One of the industries that might witness the disruptive power of Blockchain technology as 2018 gets underway is the decentralized prediction market.
Prediction markets are a relatively new phenomenon, even if discussion of them has been going on for decades. They aim to leverage the so-called wisdom of crowds to provide accurate predictions of everything from financial markets, results of sports events, elections, and natural events — such as hurricanes, droughts, and earthquakes.
The prediction market is important to the global economic landscape because humans have an insatiable appetite to know and decode the future. Prediction markets could exert influence across a wide range of industries from economy to predicting who is likely to become the next U.S. President or how weather patterns will affect corn production. The prediction market currently survives under different guises that are somewhat mistaken as gambling.
There are many tools available today that can support our curiosity when it comes to gaining insight into past, present, and future events. The discrepancy, however, lies with the perspective that one can take when sifting through the vast amount of information available to us through the many sources. It may help to have a diverse background or experience so that one can understand and interpret the information more clearly — though this is not usually the case.
Currently, there are 3 known decentralized prediction market efforts underway: Truthcoin/Hivemind (Bitcoin-based sidechain), Augur (recently raised $5.3m from a crowdsale, built on Ethereum) & Gnosis (working prediction market platform on Ethereum).
History of Forecasting
When we take a close look at history, we can see that people have always looked for ways to predict the outcomes of events or divert outcomes towards more suitable ends. Deirdre N. McCloskey, a Distinguished Professor of Economics, History, English, and Communications at the University of Illinois at Chicago, explains similar concepts in her book: The Art of Forecasting: From Ancient to Modern Times. This book takes a look at the various ways people have attempted to predict future events throughout history, and draws a parallel distinction between the ancient predictive methods to those of modern times — presented by economists and forecasters. As written:
“People have always wanted to forecast the future. In trying to do so they have probably revealed more about themselves than about the future, and the revelation may be of permanent value. In other words, one can learn from the long history of forecasting a little about why people do it and whether it has been good for them, at least if the history exhibits the stationarity.”
You can start to imagine the power and wealth one could accumulate by forecasting the future correctly. Though as mentioned in the book, most economists and forecasters make their money for giving their opinions rather than banking in on such concepts. One would think that if there existed such a predictive formula, forecasters would become extremely rich from using it to make predictions. As Deirdre has written: “The Roman poet Ennius was only one among many to use the circumstantial ad hominem to sneer at forecasters, who for themselves the path do not know, yet for others show the way”. Deirdre then went on to solidify this thought by elaborating that “most of these philosophers and seers, like modern professors of economics, were not rich. An Economist who claims to know what is going to happen to the price of corn is claiming to know how to make money.”
So what is Blockchain?
Blockchain is a distributed ledger system that maintains a continuously growing record of transactions, or blocks, where each block is linked to a previous block and cannot be altered or reversed once it is added to the chain, and which does not require a central administrator to guarantee the veracity of any transaction. It is essentially a technological solution to the issue of trust in a record or transaction. Blockchain is the underlying technology behind bitcoin, which is a digital token that allows one party to pay another anywhere in the world for goods and services, in some ways like cash. Just like a dollar bill, a bitcoin, once used, permanently passes to another person and cannot be reused or unilaterally withdrawn. With a dollar bill, this is because the bill physically passes to another party; with a bitcoin, this is because the transaction is etched in the public ledger and cannot be undone. Blockchain technology eliminates situations akin to receiving a blank check where there is no value in the underlying account or paying a seller for land that he does not own. Furthermore, because the transaction itself is secure, the cost of the transaction can be significantly lower when compared to traditional payment methods such as credit card payments, international remittances, or any situation where there is a third party guarantor.
What is a Shared Ledger?
The core of blockchain is a shared, distributed ledger among an ecosystem of partners. The shared ledger creates a single system of record or single version of the “truth”. It is an append-only ledger of digitally signed and encrypted transactions that is replicated across a network of peers.
What are Smart Contracts?
A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible. Smart contracts were first proposed by Nick Szabo, who coined the term, in 1994. Proponents of smart contracts claim that many kinds of contractual clauses may be made partially or fully self-executing, self-enforcing, or both. The aim of smart contracts is to provide security that is superior to traditional contract law and to reduce other transaction costs associated with contracting. Various cryptocurrencies have implemented types of smart contracts.
