Bitcoin Prediction Markets: Using Gamblers For GoodJan 23, 2015

Bitcoin Predictions

Bitcoin Predictions

Like to gamble?  Like to know the truth about difficult questions?  Good news!  Using some cool math, game theory, and economics, it may soon be possible to use Bitcoin technology to do both at the same time.

The underlying idea here is called a prediction market, and it relies on a basic insight: markets reward those who are good at predicting the future. Also, since systemic irrationalities can be exploited to make money, markets will tend to stabilize into rational equilibriums that correctly predict the future.

Traders who are good at predicting the future get more money and influence over the market, and those who are bad at it lose all their money and wind up with neither.  As a result, by selling shares in propositions like ‘how much will sea levels have risen by 2030?’), it’s possible to use the rationality of markets to get an idea of how true these things are.  As a positive externality, these markets also create a novel way for savvy gamblers to make money by correctly predicting the outcome of world events.

Online prediction markets also cater to Bitcoin bets

This is not a new idea, and several prediction markets already exist.  For instance, PredictWise, a prediction market whose aim to simply provide information, correctly projected the outcome of the last presidential election, as well as 21 out of 24 of the 2014 Oscars.

For those interested to actually place bets and earn payouts for every correct prediction, there are several Bitcoin casinos like FortuneJack and other Bitcoin gambling sites like BitBet.us and BetMoose that offer such services.

However, Bitcoin may soon enable fully decentralized and trustless prediction markets, which would have a number of advantages.

For starters, it would eliminate the risk of the service providers incorrectly determining the outcome of bets, or stealing user funds.  It would also allow these markets to be accessed internationally, and prevent the markets from being forcibly manipulated by the powers that be when offering unwelcome results.

TruthCoin technology promises improvements

One of the most promising projects currently working on a fully decentralized prediction market is TruthCoin, which would function as a sidechain of Bitcoin.

Truthcoin, if completed, would implement decentralized judging of propositions via some clever game theory, and would entirely eliminate counterparty risk.  However, there’s a great deal of interest in the notion, and someone is going to succeed in creating such a project, regardless of whether or not any specific project succeeds.

Because of these advantages, Bitcoin technology might be the kick the prediction markets need to enter the mainstream, resulting in both more awareness and better overall accuracy.  Moving forward, prediction markets are going to be a powerful tool for learning about the world, predicting the outcome of policy, and providing reliable information to decentralized software applications—and that’s just the start.

Who knows what applications for this sort of thing will be invented in the future?  Either way, there is an excitement building up for the future of prediction markets; hopefully you share the same sentiments.