One of the most frequently asked questions we receive is "How does Zeitgeist compare to other prediction markets?". This documentation aims at answering this question in the most objective, and technically focused way possible. Of course, since you're reading this on Zeitgeist's own documentation, some bias does exist.
Bitcoin's Discrete Log Contracts
Discrete Log Contracts (DLC) are a form of scriptless-scripts that are structured to look like normal multisignature transactions on Bitcoin's blockchain. As explained by Coindesk, they can be used to place bets between two accounts.
The way this is accomplished is by two accounts sending funds to a multi-signature address on Bitcoin. The transaction then has the condition of settling when the outcome is reported by a designated oracle that signs the hash of the winning outcome and publishes it. The person who made the winning bid can then use the oracle's signed message to withdraw the funds from the multi-signature address.
While DLCs can be used to place bets between two parties, there are a number of ways they are more primitive than a full-fledged protocol for prediction markets such as Zeitgeist.
Some ways that DLCs are weaker than Zeitgeist:
- The oracle is completely trusted, there is no way to later dispute the oracle result if one of the sides disagrees with the outcome that the oracle signed.
- DLCs require off-chain communication for the bettor to find the counterparty to the contract. It does not provide any inherent way to match two parties that want to take the opposite sides of a bet, like a full-fledged prediction market protocol can do.
- DLCs do not allow for either side to exit early, or increase the amount they have at stake. Once a DLC is created, it's like a static agreement.
- DLCs are necessarily slow to execute, and therefore cannot be used for trading on real-time events that might change from one minute to the next (such as the outcome of sports matches and similar).
One way that DLCs are good, however, is the privacy aspect. Since DLCs look like simple multisignature accounts on Bitcoin, the terms of the bet remains confidential and only necessarily shared between the counterparties and the oracle. As much as confidentiality is a desirable property of any blockchain application, all current prediction market protocols take the approach that the market terms must be transparent. Transparency is necessary for prediction market protocols because they are resolved in a decentralized way, where the actors helping to resolve the market in case of disputes must have access to the full terms of the agreement.