I think his argument is on shaky ground. No matter what you change the proof-of-work function to, it will always be possible to develop specialized hardware that outperforms general purpose hardware.

I accept his argument that it's dangerous for vast amounts of mining power to be centralized to a small number of actors. I don't agree that changing the PoW function would solve this in the medium term. It might work in the short term, as developing specialized hardware would take time.

I suppose one solution would be to change the PoW function at set intervals, randomly selecting one function from a large pool. This would discourage the development of specialized hardware.

Zero probability? So will he pay out all his bitcoins to me if his prediction fails? That's the meaning of zero %.

I'm not quite sure myself, it might have been hyperbole. He doesn't seem to participate in this bet however: http://betsofbitco.in/item?id=1432

We all know that the proof of work algorithm won't ever change from double SHA256; the network wouldn't allow it. Start a fork with a few miners and the current one will outrun the new one in a matter of seconds. Higher difficulty is a good thing, that's the entire point.

Gavin Andreesen said there is a 99% chance (or something like that... may have been 99.9%) that the current proof-of-work will survive the year.