Prediction markets are a fascinating area of decentralized finance. However, most in the markets have poor understanding of this sub-set of the crypto economy. The field is lucrative and has received the endorsement of none other than Ethereum founder, Vitalik Buterin.
What Are Prediction Markets?
Prediction generally means being able to make a guess on future events. Accordingly, the prediction market is basically a collection of traders speculating on future events or outcomes. These events are varied in nature and are anything for price fluctuations in commodities, company sales or even election results.
As such, these markets are essentially event derivatives. The value of such derivative will almost perfectly reflect the probability of an outcome materializing and it is a decades-old phenomenon.
That said, the blockchain related inventions, especially in the form of decentralized governance have brought an extra level of excitement and dynamism to the prediction markets because of the leveraging opportunities available.
Relevance of Blockchain Prediction Markets
These markets have been in existence for some time but blockchain prediction is far more accurate. This is because of the reliance of the knowledge and beliefs from a large number of users.
Additionally, these users are distributed all over the world because of the cross- border nature of blockchain technology. The end result is some sort of “herd wisdom” which can give great indication of upcoming events. Advanced statistical tools have the problem of statistical bias and narrow view in making predictions.
The blockchain is in and of itself a great tool for predictive markets and tools. There are a number of blockchain predictive markets because it is efficient and transparent. Examples are Augur and Gnosis, which are so far excelling in prediction. Augur, for instance, is a trustless blockchain prediction market that combines smart contracts and oracles to facilitate prediction on real world events without the involvement of third parties.
As such, users can create a market based on a real-world event, trade on it and wait for outcomes. The settlement depends on the outcome and is in the form of Augur tokens. Prediction markets can help in decision making processes in organizations. This is because consensus decisions are better. This is not only in determining policy but also desired outcomes for implemented projects.
What’s Exciting About Them?
Ethereum founder, Vitalik Buterin is big on prediction markets and there is reason to back the enthusiasm. Naturally, his first motivation would be to show more use cases for blockchain in the real world. Smart contracts create a level of versatility previously unseen in any invention. Prediction markets are an exciting facet of that.
Decentralization of prediction markets removes the risks of self-interest and corruption. This is because the ledger is trustless and does not rely on third parties to determine outcomes and distribute payouts. The prediction markets are a dynamic field that would an ideal cyberpunk quest.
This makes the field exciting because with solving a few issues like liquidity and censorship resistance, it can fundamentally replace the traditional prediction market tools. As such, it provides an excellent innovation and investment field for everyone in the blockchain world.