Why are Blockchain Prediction Markets so Complicated?

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What’s a prediction market? It’s an open market (usually online) where votes are bought (or sold) to predict the outcome of an event, market, product, contest — or any instance where two or more protagonists compete against each other. Blockchain is a great enabler of these markets. And some new startups — like Augur (https://www.augur.net)— have invested heavily.

We got to hand it to Auger — RESPECT — they have been very successful in bringing prediction markets to the forefront of the blockchain discussion. The blockchain community is better for it, and we are all grateful.

The current challenge with Augur is that only really, really, really smart people can create a prediction market. And then, only really, really (only 2 “really”s) smart people can figure out how to vote. Unless you take the time to study the way Augur works, and then download a node of the Ethereum blockchain, you can’t do much with the user interface. This makes it hard to collect good, useful market information.

Prediction markets work best when there is wide participation from Informed and Relevant voters. (See http://goblock.co/research for further discussion on Informed and Relevant voters). If the voting platform is not easy, then Relevant voters are not going to take the time required, and Augur’s platform does not yet facilitate that wide participation.

Recently, on CENT (“shout out” BTW — a GREAT! sharing platform on Ethereum) we asked “What is a Prediction Market Good For?” (https://beta.cent.co/+sutrsp) One of the winning answers submitted that a prediction market could be useful in predicting the volumes of containers/boats through USA ports. Wow — that seems like a great use case! And a Port operator might be excited about using a prediction market for this case. They could balance working staff and hours, for example, if they had a clear prediction of volumes.

So, let’s look deeper, and set this up on Augur; and, we will use the Port of Los Angeles (busiest in the US) as our Port operator.

First, the Port of Los Angeles probably could find someone smart enough to set up a prediction market on Augur. So, CHECK on the setup… good.

Second, the Port of Los Angeles could probably be a trusted source on actual port volumes without having to go through the whole Augur reporting process (e.g., with Participation tokens). So, CHECK on reliable results….good.

But who is going to vote? The Informed and Relevant voters whom the Port wants are the shippers/receivers of the Port. Yet, those shippers/receivers have no incentive to go to Augur and vote. Why would they? What’s in it for them? A change in an Augur share price? That reward is small compared to the cost of putting a boat into Port.

Bottom line…in order for meaningful prediction markets to be successful, we will have to figure out how to make them simple, and provide a meaningful incentive to predict correctly.

As we work to determine those industries that will benefit from a prediction market, we should look to those industries with the highest probability of a simple user interface, allowing wide adoption of Informed and Relevant voters, and a meaningful incentive.

A new prediction market vehicle (http://pickflix.co) is in development to do just that in the industry of new theatrical releases. A simple market. Easy voting. Meaningful incentives.

Development platforms such as Provide (http://provide.services) are also working to build APIs for complex blockchain applications to interface with a simple UI. Meaningful market makers, in meaningful industries, could use these APIs to build meaningful voting mechanisms.

Maybe those are two examples of the future of the blockchain prediction environment. It will be fun to see that future evolve!

GoBlock USA LLC (http://goblock.co) is a group of motivated investors and blockchain enthusiasts who are excited to be involved in this emerging technology. Our background is in traditional enterprise and information systems connecting supply chains and the real world. Based in Atlanta, Georgia, the epicenter of cool blockchain stuff, we have a mantra: “Be Excellent to Each Other and Block On!”

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