Alignment of demand and sales forecasting
While many organizations use a demand planning-generated forecast as a starting point in trade and account planning, it is rare for that collaboration and information sharing to flow both ways. This unidirectional data flow can lead to functional areas within the same organization working from very different and asynchronous forecasts for the same customers, products, channels, and time periods. Breaking down organizational silos can effectively create change in an organization, yet more than half of companies admit that channels are managed in silos today.
These structural and cultural separations may have unintended consequences with regards to how information and data are shared and managed; in 42% of organizations, data is not shared between teams. This information segregation may lead to missed opportunities by limiting the data accessible to teams and therefore the insights that they may generate and act upon. Blockchain can help solve this problem by creating an infrastructure through which to democratize data, making information available across functional areas and organizational silos. One application of Blockchain to facilitate information sharing within consumer products is sales and demand forecasting. Blockchain can enable a single source of truth, a common forecast between sales and demand planning. This could significantly reduce costly production overruns and sales-impairing out-of-stock incidents by facilitating collaborative forecasting.
Blockchain provides a private, secure network for transactions in which all parties have complete visibility. The privacy of the blockchain ensures confidentiality, authenticity and security of each transaction.
Instead of relying on a third party, such as a financial institution, to mediate transactions, members in a blockchain network use a consensus protocol to agree on ledger content, and cryptographic hashes and digital signatures to ensure the integrity of transactions. Consensus ensures that the shared ledgers are exact copies, and lowers the risk of fraudulent transactions, because tampering would have to occur across many places at exactly the same time.
Lets take a look at predictive analytics applied in Marketing
Predictive analytics is a tool that enables marketers to improve their go-to-market strategies and marketing programs. It allows them to focus marketing activity on the prospects who are the most likely to become high-value customers and provides insights that they can use to create more relevant and compelling messaging, content and marketing programs targeted at each customer segments’ needs. Predictive analytics can also be used at every stage of the funnel and applied across marketing objectives, from growing share to expanding into new markets to growing customer lifetime value. Predictive is an invaluable tool because it has so many applications, so it’s important for CMOs to first establish the problem that they are trying to solve, or the outcome that they are trying to achieve and then utilize predictive analytics to focus on the right opportunities.
Predictive analytics can be applied in the following ways:
- GTM Strategy: Predictive marketing platforms provide CMOs with greater visibility into what sets their best customers apart as well as a clear picture of their full market potential. This allows them to surface growth opportunities and untapped markets so that they focus marketing efforts where it will have the greatest payoff.
- Targeting & Messaging: CMOs can use predictive to determine their ideal customer profile(s) and prioritize resources on the best customer segments for their business. By understanding the DNA of tier A customers they can deliver customer-centric campaigns with messaging personalized to what resonates with each profile.
- Outbound Marketing: With predictive, CMOs can drive customer acquisition and revenue growth by filling the funnel not only with more leads but with leads that are most likely to turn into high value customers. They can pinpoint net-new accounts as well as leads already in their CRM who are the most likely to convert.
- Inbound Marketing: For CMOs who have an inflow of leads, predictive analytics is used to prioritize the best inbound and existing prospects. This enables sales to engage with those prospects more quickly while the next tier of prospects are nurtured with campaigns that are personalized based on insights that predictive analytics provides into those segments.
- Account-Based Marketing: CMOs can use predictive to enhance sales and marketing alignment with data-driven account selection and insights, and then use multi-channel integrations to put your ABM plan into action.
Current decentralized prediction solutions
Augur (REP) is another interesting blockchain play bringing disruption to the global predictive market. Augur, created by Pantera Capital co-CIO Joey Krug and biophysicist Jack Peterson in 2014 is a decentralized blockchain platform for placing bets on the outcome events set to happen in the future. Augur is working towards building an accurate prediction market where people can get insights on the most likely future occurrences based on the wisdom of the crowd. In 2017, Augur’s coin rose more than 2000% and it currently trades around $77 as interest in the predictive market continues to grow. Augur’s reliance on the “Wisdom of the Crowd” underscores the relevance of predictive markets to a wide range of real-life scenarios. For one, the cumulative verdict of the average prediction made by a group is superior to that of any single prediction made by an individual in that group. Augur also goes a step further to price the shares of a trade (bet) to add up to one dollar; hence, buying the share of trade at $0.50 will earn you $1 if you are right while you won’t lose more than the original $0.50 if you are wrong. The best part is that the value of staked shares in the outcome of an event will rise as more people buy shares. Hence, users can buy shares low and sell high as more people show interest even before the actualization of the underlying event.
