The Future of Finance: The Power and Potential of Decentralized Prediction Markets

Decentralized prediction markets have emerged as a popular tool for traders and investors to speculate on the outcome of various events. Prediction markets allow participants to buy and sell contracts that represent the likelihood of a particular event occurring, such as election results, the future price of a crypto asset, the stock market or the success of a company etc.

The rise of decentralized prediction markets, facilitated by blockchain technology, has made these markets more accessible and secure than ever before. Decentralized prediction markets use smart contracts to ensure that all transactions are transparent and automated, with no central entity being in the position of manipulating the market.

‍

Let's explore the various benefits of blockchain-based prediction markets and see why they're becoming increasingly popular.

No-Human Mistakes: when humans manage prediction markets, human greed or simple mistakes might spell the difference between a huge profit and a big loss. By eliminating the need for human intervention and the inevitable mistakes that come with it, smart contracts in blockchain-based prediction markets can ensure that the market is always accurate.

The Cost: The fee is the indirect cost of running a prediction market that consumers pay for when they participate. Prediction markets built on the blockchain are essentially unflappable AI that can function indefinitely without being paid or given a break. By eliminating the need for middlemen, smart contracts help keep prices low.

Decentralization: Finally, a prediction market that uses blockchain technology and smart contracts is truly decentralised and independent of any central authority. No one entity is able to acquire control or influence its actions. Participants will not be restricted due to their location, and there will be no censorship in place.

‍

One of the most popular decentralized prediction markets is Augur, launched in 2018 on the Ethereum blockchain. Augur allows users to create and participate in prediction markets on various topics, from sports and politics to finance and technology.

Another popular decentralized prediction market is Polymarket, which launched in 2020 and has already seen significant growth. Polymarket allows users to trade on a range of topics, including politics, sports, and cryptocurrency prices.

One notable use case for decentralized prediction markets is in predicting the outcome of political events. During the 2020 US Presidential election, the decentralized prediction market PredictIt saw record-breaking activity, with over $1 billion in total volume and more than 200,000 active users.

While decentralized prediction markets have become increasingly popular, they still face some regulatory hurdles and several countries have restricted the use of real money in prediction markets because of the similarities with gambling. In the US, for example, some prediction markets are subject to restrictions under the Commodity Exchange Act and may require approval from the Commodity Futures Trading Commission. 

In regions where online gambling is prohibited, many prediction markets instead employ virtual tokens or "play money" models. 

Despite these challenges, decentralized prediction markets are poised to play an increasingly important role in the world of finance and beyond. As the technology behind these markets is developing rapidly, market analysts expect to see even more innovative applications in the years to come, which makes it a lucrative business alternative to launching a blockchain-based firm.