Why legality, incentives, and information matter more than you think
Let’s face it: if you tell someone you're betting on politics or whether a company will hit its deadline, you're probably going to get one of two reactions:
“Whoa, that sounds like gambling!”
“Wait... is that even legal?”
So let’s talk about the elephant in the room.
First, What Is Gambling?
Gambling is when you stake money on an uncertain outcome, usually for entertainment or profit. Think blackjack, roulette, or your neighborhood poker game.
Uncertain outcome?
Money involved?
Skill matters a little, luck dominates?
Sounds straightforward, right?
But Wait... Isn’t That Also What Prediction Markets Do?
Sort of. But here’s the twist:
Prediction markets are designed to extract and reveal useful information — not just provide entertainment.
Let’s compare:
GamblingPrediction MarketsGoalEntertainment, chance winsElicit real-world insightSignalsNo external meaningPrices = probability signalsIncentivesJust win the potBe right = be rewardedOutcome utilityInternal to the gameExternal to the worldSocial valueOften zero or negativeHigh when designed well
So yes, both involve money and uncertainty. But one is mostly fun and noise. The other has the potential to function as a public knowledge infrastructure.
What the Law Says (Spoiler: It Depends)
Let’s break it down by regions:
United States
If it looks like betting + has real money, regulators might call it a commodity or event future
Kalshi, for instance, is licensed by the CFTC (Commodities Futures Trading Commission)
But political markets (e.g. “Who will win the election?”) are still in a grey or forbidden zone
European Union
Many countries treat prediction markets as a subset of gambling
Requires licenses and local oversight — messy and inconsistent
Asia (e.g. China, Singapore)
Most outright ban real-money prediction markets
Even play-money can face scrutiny if incentives look “too real”
So Why Do Some Platforms Use Play Money?
Platforms like Manifold avoid the regulatory headache by using virtual points (e.g. "Mana") that:
Can’t be withdrawn
Can’t be traded for cash
Are just for fun, reputation, or in-platform perks
This means:
You get the information value of the prediction market — without triggering legal alarms.
Perfect for community forecasting, meme markets, and onboarding new users.
The Spectrum: Casino ←→ Financial Market ←→ Information Market
Prediction markets live on a spectrum.
If you're placing a $50 bet on a coin flip with no external meaning: 🎰 Gambling
If you're hedging CPI inflation with a regulated futures contract: 📉 Finance
If you’re forecasting whether OpenAI will release GPT-5 this year: 🔮 Information
Some markets blend elements of all three. And that’s why regulators get nervous.
Design Makes a Difference
To stay compliant — or at least low-risk — most platforms use some of these tools:
Topic whitelists (No “When will X die” markets)
Betting limits (e.g. Kalshi max $25,000 per user per contract)
Play-money-only tiers
KYC/age checks for real-money markets
Transparency in data and outcomes
Good prediction markets aren't about “just betting.” They're about structured belief expression.
Vitalik on Legality and Value
Vitalik Buterin (co-founder of Ethereum) argues that:
“Prediction markets are not just about gambling. They're a tool to elicit and share information — with real-world value.”
He even suggests they could be used to replace costly expert judgment, power DAO governance, and feed AI systems with better ground truths.
TL;DR
Yes, prediction markets involve risk — and sometimes money
No, that doesn’t make them “just gambling”
The intention, design, and impact matter more than the mechanics
Think of them like Wikipedia with price signals, or Twitter with incentives to be accurate.
They're not perfect. But they’re definitely more than just a game.