Prediction markets are a kind of gambling where you bet a certain amount of cryptocurrency that an event will or will not happen.
In practice, cryptocurrency prediction market bets are registered on a smart contract, which will automatically distribute funds to the winning bet addresses.
The amount sent to each address once the final outcome is known will be calculated according to the stake placed by each bet.
So how does this work?
First a certain event is made the object of predictions and it is registered on a smart contract. The specifics of how this is done depends on the technology being used. For example, the Solidity programming language could be used if Ethereum were the underlying system.
The predictions are one if the event does happen, zero if it does not happen.
For this reason, the options being zero or one, it’s called a binary futures market.
Funds are then sent to the smart contract along with the binary bet – this constitutes a single entry into the betting system.
Once the result is known, the betting house manager will send the smart contract a signal containing the result.
The smart contract then executes the winners’ fund distribution routine.
Cryptocurrency prediction markets may seem like a kind of futures market, but it’s more appropriately classified as plain old gambling or betting.
The players cannot influence the odds at all, but must wait for an event to take place in order to win.
While the knowledge of whether the event is likely to happen or not becomes clearer with time (and the odds and rewards change accordingly), the outcome itself cannot usually be changed by the players through their own knowledge or competence.
This qualifies the outcome as pure luck and is therefore considered gambling in most cases.
The only difference between cryptocurrency prediction markets and regular casino gambling is the use of smart contracts and fully decentralized and transparent blockchain transactions.
All bets, odds and other statistical data about the prediction event can be audited via the blockchain, by any user.
We hope this brief intro to prediction markets has given you a better perspective into this high risk activity.