Crypto, AI and the future of prediction markets.

AI has blown up, lots of crypto people have pivoted to "Crypto + AI", here's a cool example of the sort of things that can be built with that combination:

Prediction markets that allow natural language inputs and that hold the funds in escrow in smart contracts.

Let me explain that in non-nerdy terms. Prediction markets are just a way for people to bet on an outcome. Any outcome. Who wins the presidency, who wins the football, whether AMZN stocks stay above $100 for the next 5 years without ever going below. Whether we cross 2 degrees global warming by 2050. Pretty much anything that you can take multiple positions on, and bet against each other.

What are the two big problems with current prediction markets? The first is finding someone to adjudicate the bet, finding a trusted third person to say whether I won or you won. The second is trusting the person who will hold the money for both of us, that they will fairly adjudicate the outcome and pay out the winner.

Well, AI solves one, and crypto solves the other!

Now that AI is extremely good at natural language processing, and smart contracts are very good at holding and paying out money to two competitive parties, you can have a product that looks like this:

I tell the AI my bet in the clearest terms possible:

I am taking the position against thisguy.eth that from 12:00ET May 10 2023, to 12:00ET June 10 2023, BTC will outperform ETH. The value of the bet is 1 ETH.

And the other guy feeds it the opposite information:

I am taking the position against thatguyoverthere.eth that from 12:00ET May 10 2023, to 12:00ET June 10 2023, ETH will outperform BTC. The value of the bet is 1 ETH.

Then the AI processes both your bets, and explains the bet back to both of you, for you to both read over the terms:

I am adjudicating a bet between thisguy.eth and thatguyoverthere.eth. The value of the bet is 1 ETH. I will take a measurement of the ETH/BTC pair at 12:00ET May 10 2023, and another on June 10 2023. If the price of BTC has outperformed the price of ETH, I will pay 1 ETH to thisguy.eth. If the price of ETH has outperformed the price of BTC, I will pay 1 ETH to thatguyoverthere.eth

Then both parties click "Agree", sign with their wallets, and send 1 ETH each to an escrow smart contract that holds the 2 ETH and pays it out to the winner.

One of the great things about an automated prediction market like this, apart from the elimiination of counterparty risk, and the guarantee that the winner will be paid out immediately and fairly, is that it allows for small, trivial, stupid bets that would be very hard to make on a regular prediction market, because nobody could be bothered.

And, while these bets would be currently limited in terms of the data they could access, as more and more data is brought on-chain, the bets that can be made will become more and more sophisticated.