Prediction markets and blockchain
Prediction market is a collection of people speculating on a variety of events such as election outcome, commodity prices etc. It is exchange-traded market created for the purpose of trading the outcome of events. The prediction market gathers information through the concept known as “Wisdom of Crowds” which says that the aggregation of information in groups, resulting in decisions are often better than could have been made by any single member of the group.
THE WORKING OF THE BLOCKCHAIN PREDICTION MARKET
The blockchain prediction market platform of companies such as Augur, Stox etc. pays users for making correct predictions regarding world events. Predictions in the market are made by trading shares in the outcome of real-world events. If you purchase shares in the correct outcome you profit. The profits you can make are determined by the likelihood of an event happening, as determined by the crowd. Each share has a value of 1 ETH. ETH is Ethereum’s inbuilt indigenous cryptocurrency and is used for paying for smart contracts. Ethereum is decentralized Blockchain based distributed computing platform and operating system that enables functionality of smart contracts that help exchange of money, property etc. in a transparent, conflict free and avoids services of a middleman If there are even odds of an event happening you would pay 0.50 ETH for a share, and if the event does happen you get paid 1 ETH. If the event does not happen, you lose your 0.50 ETH. If you see a market price of 53 cents then it is reasonable to assume that there is a 53% chance that outcome will occur.
If a farmer invests and wants to guarantee the harvest? He can spend extra money to bet on a bad weather or insufficient amount of rainfall. What would happen if the weather is actually good? The farmer could have lost some money, but he will get a large harvest. If it is really bad? He can hedge against those who predict a good weather.
By creating miniature prediction market within an organization can help marketing and sales leads in optimum forecasting of future sales.
Employees from different departments have their own insights on future sales capabili- ties of the organization. Thus, asking employees to forecast the sales and linking part of their bonuses on the accuracy of the prediction can help organizations to forecast sales more accurately.
From 2005, Google started using company’s internal market forecasting and encourages its employees to bet on the company’s internal forecasting market and use forecasted market performance to predict future events.
Plenty of Google decisions, from product release to the opening of a new office, have been made from the company’s internal forecasting market. It can reduce the overhead of the bureaucracy and extremely optimize and improve the operation efficiency of an organization.
Organizations have started using internal prediction markets to help them with the decisions about new products, employment, marketing policies etc.
Organizations such as Google, runs its own internal prediction markets.
Predictive markets can achieve more refined financial instruments than existing financial derivatives. These financial tools can trace the share price or commodity value. The prediction market can bring more exhaustive and detailed expression modes to the economic events and can specifically evaluate the value and risks at the macro and micro economy level. The prediction market can also provide a platform for the persons with special market information of specific company to issue their opinions.
This reliable information can be aggregated to assist the public to accurately predict the share price of the company.
Information and data are collected via questionnaires, paid data exchange and mining. These channels are costly and their accuracy cannot be guaranteed. They can also generate a lot of information noise and generally require more complex secondary data processing.
The market based real token incentive mechanism of the blockchain predictive market and the indispensability of decentralized data de-codification allows more participants to be motivated and to enthusiastically use their free time to information.
Prediction market can be used to certify the price authenticity of the artwork and antiques along with verifying their value. One potential application is prediction of the valuation before the artwork is auctioned. The auction house in advance can evaluate the authenticity, starting auction price and seller’s bail of the artwork via a low cost by using the crowd wisdom, saving millions of appraisal and evaluation costs and get more accurate and trustworthy certification results.
Prediction market platforms also allow participants to trade the outcomes of an election. So, if an organization thinks that a certain politician being elected would negatively affect the revenue, it could bet on the event of a successful election and thus hedge against the disadvantageous outcome thereby empowering voters. Prediction market platforms enables participants to trade the outcomes of major sporting events.
Some companies offering prediction market platforms include Augur, an open prediction market platform that runs on Ethereum; Gnosis, an open prediction market platform, targeting its platform at various financial, insurance and information markets and runs on Ethereum’s blockchain; Stox, an online financial service that allows users to trade in various financial products and is licensed to provide cross-border investment services in the European Union; Hivemind, an open-source protocol based on bitcoin that allows users to participate in prediction markets.
THE INDIAN PERSPECTIVE
Blockchain prediction market is in a very nascent stage in India and has lot of advantages to offer. Blockchain prediction market can be leveraged to advantage the economies of developing countries such as India resulting in reduction of bureaucracy and corruption and empowerment of people.
preDiCTion MArKeT pLATForMs enABLes pArTiCipAnTs To TrADe The ouTCoMes oF MAJor sporTing eVenTs AnD eLeCTions
Kumar is Deputy Director and Wangoo is an MBA candidate respectively at Symbiosis Institute of Business Management, Pune