Explained: Blockchain-based prediction markets and how they work – CNBCTV18 | Jewelry Dukan

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In a blockchain-based prediction market, smart contracts manage the odds, the pool of funds raised from participants, and the payouts at the end of the event.

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

Prediction markets work similarly, but the product is a contract for the outcome of an unknown future event. Essentially, predictions are bought and sold in the form of contracts, and these contracts will pay you big dividends if your prediction comes true. You can think of it this way: just as futures markets allow 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, a prediction market could sell contracts for India to win, Australia to win or a draw. Each of these contracts can have a value between $0 and $1. If you buy a prediction that comes true, you will be rewarded with the total price of the contract, i.e. $1.

If the Indian team is in great shape and on a winning streak, the wins on this prediction might not be great as the contract will be valued higher. On the other hand, if you buy an underdog’s contracts and win, you have a more significant payday ahead of you.

The contracts, like stocks or crypto, have fluctuating prices based on buying and selling and also the stage of the game.

The role of blockchains in prediction markets

Blockchains have entered popular culture like nothing else and have started to take over prediction markets. It makes sense to use blockchain technology for prediction markets as smart contracts are more trustworthy than people and organizations who might have their own interests.

So, in a blockchain-based prediction market, smart contracts manage the odds of winning, the pool of funds raised from participants, and the payouts at the end of the event. Smart contracts use oracles that help them identify and act on variables and outcomes to execute agreements. For example, if it is a match between India and Australia, the outcome of the match is not entered by humans but by oracles 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 humans run prediction markets, human greed or just plain stupid mistakes can mean the difference between someone winning big and losing big. With blockchain-based prediction markets, smart contracts are written to completely negate human interaction and all errors associated with it.

2. The fee: When a person or organization sets up a prediction market, there are operational costs that are paid indirectly by users in the form of fees. With blockchain-based prediction markets, you have a smart contract that requires neither money nor rest and works perfectly without any complaints. Smart contracts also eliminate intermediaries, further reducing costs.

3. Free in the proper sense: No government can influence a prediction market with blockchains and smart contracts. No organization can buy them, control them, or let them play to their interests. No censorship will be applied and no geographic boundaries will prevent people from participating.

Some existing blockchain-based prediction markets

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

TotemFi (TOTM) is another popular blockchain-based prediction market. It is based on the Ethereum and Binance smart chain and offers unique features such as non-punitive predictions and collaborative rewards. This means there are no penalties for inaccurate predictions and additional rewards for everyone if the average pool prediction is correct.

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

Conclusion

Blockchain-based prediction markets can change the way betting works today – there will be more trust among users as nobody has any incentive to cheat them out of their money. We will soon be able to see smart contracts with creative prediction not thought of before, and they will be available to humans more easily and at lower cost because of blockchains.

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