Staking Your Claim on the Future: The Evolving Landscape of Prediction Markets
An overview of the evolution and development of prediction markets
From ancient betting on the fates of battles and kings to the modern-day realm of cryptocurrency-based platforms, prediction markets have a rich history reaching back millennia. These markets allow individuals to wager on the outcome of significant events, spanning the political and beyond.
Although the practice might seem novel, roots of formalized prediction markets trace back at least five centuries. The story begins in Italy with bets on the next Pope, as correspondence cited corresponding odds. Yet, even centuries ago, attempts to regulate these markets occurred, such as Pope Gregory XIV's 1591 decree excommunicating anyone who partook in bets during a papal conclave.
Fast-forward to the 2025 Roman Pope elections: Twitter user Domer, a self-proclaimed politics betting aficionado, shared insightful first-hand accounts on approaching this event.
In Britain, prediction markets found their footing in the 18th century London coffeehouses. Rumors about parliamentary scandals and changes in prime ministers were commonplace among the aristocracy, frequently published in contemporary newspapers, alongside odds on event outcomes. The British Parliament member Charles James Fox serves as the first documented "whale" in this context, losing tens of millions of dollars modern equivalents in political bets, including wagers on the repeal of the Tea Act and the American Revolution.
Across the Atlantic, bets on election outcomes have been a known practice since at least the early 19th century. In the aftermath of the 1816 elections, James Buchanan, who later became President, lamented losing three land plots over bets on the wrong candidate. The first known "book" in American territory, John Van Buren, made over a hundred bets on the 1834 midterm elections, totaling an amount equivalent to half a million dollars today.
Yet, it wasn't until the 1960s that the era of political betting began to transform into modern predictions markets with the establishment of Ladbrokes in London. Their markets focused on intra-party leadership elections within the Conservative Party, setting the stage for the dialogue leading to today's thriving predictive markets.
Now, two primary players dominate the industry: Kalshi and Polymarket, each serving unique user bases. Kalshi, registered with the Commodity Futures Trading Commission (CFTC), expanded offerings to sports betting in addition to event contracts. Simultaneously, Polymarket, a cryptocurrency-based platform, operates on the Ethereum blockchain.
The future awaits, as these platforms continue to evolve, attract new users, and navigate legal complexities. Prediction markets remain imperfect predictors yet invaluable tools to gain insights into public opinion and future events. But remember, they should not be relied upon as an all-knowing oracle; instead, view them as a beacon shedding light on an otherwise murky future.
Glimpses into the Past
- Informal Markets: Prediction markets have existed for over a thousand years, taking on various forms, from battles and royal succession to imperial exams in China.
- Formal Markets: Prediction markets received their first formal embrace in Europe during the 16th century, with bets on papal conclaves and appearance of Italian correspondence with odds.
Innovations Along the Way
- Iowa Electronic Markets (IEM): The IEM, started in the 1980s, paved the way for formalized prediction markets, offering participants a platform for buying and selling contracts based on election outcomes.
- Technological Advancements: The rise of the internet and digital platforms enabled the expansion of prediction markets, reducing transaction costs and increasing accessibility.
Persisting Challenges
- Legal and Regulatory Evolution: The CFTC plays a significant role in regulating prediction markets, particularly in the U.S., shaping the landscape through ongoing debates about what constitutes "gaming." Federal and state gambling laws continue to impact the legality of sports betting and, by extension, political prediction markets.
- The rich history of prediction markets spans beyond a thousand years, extending to various aspects of life such as technology, finance, politics, and general news.
- Over centuries, prediction markets have been regulated by authorities, reflecting on the evolving landscape of technology, politics, and finance, as seen in the example of the pope excommunication in 1591 and the emergence of digital platforms in modern times.
