The Evolution of Prediction Markets: From Papal Wagers to Blockchain-Powered Platforms

Prediction markets have a surprisingly ancient history. What we think of as a modern financial innovation actually traces back centuries, involving high-stakes wagers on everything from religious succession to political upheaval. The story of prediction markets reveals not just market evolution, but humanity’s perpetual desire to put money where our mouths are.

Centuries of Informal Betting: How Prediction Markets Were Born

Betting on important events predates modern finance by more than a thousand years. Historical records show informal prediction markets existed around military battles, royal succession, and the Chinese imperial civil service exams. However, the first formally documented prediction markets emerged in early 16th-century Italy, where people used organized markets to forecast papal succession and even published odds in letters. This practice became so prevalent that Pope Gregory XIV issued an extreme response in 1591: excommunication for anyone betting on papal conclaves.

The British turned betting into something more structured. During the 18th century, London coffee houses became impromptu exchanges where the elite traded on political scandals and changes of prime ministers. Jonathan’s Coffee House (which would later evolve into the London Stock Exchange) pioneered this practice. Odds were even published in contemporary newspapers—the world’s first prediction market leaderboard.

The most famous early participant was Charles James Fox, a British Member of Parliament who bet heavily on political events starting in 1771, wagering on outcomes ranging from tea trade legislation to the American Revolutionary War. His appetite for prediction markets eventually bankrupted him; his father had to bail him out with what would be tens of millions in today’s dollars. The parallel to modern whales is unmistakable.

Prediction markets arrived in America during the 19th century. Future president James Buchanan reportedly lost three parcels of land in 1816 to a bad election wager. New York’s attorney general, John Van Buren, logged over 100 bets totaling half a million dollars (inflation-adjusted) on the 1834 midterm elections. His father, Martin Van Buren, was vice president at the time and himself a documented election gambler.

By the mid-1800s, New York City pool halls became centers for prediction market activity. Unlike London’s elite coffee houses, these were rough establishments where common people and political figures alike placed bets. The 1876 election sparked the first major rules dispute when “Smoking Old” Morrissey, a famous boxer who ran the largest pool hall, faced a flood of irregularities. Instead of letting the chaos settle naturally, he refunded everyone’s bets—but kept his commission. No one dared object to a man of his stature. Election odds regularly appeared in journals, serving as the primary sentiment indicator before Gallup polls displaced them in 1936.

The Regulatory Labyrinth: Why Traditional Prediction Markets Struggled in America

The 20th century brought regulation and decline. British bookmakers like Ladbrokes pioneered election betting in the 1960s, offering odds on Conservative leadership races. Betfair emerged as the world’s largest peer-to-peer prediction market, operating legally in the UK where political and sports betting became culturally normalized. Americans, by contrast, faced intensifying legal obstacles.

The Iowa Electronic Market, launched in 1988 as an academic experiment, received implicit tolerance from the Commodity Futures Trading Commission (CFTC) under a gentleman’s agreement: keep individual positions under $500 and we won’t prosecute. IEM survived but remained deliberately small, more historical artifact than serious venue.

Intrade emerged as the game-changer. Founded in 2002 with backing from billionaires Paul Tudor Jones and Stan Druckenmiller, it offered peer-to-peer binary contracts where winners received $10 and losers got $0. Based in Ireland, Intrade maintained a tacit 2005 agreement with the CFTC: avoid commodities futures and Americans won’t be blocked. The platform became the go-to source for election odds in 2004, 2008, and 2012. CEO John Delaney became a familiar CNBC figure promoting the value of prediction markets. He died climbing Mount Everest in 2011, just weeks before the US government attacked Intrade for allegedly violating that 1995 agreement. Rather than litigate an unwinnable battle, Intrade expelled all Americans and went bankrupt.

Intrade is remembered for producing the McCain and Romney “whales”—massive bettors who accumulated enormous positions against Barack Obama, only to lose their fortunes and trigger a predictive swing toward the eventual winner. Another brief regulatory window opened in 2010 when Cantor Exchange received CFTC approval for movie box office futures—the only two futures contracts ever banned in America were onion futures and movie box office. The movie industry’s lobbying campaign was so fierce that Congress banned it within two months. Cantor Fitzgerald CEO Howard Lutnick now serves as US Secretary of the Treasury, as of early 2025.

