. On the other hand, authorities that don't reject such bets as invalid might end up with a poor reputation for reliability.

comment by Eugine_Nier · 2013-03-16T02:36:01.056Z · score: 0 (0 votes) · LW(p) · GW(p)

Can you think of an aspect of having a prediction market that REQUIRES there to be a single central website?

How would you deal with Validating and especially Resolving Questions?

comment by Douglas_Reay · 2013-03-16T06:55:50.918Z · score: 1 (1 votes) · LW(p) · GW(p)

One way to deal with Validating Questions would be to automatically allow questions that match an approved list of formats. To add to or amend the list of formats you'd circulate a proposed definition and allow other proposals to be added, then let people meeting some criteria (eg users with more than X bitcoins in escrow on currently outstanding bets) to vote the different definitions up or down over a 7 day period.

So, for example, one format might be: {DOW_JONES} on {FUTURE_DAY} will match {PRICE_RANGE}

Where, for example, {DOW_JONES} for a particular {FUTURE_DAY} is defined as the closing price of the Dow Jones Industrial Average, as retrieved at noon on the day after {FUTURE_DAY} by looking at a list of 5 URLs such as:

https://www.google.com/finance/historical?cid=983582&startdate=Dec+25%2C+2012&enddate=Dec+26%2C+2012

parsing each one via a supplied perl regexp or similar to get just a single number, and then taking the median value of that number.

In effect, the bet would be actually about values on a number of different web pages, rather than about the Dow Jones index itself, and the people placing the bets would be assuming the risk that the web pages on the resolution day didn't reflect the actual stockmarket price they expected it to.

comment by Eugine_Nier · 2013-03-16T18:03:09.013Z · score: 0 (0 votes) · LW(p) · GW(p)

This greatly limits the kind of questions that can be asked.

comment by Douglas_Reay · 2013-03-16T18:30:34.048Z · score: 1 (1 votes) · LW(p) · GW(p)

Another way would be to have different 'authorities'. Each authority can pick which proposed questions are valid for that authority. If someone wishes to place a bet on a question that's been validated by at least one authority, then they get a list of authorities available for that question, and choose which one to use (which may be influenced by whether there are others betting via that authority in the other direction).

Different authorities could use different systems. So one might required the pre-agreed format style, another might use voting to resolve and allow any question, a third might use a panel of experts and allow free text questions by only in one domain (eg sports).

A reputation system could keep track of how popular different authorities are for different domains of question.

comment by ThrustVectoring · 2013-03-17T12:20:07.039Z · score: 2 (2 votes) · LW(p) · GW(p)

You'd have to pay a percentage of proceeds to the authorities in order to monetize staying an authority over selling your reputation for a guaranteed win in bitcoins. Especially in a single-authority system.

The basketball score is 94-72 late in the fourth quarter. "Second team wins" contracts go down to pennies on the dollar. But, the arbitrating authority has the fix in for "Second team wins", and buys out massive numbers of the same contract, then takes vast quantities of money out of the system.

For sports, however, there's an easy solution. Just have Google be your authority. So, for figuring out who won the Oregon-UCLA game last night, the system would pay out on the results of the Google search "Oregon UCLA basketball score" as of a certain time. Reading your earlier posts this seems like what you already described, though.

comment by Douglas_Reay · 2013-03-17T20:39:57.538Z · score: 1 (1 votes) · LW(p) · GW(p)

You'd have to pay a percentage of proceeds to the authorities in order to monetize staying an authority over selling your reputation for a guaranteed win in bitcoins.

Depends on the authority type. The pre-agreed format type of authority shouldn't need paying; nor one that relies upon mass voting to make decisions. Because in neither case is there a small group of controllers with the power to 'fix' the result.

One that uses a panel of experts will need some way to prevent a cabal of experts colluding together, and some form of reward for their time. The reward might be the reputation they gain from being seen as an expert (like with WikiPedia). The anti-collusion measure might be by having quite a large panel and selecting 7 members from it at random for each decision (preferably, selected only after the bets have been laid). However, yes, the system ought to be set up in a sufficiently flexible manner to allow each authority to be able to set in advance a rate of 'cut' for bets using them as the decider (with competition between authorities keeping such rates low).

comment by ChristianKl · 2013-03-18T20:36:42.008Z · score: 0 (0 votes) · LW(p) · GW(p)

So, for figuring out who won the Oregon-UCLA game last night, the system would pay out on the results of the Google search "Oregon UCLA basketball score" as of a certain time.

