How is Cryptocurrency/Blockchain Revolutionizing Predictive Markets?
Prediction markets help individuals analyze the outcome of events such as a political election, weather, or economic forecasting. One area of interest for the use of prediction markets is the cryptocurrency world. This article delves into the differences amongst prediction markets for cryptocurrency and other areas in the real world. The predicted price in the market for a certain outcome can indicate the probability of event occurring based off the crowd’s opinion of the event. Furthermore, these probabilistic outcomes are binary since the event will occur or the event will not occur. Thus, resulting in the market’s community being very vulnerable or susceptible to follow in the expected outcome of the prediction market. The principle called The Wisdom of the Crowd plays a significant role in prediction markets, where the aggregated average answer of a large group of people is far more accurate than an expert’s answer or a single individual’s answer. Prediction markets are based off this principle, and therefore by utilizing this powerful forecasting tool individuals can maker smarter bets or predictions on the outcome.
Furthermore, the author describes prediction markets when he states, “these markets are basically trading so you need to put money in the system to vote and buy your bets.” One invests money in the prediction market because there is an incentive to earn more money on the original money invested if the event’s outcome aligns with the investor’s bet. As an example, the author speaks about the 2008 presidential election between Barack Obama and John McCain. We can see that the market prediction shifted as a result of news, polls, and other information influencing voters. In particular, a piece of information that catches one’s eye is Sarah Palin named as John McCain’s vice president. We can clearly see that following this news, the share value for John McCain winning dropped significantly and the share value for Barack Obama wining raised substantially. Another example in the real world that the author presents is companies like Google or HP who have used their own “in-house prediction markets” to arrive at conclusions concerning the launch of a new product or the development of a new facility. Through the use of prediction markets these companies can “harness the crowd wisdom” or in other words utilize the knowledge of what their consumers believe in to make decisions rather than relying on internal decision makers.
Lastly, the author touches upon potential problems in prediction markets in these areas outside of the cryptocurrency space. He states that these prediction markets “can be highly manipulated due to insider information” and lead to investors being ripped off. Additionally, these prediction markets are “centralized in nature and often face financial irregularities and regulatory pressure from the government.” The author states that these markets are difficult to operate and demonstrates this through Intrade.com. This website was a “web-based trading exchange where members traded contracts between each other based on the probabilities of various events occurring.” The website was forced to exclude US traders in 2012, eventually suspended trading, and ultimately shut down the website completely. On the other hand, the author presents Blockchain trading as “the savior” since the cryptocurrency space is decentralized. Joining decentralized blockchains and prediction markets together allows for powerful Decentralized Applications, otherwise known as DApps for the prediction markets. One such DApp this article speaks about is Augur, which is a decentralized prediction market for any question a user may pose. The outcome is reported by all users through reputation, Augurs way of determining the outcome in a decentralized way, rather than a single individual reporting the outcome. The cryptocurrency space and Blockchain are leading the way for decentralized prediction markets in the coming years and revolutionizing the way these markets are conducted.
Link: https://coinsutra.com/blockchain-prediction-markets/