Prediction markets on elections or sports are fiat misdirections of attention and liquidity. The significance of one puppet or another as president of the USA is about as significant as the outcome of a sports match. If prediction markets are going to be tools to forecast the future, then the questions themselves must be focused on the potential outcomes of significant events. Crowdsourcing the questions and enabling anyone to ask is just as important as the ability for anyone to participate by betting. Might this where nostr can play a critical role? Censorship resistance enables people to ask (and answer) important questions that fiat mechanisms might try to censor. Enabling anybody to ask questions (by providing liquidity for shares via a LMSR AMM, could be secured over DLCs) and incentivising anyone to answer (by enabling anyone to place a bet) could facilitate a decentralised and censorship resistant forecasting mechanism.

Hashrate go up Difficulty go up Variance go up View quoted note →

“Great truths do not take hold of the hearts of the masses. And now, as the world is in error, how shall I, though I know the true path, how shall I guide? If I know that I cannot succeed and yet try to force success, this world would be but another source of error. Better then to desist and strive no more. But if I do not strive, who will?” — Zhuangzi

Hedging hashrate reduces Bitcoin  mining pool block reward variance. This chart shows the expected earnings of a pool if they bet against themselves every block for one difficulty epoch. By hedging hashrate every block, pools reduce 2 standard deviations of risk to less than 1.

If you’re not hedging, you’re hoping. Hope is not a business strategy to deal with variance risk embedded within Bitcoin Make money less than 1% of the time vs make money more than 99% of the time? I would much rather not wait 61 hours for my next payout. I would much rather be making money most of the time. If you’re mining for ocean then you can expect to wait, but that doesn’t stop you from hedging. Any miner can turn their dull waiting time into an opportunity! By betting against your pool, you can make money regardless if you mine the next block or not, and thus hedge your hashrate. By betting against your own pool you ensure cash flow without further centralizing hashrate. Miners want stable cashflow (FPPS dominance is evidence of this enough) and small pools with high variance have near certainty of gamblers ruin if they pay FPPS payouts. Hashrate hedging can be employed to enable miners to lower variance without adding too much risk to the pool operator like FPPS. Hedging hashrate is a win-win for the mining ecosystem. Miners can direct their hashrate to smaller pools and smaller pools can be profitable despite high variance. By hedging hashrate a pool doesn’t need to risk gamblers ruin by offering stable FPPS payouts, and miners don’t need to worry about cash flow risk due to variance.

If a miner directs their hashrate to a pool with 5% hashrate, they only get paid 5% of the time (assuming proportional payouts). If a miner hedges their hashrate (by betting against their own pool) then they get paid 95% of the time. Hedging hashrate therefore reduces cash flow variance for miners in pools with proportional payouts. Which is preferable? Make money 5% of the time OR make money 95% of the time?