History of the prediction markets: where did the fashion for prophecy come from?
We are all prognosticators. We all want to know what will happen next. Will I get COVID-19 disease? Will I be working in three months? Will the stores have what I need? Will I be able to finish my project? Will Donald Trump be re-elected president of the United States?
The desire to anticipate events and use this skill to one’s advantage has haunted mankind throughout history. But when it became a mass phenomenon, the prediction markets reached a new level.
Even before the advent of the Internet, people entertained themselves by arguing about who would rule them, and after the World Wide Web embraced the world, they argued about where the next terrorist attack would occur.
Now we will look at how the prediction market evolved and what directions and goals it pursued.
What is the prediction market?
A prediction market is a market in which people can trade contracts whose payment depends on the outcome of unknown future events. The market prices formed on the basis of these contracts can be seen as a kind of collective prediction by market participants. These prices are based on individual expectations and the willingness of investors to put their money on the line in the name of these expectations.
They have been used to accurately predict the results of political contests, sports competitions and, sometimes, economic outcomes.
A brief history of the prediction markets.
Now we will look at how the prediction market developed and what directions and goals it pursued.
The idea of making predictions about the outcome of a future event originated many centuries ago. Probably people’s curiosity and desire to manipulate uncontrollable processes gave birth to the idea of predicting and benefiting from the process.
Although prediction was a fundamental human concept, later, over time, prediction, accompanied by confidence in one’s beliefs, became valuable and gave birth to the concept of betting; prediction markets were born.
Political betting was probably the earliest form of prediction markets, for the historical sources of the Middle Ages indicate that people bet on a papal successor, a practice that even at the time was considered old.
During the 1988 U.S. presidential election, the University of Iowa introduced one of the first modern electronic prediction markets, the Iowa Electronic Markets (IEM).
IEMs are a group of futures markets operated by the University of Iowa’s Tippie College of Business exclusively for educational and research purposes, which are exempt from the Commodity Futures Trading Commission (CFTC) requirements and use real money for forecasting.
Here are examples of contracts IEM has traded since June 6, 2006.
- (Event Outcome 1) — $1 if the Democratic candidate receives a majority of the votes cast for the two major parties in the 2008 U.S. presidential election, $0 otherwise.
- (Event Outcome 2) — $1 if the Republican candidate receives a majority of the electoral votes cast for the two major parties in the 2008 U.S. presidential election, $0 otherwise.
The prediction markets actually have an extensive and rather vivid history. Speculation on elections in the United States was commonplace at least until the 1940s — there were official markets on Wall Street, which eventually led to not very subtle competition. Newspapers wrote about the state of the market that there was a sense of impending rivalry; this was shortly before the mass emergence of public polls. The markets attracted thousands of participants, had millions of dollars in turnover (by today’s standards), and astonishingly accurate forecasts.
In 2001, InTrade was launched in Dublin, Ireland, arguably the most successful private company, but it went out of business in 2013 when the Securities Commission shut it down for financial irregularities. InTrade was a web-based platform that allowed members to trade real money on contracts related to numerous predictive markets with categories such as business, finance, etc. After the shutdown, an attempt was made to create “InTrade 2.0,” which was never officially launched, and by the end of 2014, all accounts were suspended and money was refunded.
In 2003, the U.S. Department of Defense, through the Defense Advanced Research Projects Agency (DARPA), launched a new website, the Policy Analysis Marketplace, where people could anonymously make predictions about future terrorist attacks in the country. Essentially, the U.S. government was allowing speculators to place bets on predicting government-sponsored assassinations, coups, and other terrorist attacks. Although the Pentagon defended the program, arguing that such futures trading had proven effective in predicting other events such as election results and oil prices, the program was predictably shut down due to public outrage.
Modeled after IEM, Victoria Wellington University in New Zealand launched PredictIt in 2014. Like IEM, PredictIt is a non-profit project using real money, but it received a rejection letter from the Securities Commission because it operates for educational purposes only. The reason for the rejection is that each question is limited to 5,000 traders and the individual investment limit per question is $850.
Polars — a new milestone in the development of prediction markets
With the emergence and development of blockchain technology, more and more financial structures are moving to a decentralized scheme of operation. Prediction markets are no exception, decentralization has made it possible to move to a new level. Prediction markets can now operate without control by any one party or operator. Typically, these markets operate through blockchain-based smart contracts that can be executed independently to distribute payouts.
In 2020, the POLARS platform, opens up new opportunities for people in its field. Creating polar tokens whose price depends on the results of specific external events. Within the POLARS platform, users can buy, sell and exchange polar tokens, as well as participate in the platform’s commission income distribution. The first pair of tokens available for trading on the POLARS platform are BLACK and WHITE tokens.
The next important problem faced by decentralized prediction markets is liquidity. POLARS solves this problem and provides liquidity even for events that are of little interest to most people, but, give participation to people who are interested in them.
POLARS retains all the benefits of working on a blockchain:
- Blockchain-based RPs cannot be destroyed by a simple ban;
- Blockchain-based PSDs are radically better protected against misrepresentation of results; they are transparent. It has no central leadership that can be bribed;
- Blockchain RPs can provide a high degree of anonymity to participants, allowing them to voice the most unpopular and disapproving opinions.
Prediction markets originated a long time ago, and as history shows, they are constantly evolving. POLARS is an idea that has worked for centuries, while keeping up with the times and making the most of the latest technology
The new DeFi platform for creating secure polar tokens, the price of which depends on the results of specific external events. Within the POLARS platform, users can buy, sell and exchange polar tokens, as well as participate in the distribution of the platform’s commission income.