The team behind Gnosis (GNO) is convinced that the predictive markets has real world applications stretching from financial forecasting to sports betting, risk assessment to political polling. Unfortunately, the process of getting people to share the information they know about the odds of an outcome is often hard to initiate and sustain. Gnosis is fundamentally decentralized Ethereum platforms that gamifies the predictive interest of humans and AI to aggregate sentiment and provide trustworthy information on odds. For instance, a statement such as “the price of Bitcoin will reach $30,000 by the end of 2018” will require a Yes/No response. Participants are required to put down money as a proof of stake before they make their predictions; hence, people saying Yes/No will only respond if they have quality information to make such assertions as opposed to the guestimates that currently abound. If the price of Bitcoin ends up reaching $30,000 by the end of the year, you get $1 for every winning share; conversely, you’ll lose your stake if Bitcoin doesn’t reach $30,000. Gnosis is particularly interesting because it allows people to create their own events using Dapps such as Hunch Game and Ask Me Anything (AMA). The events can in turn be self-funded or crowdsourced for increased market interest and improved odds of reliable predictions. GNO is off to a good start with a 14.93% gain as it trades up around $267.82.
The democratization that is made possible by the implementation of blockchain technology and Artificial Intelligence (AI) is enabling Endor to provide the opportunity for individuals and businesses at all levels to enjoy the benefits of prediction. The Endor protocol affords the opportunity for users to ask predictive questions and get accurate predictions on a platform that is described as the “Google” for predictive analytics. This solution is powered by MIT’s novel Social Physics technology and provides the first decentralized, trustless, censorship resistance behavioral prediction platform that provides high-quality results for any predictive question in minutes. No coding, data cleaning, or a team of PhDs required.
BlitzPredict is a blockchain-based solution being developed to change the face of sportsbook predictions by using blockchain to provide function and liquidity. BlitzPredict seeks to aggregate data from different sportsbooks and prediction markets to provide a one-stop shop for users. BlitzPredict will syndicate updated lines from the prediction markets and other sportsbooks to provide users with the best odds for a given bet. The traditional sports betting market is under the control of centralized businesses where liquidity and transparency have been major challenges. The liquidity issues of traditional sportsbooks stem from the fact that users are required to deposit money in order to make predictions. Their money is in turn tied down for long periods without earning interest. More disheartening is the fact that cashouts usually take multiple days or weeks to be processed. The worst part is that users don’t have any hopes of getting their deposits back if the sportsbetting company goes under the water. BlitzPredict’s blockchain platform introduces an unprecedented level of liquidity to sports forecasting, predictions, and betting by pioneering a liquidity pool that will expedite instant payout for traders. Wagering, betting, and predictions on BlitzPredict will be carried out using the BPZ token, which has a hard cap of $6,000,000 and a capped supply at 1 billion tokens.
Bodhi is a decentralized prediction market platform that focuses primarily on the Chinese market. Bodhi users can create and trade based on the outcome of sports, finance, politics, or other global events. It is powered by the Bodhi token (BOT). Bodhi aims to build an autonomous, credible, and scalable prediction market that integrates the application of a functional prediction market on a global scale to further optimize the making of decisions. Bodhi is also one of the first and largest decentralized applications running on the Qtum blockchain.
SEER is a next-generation blockchain-based decentralized prediction market built on the Graphene toolkit. It allows users to express their judgments about future events by means of the market mechanism and makes effective predictions by gathering intelligence and ideas. Equipped with multiple-hosts decentralized Oracles, SEER offers users credible decentralized prediction market service. Also, SEER Committee and a mechanism of arbitration have been set up to maintain high efficiency, impartiality and self-government. In the early stage, SEER’s project team mainly focuses on building a bottom blockchain layer and compiling smart contracts on a basic prediction market feature. Apart from this, SEER pursues extensive collaboration with data providers, aiming to connect blockchain and the real world, and narrow the gap between the upstream industries and users. In the middle of the SEER project and its development route, customized development projects will be launched, such as sports betting, finance market prediction, assets price prediction and event prediction.
