A Preliminary Research of Prediction Markets Based on Blockchain Powered Smart Contracts

Abstract

Prediction markets are markets where participants trade contracts whose payoffs are tied to a future event, thereby yielding prices that can be interpreted as market aggregated forecasts. Past studies have shown that the prediction markets can provide accurate forecasts, sometimes better than sophisticated statistical tools. Due to their advantages, prediction markets have been widely used in the prediction of elections, project management, product quality, and impact of events. However, prediction markets also have some limitations, e.g., poor anonymity and limited market liquidity. In this paper, we propose to apply blockchain powered smart contracts to the prediction markets. First, we give a comprehensive overview on the prediction markets, including their theoretical basis, classification and applications. Second, we present how to design prediction markets based on smart contracts. Then, the algorithm of contracts implementation is proposed. Finally, in order to verify the effectiveness of the algorithm, an intra-enterprise prediction market is built based on a private blockchain. The experimental results show that the market can make accurate prediction for a particular event. In addition, the autonomy, self-sufficiency, and decentralization characteristics of blockchain make the prediction markets more efficient and robust.