You need to have someone that you trust to perform that Google search and read it and then decide who won the money. Otherwise the two people who bet might disagree on what the Google search says.

comment by Douglas_Reay · 2013-03-19T10:00:42.791Z · score: 0 (0 votes) · LW(p) · GW(p)

A quick search shows that there are lots of websites providing a ticker of sports results in XML form. Rather than doing a google search which, as you say, would need interpretation, I think it would be more reliable to pick in advance a basket of such XML feeds, where you know in advance the precise format they'll use to announce the result.

comment by ikrase · 2013-03-18T01:30:44.828Z · score: 0 (0 votes) · LW(p) · GW(p)

Do we know what happened? It sounds like crooked bookkeeping on the part of Intrade.

comment by westward · 2013-04-06T06:57:07.755Z · score: 0 (0 votes) · LW(p) · GW(p)

Recent evidence supports your idea. Intrade is missing $700K from its books.

http://www.intrade.com/v4/home/

comment by gwern · 2013-04-06T15:58:30.960Z · score: 2 (2 votes) · LW(p) · GW(p)

Archiving for posterity:

To Our Customers:

April 5, 2013

We have now concluded the initial stages of our investigations about the financial status of the Company, and it appears that the Company is in a cash “shortfall” position of approximately US $700,000 when comparing all cash on hand in Company and Member bank accounts with Member account balances on the Exchange system.

If the Company is not able to rectify this cash shortfall position very quickly, the Company will become insolvent and therefore is very likely to go into liquidation.

Since March 10, 2013, the Company has been operating with new funds invested by current shareholders.

We are now very confident about the reasons which caused the current circumstance of the Company; however, for legal reasons we are not yet at liberty to document them to you. I can confirm that the Company, if it is able, intends to vigorously pursue two substantial monetary claims against two distinct parties for an aggregate amount greater than $3,500,000.

Because of these circumstances, the Company has now contacted all members with account balances greater than $1000, and proposed a “forbearance” arrangement between these members and the Company, which if sufficient members agree, would allow the Company to remain solvent.

The successful recovery in the future of even part of our intended legal claims, ought to allow the Company to provide full restitution to Members. We would also hope at that time, that the Company would be in a position to resume commercial operations. For now, we are in active discussions with current shareholders and possible new investors as we seek further investment in the Company to strengthen our financial position.

Please note that while we will try our very best to ultimately return 100% of Members’ settled account balances, we can make no promise or assurance that we will be able to do so. It is possible that, even though we gain a sufficient number of Members to agree to provide forbearance to the Company, the Company may go into liquidation in the future.

By Tuesday, April 16, 2013, we expect to be able to inform our members if sufficient forbearance has been achieved. If so, we will then resume limited operations of the Company and we will be able to process requests for withdrawals as agreed. If sufficient forbearance has not been achieved, it seems extremely likely that the Company will be forced into liquidation.

I am truly grateful for your personal expressions of support and your patience as we try to deal with this unfortunate circumstance. I appreciate the feedback provided, and I intend to exceed your expectations as we try to correct this situation. I hope that you decide to stand by our side in the effort to preserve the Company and in our efforts to pursue the complete restitution of all of your funds.

Sincerely,

Ronald Bernstein

Director, Intrade


March 24, 2013

There is little new information to that provided previously on March 10, 2013. We believe our continuing investigations will be concluded no later than April 5, 2013.

With the advice of counsel, the Directors will determine the appropriate further course(s) of action required. Formal legal inquiries have already been undertaken. To fully protect the Company’s legal positions, we are unable to comment further at this time.

We are also in the process of retaining new accountants and auditors. Company bank accounts remain frozen until such time as we clearly understand the financial position of the Company. Therefore it is still not possible to make any payments to members before the investigations have been concluded.

The Company will continue the maintenance and technology operations of the exchange system so that all information is preserved properly.

We are not able to provide telephone support or live help services at this time; please contact the Company for all inquiries by email at: accountservices@intrade.com

Sincerely,

The Directors of Intrade the Prediction Market Limited


March 10, 2013

With sincere regret we must inform you that due to circumstances recently discovered we must immediately cease trading activity on www.intrade.com.

These circumstances require immediate further investigation, and may include financial irregularities which in accordance with Irish law oblige the directors to take the following actions:

  • Cease exchange trading on the website immediately.
  • Settle all open positions and calculate the settled account value of all Member accounts immediately.
  • Cease all banking transactions for all existing Company accounts immediately.

During the upcoming weeks, we will investigate these circumstances further and determine the necessary course of action.

To mitigate any further risk to members’ accounts, we have closed and settled all open contracts at fair market value as of the close of business on March 10, 2013, in accordance with the Terms and Conditions of our customers’ use of the website. You may view your account details and settled account balances by logging into the website.

At this time and until further notice, it is not possible to make any payments to members in accordance with their settled account balance until the investigations have concluded.

The Company will continue the maintenance and technology operations of the exchange system so that all information is preserved properly.