Stox is an open source, Ethereum based platform for prediction markets where people can trade the outcome of events in almost any imaginable category - sports, celebrity marriages, election results and even the weather. The platform targets mainstream audiences and provides a haven for investors to find refuge from traditional financial instruments and participate in prediction events with the purpose of making profit, leveraging their knowledge in almost any imaginable field.
Tokyo-based Factbase announced a cryptocurrency-focused market forecast platform called Signal. Factbase was founded in November by Osaka University alumni Yusuke Takahashi and other members. The team recognized that distribution flow of news updates and other elements likely to produce price fluctuations in cryptocurrencies are totally different from those for legal currencies. The Signal platform provides two functions: a web-based dashboard called Signal Board offering market forecast and analysis, and a notification service called Signal Alerts which lets users know via the LINE messaging app when an event likely to greatly impact price fluctuation of a cryptocurrency occurs.
WeatherBlock is a decentralized ecosystem for peer-to-peer weather data exchange and it is building a system of data based on macro atmospheric circulation using the next-generation blockchain platform. Lots of industries rely on accurate weather information which is extremely important to their functionality and cannot rely on the resolution of the public meteorological data source which uses the average macro temperature data of the region. For industries like transportation, commercial drone operation, infrastructure and agriculture a demand for higher resolution data is constant. WeatherBlock focuses on transforming weather forecasting from the surface observations made of atmospheric pressure, wind direction, temperature, precipitation, speed, humidity which are routinely collected from automatic weather buoys or trained observers. Data collected during these observations undergoes an assimilation process during which the data is used in conjunction with a numerical model made to produce the meteorological analysis.
Challenges Facing Decentralized Prediction Markets
One of the biggest challenges that decentralized prediction markets face is that they could create a lot of controversy due to the fact that people may begin to list events to be bet on that could be seen as highly undesirable. For example, someone may one day list a event such as a political leader being assassinated on a decentralized prediction market. This could be seen as very negative by governments because it essentially means that lots of people would make money if one of their leaders is killed. Anything that creates financial incentive for political assassinations is likely to be a red flag for governments. So, there is a high probability that governments could try to interfere with decentralized prediction markets as soon as they start to become heavily used. This could result in legislation being created which bans decentralized prediction markets from listing certain types of events on their markets.
If this occurs, then it will be up to the individual DApp companies to make sure that none of these types of events are listed on their networks, or else face potential legal challenges. Scaling could also potentially be an issue for decentralized prediction markets. This is because, as these markets grow in popularity, they could experience a major surge in traffic and use. If this occurs, then the DApp companies could struggle to accommodate such a massive surge in popularity. This is essentially what happened with Bitcoin. The scaling problem for Bitcoin is still being attempted to be solved. So, it would be wise for Augur and the other decentralized prediction market networks to factor in scaling issue solutions to their DApp designs before they start to go live to the public. This could prevent them from experiencing major problems as they start to expand.
A prediction market is a powerful idea. A decentralized prediction market is an even more powerful idea. Once we combine the capability to automate predictions combined with AI, Machine Learning and the Internet of Things, it becomes something that indeed will change just about everything. It will result in basically being able to model externalities in a much better fashion.
- Chain reaction: how blockchain technology could revolutionize the finance function :: EY
- Gnosis Decentralized Prediction Markets
- Extra-Predictive Applications of Prediction Markets
- Professor Alex Pentland Banks On Blockchain To Bring Predictive Analytics To The Masses :: Forbes
- Converting Analytics Into Action: The Predictive Analytics Understanding-Activation Gap :: Forbes
- Decentralized Prediction Markets and the Blockchain… Checking Out Augur (REP) :: Steemit
- Augur: a Decentralized Oracle and Prediction Market Platform
- Decentralized Prediction Market without Arbiters
- On Decentralizing Prediction Markets and Order Books
- See Notes
Why & How Decentralized Prediction Markets Will Change Just About Everything.
Digital assets of The Weather Company has been acquired by data giant IBM, a company that is also invested in blockchain technology. Part of this deal sees the weather.com website, together with several other ventures, change hands. The ever popular Weather Channel is not part of this agreement, as the television network will become independent from now on. IBM will now have access to the The Weather Company website, along with Intellicast, Weather Underground, and WSI. Especially that latter service is of great interest, as this platform is known for its data and private forecasting abilities.