Blockchain Technology Helps Power Prediction Markets For Smarter Forecasting
A prediction market is an innovative economic tool that allows investors to speculate on future events. By betting on the likely outcome of a predetermined event, these markets allows investors to use their knowledge and intuition to secure profits. They can also be used as a forecasting tool that provides valuable information on current trends in virtually any industry.
However, the potential of prediction markets is not without its downsides. For one, the markets are centralized, meaning that users must trust the platform for their betting activities. Additionally, geography and regulatory restrictions can limit the scope of what users can bet on.
Blockchain technology provides a powerful solution to these drawbacks. Through the use of smart contracts and blockchain oracles, decentralized prediction markets can become censorship-resistant, trustless, and borderless.
Let’s first look at censorship-resistance. Predictions markets operated by centralized entities can be easily shut down by government authorities or malicious actors. Smart contract technology on a blockchain network provides a superior alternative. Every node on the network runs the same code, meaning that no one user can edit or delete the officially automated procedures that underlie the market.
Coupled with the removal of most intermediaries, blockchain-based prediction markets offer users the advantages of trustlessness and permissionless access. Rather than relying on third-party operators, users interact directly with automated code with few fees for the privilege. As a result, markets can become more borderless, with users from all parts of the world free to bet on outcomes.
The primary challenge lies in the oracles that guarantee such contactless prediction markets. If a prediction market operates online, we need a system that can be trusted to report on the event in question. One approach is to create a financial incentive to report truthfully, with users having to put forward a stake in order to report on their outcome. Should their report be correct, they will receive remuneration. Alternatively, a third-party feed or website can be used, but this again creates a single point of failure.
Overall, blockchain technology has the potential to revolutionize the prediction market industry, providing users with a secure, trustless, and borderless means to bet on events. With the development of more advanced oracles, blockchain prediction markets could shape the future of forecasting and gaming.