PredictIt, launched in 2014 as Intrade’s US successor, received another “no action” letter from the CFTC using the exact same template as Iowa Electronic Market. Capping positions at $850 (adjusted inflation equivalent), it became the primary odds source for 2016 and 2020 elections. The CFTC withdrew its protection in 2022, citing overly gamification-oriented markets—including betting on weekly tweet counts. PredictIt’s struggle to maintain regulatory favor left it damaged, though rumors of restructuring persist.

Crypto Unlocks the Future: How Polymarket and Kalshi Are Reshaping Prediction Markets

The prediction markets landscape transformed dramatically in 2020 with the arrival of Polymarket and Kalshi, followed by experiments from Augur, Catnip, and FTX. These platforms offered crypto tokens worth $1 on correct predictions and $0 on incorrect ones. Most vanished or became jokes; FTX faced legal troubles unrelated to its prediction market operations. One prominent FTX whale, it turned out, had accumulated such massive Trump 2024 positions at SBF’s behest that the losses appeared as line items in the bankruptcy filing.

Today, Polymarket and Kalshi dominate, serving almost completely separate user bases that sometimes create price discrepancies across identical events. Kalshi, after graduating from Y Combinator, received full CFTC approval in 2020 for event contracts—specifically excluding elections. The commission formally rejected its election market application in 2022. Kalshi sued. When the Supreme Court’s 2024 Chevron deference ruling weakened agency power, the judge ruled in Kalshi’s favor, allowing election contract listings. Kalshi now pushes even further, offering sports betting and facing lawsuits from multiple states. It operates exclusively for US users with USD-denominated bets.

Polymarket took the opposite path: go global with crypto. All transactions occur on-chain via Ethereum’s Polygon Layer 2 network, with smart contracts processing every bet through UMA’s verification protocol. Users stake USDC (Circle’s stablecoin, insulated from crypto volatility), making bets entirely decentralized. After a January 2022 CFTC fine, Polymarket banned American users—though regulatory pressure persists.

Both companies were founded in New York by young, ambitious entrepreneurs backed by prominent investors and advisors. Their competition mirrors Uber versus Lyft or Visa versus Mastercard.

The Competition Heats Up: 2024 Election Reveals Prediction Markets’ Power and Problems

The 2024 US presidential cycle triggered explosive growth. Political upheaval—including one party’s late presidential candidate withdrawal—drove unprecedented media focus on prediction market odds as sense-making tools. Trading volumes for both companies skyrocketed.

One figure captured public imagination: the “French Whale,” a mysterious bettor who accumulated tens of millions in Trump positions within weeks, shifting odds dramatically. His prediction proved correct. But he represented something broader: prediction markets were finally getting noticed as serious forecasting instruments.

Beyond the Vote: What’s Next for Prediction Markets in a Polarized World

Prediction markets’ future depends partly on competitive dynamics between Kalshi and Polymarket, but more fundamentally on regulatory resolution. The CFTC’s stance remains uncertain. Kalshi’s legal victories and Polymarket’s DOJ scrutiny near Biden’s presidency exit created a precarious landscape.

Demand for innovative prediction markets has never been higher. Yet complexity and regulatory uncertainty throttle growth. New users struggle to navigate the landscape, and innovation stalls when legal status remains ambiguous.

Despite centuries of suppression, prediction markets endure and resurface whenever legal barriers fall sufficiently. The principle remains straightforward: when two people disagree, backing up words with money reveals truth. Aggregate that across thousands of participants and you unlock market wisdom.

Prediction markets will never be crystal balls. They function better as specialized instruments—more accurate than expert speculation and superior to polls because they incorporate poll data plus additional signals. As Western democracies fragment into polarized information silos, prediction markets offer a powerful counterbalance: markets require actual stakes, not just opinions. The future remains unknowable, but prediction markets illuminate it better than most alternatives. Regulatory evolution will ultimately determine whether these platforms become mainstream forecasting tools or remain niche instruments for the financially engaged.