The economist says the election results show the potential of prediction markets and blockchain technology

The prediction market was more accurate in predicting the 2024 presidential election than traditional pollsters and pundits. Prediction markets, also known as betting markets, are where contracts conditional on events occurring in the future can be traded.

The potential shown by this success in predicting elections, coupled with the administration’s sympathy for cryptocurrencies, could lead to greater adoption, said a University of Cincinnati economist.

The success of the blockchain-based prediction market, PolyMarket, in predicting market outcomes. The election showed that cryptocurrencies and blockchain technologies have greater potential, said Michael Jones, Ph.D., assistant professor of economics at the Carl H. Lindner School of Business and director of the Cryptoeconomics Lab at UCLA’s Digital Futures. Than just investments.

“What’s exciting is that you’re seeing a real-world use case that’s getting a lot of attention that shows the value and benefit of using blockchain,” Jones said.

Polymarket is the largest prediction market in the world. Users can take a position on whether an event will happen or not. If they are right, they get their money immediately. It is built on blockchain, an immutable digital ledger of economic transactions that is not just recorded Financial transactions But anything of value, in a global and verifiable system.

Heading into Election Day, Trump was trading at roughly 60 cents on the dollar on Polymarket. Those who bet on Trump made a profit of nearly 40 cents per share once he won the election.

The market gave Trump greater odds of winning than most polls, which had Trump’s odds of winning roughly 50-50, and were closer to the final Electoral College tally.

“Polls are just people’s opinions, and pundits have their opinions, but there’s really no consequences if they get it wrong,” Jones said. “They may have had some pressure in the media. But if you got the market prediction wrong, you could have lost significant amounts of money.

“What people are starting to realize is that there is information in there Prediction marketsSo we have to take them seriously.”

Prediction markets can be used for more practical matters as well, Jones said.

For example, companies have used it to measure the likelihood of launching a product in the next year. Typically, employees are motivated to present optimistic forecasts to their employers. Prediction markets are more likely to get an unbiased opinion.

“The advantage is that it is built on the wisdom of the crowd,” Jones said. “If everyone is able to use their confidential information, their personal experiences with what they know, it brings everyone together and really puts money on the line.

“What you’re really doing is democratizing information gathering.”

Some companies have also used prediction markets to hedge against risk, Jones said. They may take a position that pays them money if something happens, such as a natural disaster or an unfavorable court ruling, that could hurt their business.

The Defense Advanced Research Projects Agency (DARPA), part of the US Department of Defense, has been experimenting with using prediction markets to predict things like terrorism, coups, and recessions.

The DARPA project was controversial as there were objections to people profiting from tragedies such as terrorism. However, other people see the knowledge gained from the prediction market as more valuable than the potential downsides.

“Economists have taken both sides of this,” Jones said. “If you need to release this information, are you willing to accept that the quid pro quo is that someone might benefit from the higher probability of saving lives — because you know there’s a higher probability of an event occurring?”

Over the past two years, the CFTC has banned US citizens from participating in some prediction markets. However, Jones said it would be naive to believe that Americans have not participated, including in the election prediction market, with tools such as Virtual Private Networks Allow users to hide their location online.

During the Joe Biden presidential administration, the US government, including the Securities and Exchange Commission, has been active in pursuing cases against cryptocurrency companies and pursuing regulations. Jones said there will likely be fewer regulations during the Trump administration.

“Many investors expect a lot of those issues to be dropped,” he said. “I think a lot of the regulations around U.S.-based cryptocurrency companies will be improved, so it will open up more economic activity for those companies.”

Jones predicts that it will be easier for cryptocurrency companies to locate in the US and build their businesses here. He also expects more companies and individuals to embrace cryptocurrencies as an asset class.