[lololomg]

The bit that I don't get is how Ethereum will communicate with the outside world.

Example: I bet a friend that Hillary will be the next president. We create an Ethereum app/contract/whatever and fund it with $50 (worth of 'ether') each. When the election rolls around, we want to pay the winner automatically, but how can you do that?

You could have a rule to check some 'official' source on the internet but that data could easily be faked or unavailable. Then what?

If this kind of app is not suited to Etherium, then what are some good examples of Etherium's capabilities?

[natrius]

Gnosis is a prediction market platform that is live on Ethereum right now. http://groupgnosis.com/

There are a few ways to act as the oracle who indicates what the outcome of an event was. You can tell users to just trust you, which is what every centralized prediction market does with few problems. You can pick a few trusted oracles and require a majority vote. Or you can use any data that is served over a TLS connection so the outcome can be cryptographically verified, which is what Oraclize.it does. All of these approaches work for Gnosis markets.

[lololomg]

All of this was already possible without Ethereum. I don't see what Etherium adds to the equation here? For example with Bitcoin you can already create escrow accounts with trusted third parties (aka oracles) being the decider.

[natrius]

Prediction markets are bets among arbitrary, dynamic sets of stakeholders. The price of a bet depends on the bets that have already been made. Both of these characteristics require state to be maintained across transactions in ways that Bitcoin does not allow.

[lololomg]

I don't follow what you mean, there are loads of bitcoin prediction markets. Adding Etherium doesn't give you anything new.

[natrius]

Gnosis runs on the Ethereum blockchain directly. The Gnosis team can't change the number of shares you own, for instance. Decentralized applications are safer for users. It was founded by the team that built Fairlay, a prediction market site that uses Bitcoin, because they believe that prediction markets should run directly on blockchains.

[arthur_pryor]

just because it comes over TLS, doesn't mean it's true