We are not able to provide telephone support or live help services at this time, please contact the company by email at: accountservices@intrade.com

We appreciate your custom and support over the years. We are committed to reporting faithfully the status of things as they are clarified and hope you will bear with us as we do all we can to resume operations as promptly as possible.

Sincerely,

The Board of Directors of Intrade the Prediction Market Limited

comment by Douglas_Reay · 2013-08-23T11:52:42.579Z · score: 1 (1 votes) · LW(p) · GW(p)

TL;DR: summary: they have not been forced into liquidation yet, and still might come back one day.

July 11, 2013

Thank you very much for your patience and support as we work our way through difficult circumstances.

Customer withdrawals to date have been met with accuracy and efficiency. The Company has taken steps to significantly improve internal banking and bookkeeping procedures, by adding specific safeguards and business procedures to fully and absolutely protect segregated customer funds.

The Company has authorized the preparation of its’ 2012 audited accounts, these are estimated to be completed and filed by August 16th, 2013.

We estimate that the Company has sufficient funds to advance its’ legal claims at least through the end of the year. We are not able at this time to report on current progress.

Business Development initiatives are also being progressed via productive and ongoing discussions with potential partners.

We will continue to keep you informed as things develop.

Sincerely,

Ronald Bernstein Director, Intrade

May 20, 2013

Intrade is now processing withdrawals for all customers - including US account holders. You can log into your account and request a withdrawal on the My Intrade page of the website. Please note that at this time we are processing withdrawals by bank wire only - we are not processing withdrawals by check or any other method of payment.

For more information on withdrawing the balance of your Intrade please see these FAQ's. If you have any further questions please send an email to accountservices@intrade.com.

May 6, 2013

We have begun processing withdrawals for the account holders who agreed to forbearance. On Wednesday, May 8th, we will begin processing withdrawals for all non-US accounts. On Wednesday you will be able to log into your account and request a withdrawal on the My Intrade page of the website. Please note that at this time we are processing withdrawals by bank wire only - we are not processing check withdrawals.

On Monday, May 20th, we will resume processing withdrawals from US accounts. Full details on how US customers can withdraw their funds will be published on the Intrade homepage closer to the time.

These dates have been set based on the expected number of withdrawals and the resources available to process these requests. Depending on the number of withdrawal requests received, Intrade reserves the right to extend these dates if required. Please keep an eye on the Intrade homepage for further updates.

April 30, 2013

As of the close of business on April 29th, 2013, Intrade has received agreements of forbearance with certain members in an amount sufficient to allow the Company to remain solvent.

In the next few days, instructions will be provided accordingly so that members’ non-waived funds may be returned as quickly as possible. We expect to begin processing withdrawals on Thursday, May 2, 2013.

We are deeply appreciative of your expressions of support, as we now turn our attention to the pursuit of restitution of all member funds. Thank You.

Sincerely,

Ronald Bernstein Director, Intrade

April 22, 2013

Since April 5, 2013, we have been working on the creation of a forbearance agreement with Members that, if accepted in a sufficient amount, would allow the Company to remain solvent; to immediately pay Members at least 50% of their settled account balances; and to prosecute various legal claims against parties we believe have harmed the Company.

At this time, we are very close to achieving the required acceptance. As such, it has been determined that the most responsible action is to extend the deadline previously established to allow time to complete discussions with some Members who have not yet conclusively resolved to accept the forbearance arrangement. It is our hope that their agreement now will help us achieve the required total amount.

Please note that even partial re-payments of member funds could not begin until it has been confirmed that sufficient funds in aggregate have been agreed to be waived.

In addition to these efforts, we have been engaged in serious discussions with at least one investment firm about investment into and/or partnership with Intrade. Any arrangement contemplated by a new transaction would only be considered by the Company if it preserved AT LEAST the benefits of the terms of the currently proposed forbearance arrangement. Our discussions also include the possibility of no forbearance by members, with some contingencies.

In the very near future, we hope to announce either 1/ the accomplishment of forbearance agreements in a sufficient amount to allow partial repayments of member funds, or 2/ the relevant terms of a proposed transaction involving the Company which would be of greater benefit to our Members than the forbearance plan.

In the meantime, we will continue to explore every avenue we can to preserve and improve the situation for members.

We will provide a further update here no later than April 30, 2013.

Sincerely,

Ronald Bernstein Director, Intrade

comment by ChristianKl · 2013-03-18T20:38:53.996Z · score: 0 (0 votes) · LW(p) · GW(p)

It could also be something like violation of guidelines to protect against money laundering.

comment by ikrase · 2013-03-18T22:09:58.760Z · score: 0 (0 votes) · LW(p) · GW(p)

That also possible. They were very vague. I hope we can get a viable (even if not distributed, and hopefully not using bitcoins) replacement.