Decentralization: The Solution

Prediction markets evolved out of the need to harness the wisdom of the crowd. They are, by nature, powered by people. Yet the centralization of most prediction markets goes against the very nature of prediction markets, while posing a threat to their value. In the McKinsey Quarterly, Surowiecki outlined several criteria necessary for a successful predictions market (Dye, 2008):

• The process must be decentralized

• The crowd must be diverse

• The outcome must offer a collective verdict

• The validation process must be independent

The solution, it seems, is a predictions protocol:

• Built upon a decentralized platform (so no one entity dictates the outcome)

• With the ability to tap into a diverse, global audience (studies found that predictions were less accurate when users were geographically proximate (Cowgill, et. al., 2009))

• Offering a collective verdict (based on market participation, not predetermined odds)

• Independent of centralized validation (and thus, not prone to exploitation)