Enabling Transparent Prediction Markets with Smart Contracts

The blockchain can make prediction markets more secure and transparent.

Moving prediction markets onto a blockchain requires two main components: smart contracts and oracles.

Users send money to the smart contract and at the time of money distribution, the smart contract autonomously evaluates the results of the event and sends the money to the winner.

The oracle provides information for smart contracts and is essentially relayers of information.

Smart contracts cannot receive information that is external to the blockchain so an oracle publishes the required data on the blockchain for it to evaluate.

If a user bets on a football game, an entity would create a smart contract for betting on the game.

Once users make their prediction and send their money to the smart contract on a blockchain, the funds must be in cryptocurrency.

After a payment is submitted, the smart contract holds the money until the result of the game is published and pays the winners without human interaction.

Users do not need to trust the creator of the smart contract, they need only to trust the smart contract itself, which is publicly available to analyze.

Prediction markets can become more secure and more open with the blockchain, smart contracts, and oracles.