The predictions industry has long been dominated by centralized entities, relying on a select few experts and institutions to forecast future events - and profit off them. This resulted in a lot of stereotypes, one of the biggest being that the house always wins.But, what if there was no house in the first place?This question brings us to our today’s topics of discussion: Prediction markets entirely built on blockchains. Fully decentralized, people-powered platforms with no middleman taking big chunks of your profits in the form of fees, taxes, and many other useless tariffs.With the increased popularity of Web3 and blockchain technology, more and more established industries, deeply rooted in our worldview, will be dethroned. One of them is prediction markets.<h2 id="header-0">Understanding Prediction Markets</h2>At its core, a market is a place where valuable goods or services, whether tangible or intangible, are exchanged. Prediction markets operate on a similar principle, but instead of physical products, they involve speculating on the outcome of future events.These markets provide a platform where participants can predict specific real-world outcomes, driven by financial incentives.Until some years ago, the prediction market has been covered entirely by centralized entities. Centralized entities, commonly referred to as &#34;the house,&#34; exert control over prediction markets by establishing rules that favor their interests.These entities, such as casinos, bookmakers, investment banks, insurance companies, or exchanges, tend to monopolize the value generated within the market. Driven by profit-seeking motives, they operate within established incentive structures that prioritize their financial gains.Employing various tactics, they entice users with the allure of quick profits while employing strategies to extract maximum value from their customers.This results in a framework of incentives that may entice users initially but ultimately leave them with less money than they initially had, perpetuating a cycle that benefits the centralized entities and their shareholders - and disadvantages the participantsThe prediction markets are not broken. No, they are working exactly as designed – pumping as much money out of their customers and directing it towards centralized entities. They work on blind trust, as a single centralized entity has the final say on whether to pay or not to pay the won money to their customers.They are expensive to participate in, have high fees for withdrawing funds, entering a bet, or any other activity that involves money, are vulnerable to regulatory interference or single points of failure, and often rely on select groups to create prediction markets, creating information monopolies.Even cases like <a href="https://www.betfair.ro/" rel="noopener noreferrer nofollow">Betfair</a>, a P2P betting site, aren’t exactly perfect, as the point of control is ultimately still in the hands of a centralized entity. They don’t have the transparency and the security of funds blockchain technology provides, even if they are ‘fairer’ than traditional casinos for example.<h2 id="header-1">The Power of Blockchain Technology</h2>Decentralization can eliminate all the problems centralized entities have by facilitating a people-powered prediction market. Prediction markets that leverage blockchain technology and decentralized protocols use the wisdom of the crowd and allow everyone to participate and contribute with their insights.They reduce the cost of transactions and enable direct P2P trading to eliminate the costly interference of third parties. For instance, <a href="https://augur.net/" rel="noopener noreferrer nofollow">Augur</a>, a trustless, decentralized oracle and platform for prediction markets, only takes 1.5% in the form of fees, while other centralized entities take up to 15% of your winnings.It’s time to face it, decentralization is a better, more secure alternative for practically every industry out there, especially for the predictions market.For instance, <a href="https://www.foreprotocol.io/public-sale?utm_campaign&#61;referal%20program&amp;utm_source&#61;satoshi&amp;utm_medium&#61;kol" rel="noopener noreferrer nofollow">FORE Protocol</a>, a blockchain-powered predictions market, is the first truly decentralized predictions platform that is entirely powered by its users - enabling the creation of an endless array of possible prediction markets. Or <a href="https://polymarket.com/" rel="noopener noreferrer nofollow">Polymarket</a>, the protocol that only uses USDC as their main currency inside the ecosystem to ensure transparency and security.It doesn’t stop at the usual topics like sports, weather, and current affairs. By enabling user creation of prediction markets on any event, FORE Protocol gives the opportunity of betting against any event.This right here might be the most important distinction of decentralized prediction markets: they don’t control what you can or can’t bet on. If you want to create a prediction market about an astrophysics event with your nerdy friends, you can do that! There’s no way you’ll ever find such unique markets on a centralized prediction market.<h2 id="header-2">How do Decentralized Prediction Markets Work?</h2>At the core of decentralized prediction markets are smart contracts, self-executing agreements that automatically execute predefined conditions when specific criteria are met.These smart contracts determine the rules for market resolution and payout of funds in an entirely decentralized way.But, how does the information get on the blockchain?Well, there are many options here. The most used one is a blockchain oracle, a type of technology that transfers real-world data onto blockchains. The most prominent example of this is Chainlink, a Web3 company that specialized in delivering real-world data onto blockchains. It uses complex software and a three-step process to complete the transmission.However, there are other types of transmitting information for prediction markets. FORE Protocol, for example, has created a decentralized network of validators (or ‘Analysts’) that performs the role of oracle by uploading market results from real-world events to the protocol. They act as the market&#39;s &#39;architects&#39; and are responsible for verifying that a given outcome is accurate, and ensuring that all payouts are correctly executed.In doing so, the protocol can index real-world outcomes on any real-world event (in much the same way Google indexes real-world information) to create an infinitely scalable prediction protocol.A very similar approach to Augur’s system. In their case, outcomes are determined by Augur’s oracle, which consists of profit-motivated reporters, who simply report the actual, real-world outcome of the event. Anyone who owns $REP, the native token of Augur oracle, may participate in the reporting and disputing of outcomes.So, once an outcome is validated, the smart contracts automatically distribute the rewards to participants based on the accuracy of their predictions. Those who predicted the correct outcome receive a proportionate share of the rewards.The decentralized nature of these prediction markets ensures transparency and trust. Participants can view the smart contract code, transaction history, and market liquidity, eliminating the need to blindly trust a central authority.<h2 id="header-3">Real-World Applications and Usage</h2>In theory, these decentralized markets work amazingly. But how are they working for real-life use cases? We’ll use the FORE Protocol for all our examples, as it is the easiest-to-understand example.For example, imagine you just bet $50 on Bayern Munich to win the league and they won, but the betting site gave you some of the worst odds on top of the already high fees.On FORE Protocol, there is no house, and the odds are determined by the users themselves. Thus, you could have won more on the same bet due to better odds, and incredibly low fees (which are redistributed back to users.)But that’s something that you can find on other centralized prediction markets by ‘odds shopping’. However, this use case is something that sets decentralized markets, including FORE Protocol, far apart.Imagine you are a passionate astrophysicist who wants to bet $100 on an upcoming cosmic event, but you can’t because traditional prediction markets don’t have such services.However, with Fore Protocol, you can create a market on this event and bet $100 against other market participants from all around the world without needing to pay a high fee or a cut of the win to a centralized entity.<h2 id="header-4">Wrapping Up</h2>In conclusion, the combination of prediction markets and blockchain technology holds immense potential and offers a range of benefits for the predictions industry. By leveraging the transparency, decentralization, and security of blockchain, these markets can revolutionize the way predictions are made, and most importantly, rewarded.The transformative nature of decentralized prediction markets is evident. They enable transparency in outcomes, eliminate centralized control, and empower a wider range of participants to contribute their insights and expertise - and profit while doing soThe wisdom of the crowd becomes a powerful tool for making accurate predictions, often surpassing individual expert opinions.So, it might be a great idea to stop using centralized prediction markets and start using their decentralized versions, where you hold the power.

What Are Prediction Markets on Blockchain?

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