Prediction markets are websites where people buy and sell contracts that pay out based on future events. As traders make deals, the prices change, showing what the market thinks is most likely to happen.
Each market focuses on a specific question, such as who will win an election or if a company will meet its sales goal. People buy shares for each possible answer. If their choice is correct, those shares pay out; if not, they become worthless. The price of a share shows what the crowd thinks is the chance of that outcome.
Markets let people bet money on different outcomes by buying or selling positions. Some use order books or automated systems to match trades. In blockchain markets, smart contracts keep track of trades and pay out winnings automatically, so there is no need for a central company. This setup makes trades more transparent and harder to change unfairly.
Some prediction markets are managed by one company and follow regular online exchange rules. Others use blockchains, where computer code sets the rules and no one person controls the records. Decentralized markets aim to let anyone with internet join in and avoid needing a trusted middleman.
People use prediction markets for things like politics, sports, finance, product launches, and research. Well-known examples are Augur, Gnosis, and Polymarket, while older versions like the Hollywood Stock Exchange used similar ideas without crypto. These platforms show how markets can combine lots of small bits of information into one price.
Because traders use real money, they usually check facts and follow important news. This financial motivation encourages people to make careful choices, so markets often predict outcomes better than single polls or experts. That is why some organizations use these markets as another way to forecast.
Countries have different rules for prediction markets, treating them as gambling or financial products. Some markets face legal limits. There are also ethical questions about making markets on sensitive topics, which some people may find offensive or harmful. Creators and users should think about local laws and the possible social effects before joining in.
Prediction markets have some flaws. Prices can swing a lot if not many people are trading, and markets can be biased if one group spends a lot of money. If outcomes are reported incorrectly or questions are unclear, there can be arguments about payouts. Decentralized markets help by recording everything on the blockchain, but they can also be harder to use.
On blockchain platforms, smart contracts manage the rules and payouts. These contracts can use special tools to release money only after a result is confirmed. This method makes the process more open and easy to check, but it relies on having trustworthy sources for the final outcome.
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