Explained: Blockchain-based prediction markets and how they work

Blockchain-based prediction markets and how they work

by CNBCTV18.com IST (published)

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In the blockchain-based prediction market, smart contracts deal with probabilities, the pool of funds raised from participants and payments at the end of an event.

Before we get into prediction markets and how blockchain technology is disrupting this space, let’s first understand what typical markets are and what they are. In its simplest form, a market is where services or goods, tangible or intangible, that have value are bought and sold.

Prediction markets work similarly, but the product is a contract on the outcome of an unknown future event. Basically, predictions are bought and sold in the form of contracts, and these contracts will pay you big profits if your predictions come true. You can look at it this way: Like futures markets enable traders to predict the future valuation of an asset, prediction markets allow traders to predict the outcome of future events.

For example, if the scenario is a cricket match between India and Australia, the prediction market might be selling contracts for India win, Australia win or tie. The value of each of these contracts can range between $0 and $1. If you buy a prediction that becomes correct, you will get the total price of the contract, i.e. $1.

If the Indian team is in good shape and has a continuous winning streak, the gains in this expectation may not be significant as the contract will be at a higher price. On the other hand, if you buy contracts for an underdog win, and if the win happens, you are on a much more significant payday.

Contracts, like stocks or cryptocurrencies, have fluctuating prices based on buying and selling and also based on the stage of the match.

The role of the blockchain in prediction markets

Blockchain has penetrated popular culture like nothing else and started to dominate the prediction markets. It makes sense to use blockchain technology for prediction markets because smart contracts are more trustworthy than people and organizations who may have their own interests.

Therefore, in the blockchain-based prediction market, smart contracts deal with probabilities, the pool of funds raised from participants and payments at the end of an event. Smart contracts use oracles that help them define and act on variables and outcomes to implement agreements. For example, if it is a match between India and Australia, the outcome of the game is not entered by people but by oracle who derive data from various trusted sources on the internet and then execute the contract.

Advantages of Blockchain-Based Prediction Markets

Blockchain-based prediction markets have many advantages over traditional prediction markets – let’s find out some of them.

1. No human errors: When people run prediction markets, human greed or just ridiculous mistakes can mean the difference between someone who wins big and loses big. With blockchain-based prediction markets, smart contracts are written to completely nullify human interaction and all the errors that come with it.

2. Fees: When a person or organization creates a forecast market, there is a performance cost which the users pay indirectly in the form of fees. With blockchain-based prediction markets, you have a smart contract that needs neither money nor convenience and works perfectly without complaints. Smart contracts also eliminate intermediaries, further reducing costs.

3. Free in the true sense: No government can influence the prediction market using blockchain and smart contracts. No organization can buy, control or make it play into its interests. No censorship will be applied, and no geographical limits will prevent people from participating.

Some Blockchain Based Prediction Markets

There are plenty of options available to anyone wishing to participate in the blockchain-based prediction markets. Augur (REP) is one of the most popular platforms in this regard. It promotes itself as a “global no-limit betting platform” where users can make predictions about “sports, economy, world events and more.”

TotemFi (TOTM) is another popular blockchain-based prediction market. It is built on the Ethereum and Binance Smart Chain and offers unique features such as non-punitive predictions and collaborative rewards. This means that there are no penalties for inaccurate predictions and additional rewards for everyone if the group’s average prediction is accurate.

At the time of writing, TOTM is trading at $0.02658, up more than 9 percent in the past 24 hours. On the other hand, REP was trading at $7.07, up nearly 2 percent over the same period.

conclusion

Blockchain-based prediction markets could change how betting works today – there will be more trust among users as no one is incentivized to cheat them out of their money. We will soon be able to see creative prediction smart contracts that have not been considered before, and they will be more easily available to people and at a lower cost due to blockchain.

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