Introduction of Background

The blockchain prediction market is the first smart contract on Ethereum and one of the first applications proposed by Vitalik Buterin, the founder of Ethereum, in the Ethereum white paper.

Vitalik Buterin had tweeted on September 24, 2020, "Honestly prediction markets may be one of the most underrated categories of ethereum dapps right now." Also, he was involved in prediction bets for the 2020 US election and bet correctly.

What is a prediction market? According to Wikipedia, it is a type of speculative market created for the purpose of making predictions.

Prediction markets (also known as betting markets, political betting markets, predictive markets, information markets, decision markets, idea futures, event derivatives, or virtual markets) are exchange-traded markets created for the purpose of trading the outcome of events. ——wikipedia.org

Someone might think that prediction markets are just like betting games. The biggest similarity between the two is the high degree of uncertainty, however, the distinctions are also very obvious. Prediction markets have 3 features that betting games do not have.

• Predicting the future. Prediction events in prediction markets are generally public events where people use their options and money to express their opinions, which is the public's feedback on the event whether the opinion is right or wrong. This group feedback can often help us determine certain future trends. This is why every time before a US election, people pay more attention to the public polls, although sometimes the results are not very reliable.

• Hedging the future. If someone has a position in ETH but is worried about the risk of a drop, he can take part in a prediction event about the price of ETH, betting that ETH will drop. In this way, if ETH ends up going up, the user will lose his investment in the prediction market. Instead, if ETH does go down, he will get prediction market prizes to compensate for the loss of his ETH position. This is equivalent to saying that certain prediction events can be a hedge against the real activity, helping to balance the risk.

• Inspire the future. If someone bets you $100 that you would dare to strike up a conversation with a handsome guy/girl. You might not have the courage to do it, but with the lure and incentive of money, you end up doing it. There are also a range of examples, such as betting on weight loss, fitness, and not being late, which make it easy to see why prediction markets actually have the ability to change the future by way of certain incentives.

In contrast to prediction markets, pure betting games based on random events (e.g. betting on size) naturally pale in comparison. The information generated by betting games is essentially worthless.