From Papal Elections to Polygon: A Short History of Prediction Markets

In 1503, people in Italy were already betting on who would become the next Pope, and the practice was old enough by then that contemporary observers described it as nothing new. Five centuries later, within hours of Pope Francis's death in 2025, Polymarket had taken in $3 million in wagers on his successor.

Same instinct. Same question. The technology changed everything and the underlying human behaviour changed almost nothing — which is the part of this story most people covering Polymarket and Kalshi as a 2024 invention have completely missed.

The Vatican's actual problem with gambling

By the late 16th century, betting on papal conclaves in Rome had become organised enough that odds were being quoted in private correspondence between merchants and diplomats — essentially an early information market, where the price of a "share" in a given cardinal reflected real intelligence circulating through Rome's social networks.

Pope Gregory XIV's response in 1591 wasn't really about gambling morality. It was about market manipulation in the most literal sense available to him: he threatened excommunication because the Vatican feared that financial stakes in the outcome would corrupt the conclave itself — that cardinals or their associates with money riding on the result might act to influence it. This is, almost word for word, the exact concern regulators raise about modern prediction markets and insider information. The mechanism is identical. Only the enforcement tool changed, from excommunication to CFTC settlements.

The coffee houses that became the stock exchange

Jump forward two centuries to 18th-century London, and the throughline gets even stranger. Jonathan's Coffee House — where merchants gathered to trade information and place wagers on parliamentary scandals, prime ministerial changes, and political outcomes — eventually became the London Stock Exchange. The institution that now represents the pinnacle of regulated financial infrastructure was, in its original form, a venue for exactly the kind of informal political betting that modern regulators still can't decide whether to call gambling or finance.

British MP Charles James Fox became one of history's first documented prediction market "whales," wagering heavily enough on political and personal outcomes to face genuine financial ruin — a cautionary tale that predates the term "whale" by roughly 250 years but describes the exact same behaviour pattern regulators worry about today.

America's pool halls and the first rules dispute

The US tradition runs through New York pool halls rather than coffee houses, with odds on presidential elections published openly in journals by the late 19th century. The 1876 election — one of American history's most contested, eventually decided by a congressional commission — triggered the first recorded prediction market rules dispute, when organisers had to issue refunds while keeping their commission, an outcome that would be instantly recognisable to anyone who has watched a modern prediction market argue over settlement terms on a disputed result.

Research by economists Paul Rhode and Koleman Strumpf estimates that betting turnover during US presidential elections historically reached over 50% of total campaign spending — meaning, at points in American history, more money changed hands betting on who would win than the campaigns themselves spent trying to win.

Why this history actually matters now

The reason this five-hundred-year throughline matters isn't trivia. It's that every argument currently being had about prediction markets — are they gambling, are they finance, do they corrupt the events they're betting on, should insiders be allowed to participate — has already been had, multiple times, in different centuries, under different enforcement regimes, and none of those previous attempts at resolution actually settled the underlying tension. Gregory XIV's excommunication threat didn't stop papal betting. It just pushed it underground for a few decades until enforcement attention moved elsewhere.

What's actually new about the Polymarket and Kalshi era isn't the existence of prediction markets. It's the settlement speed and the addressable audience — a $3 million market forming within hours of a real-world event, accessible globally through a smartphone, instead of through private correspondence between merchants who happened to be in the right city.

That's the detail Malta's regulators appear to be wrestling with right now: not whether to regulate something genuinely unprecedented, but how to regulate something that has existed in some form for five hundred years and has just acquired, for the first time in its history, the infrastructure to move at the speed of the internet.

Five centuries of precedent, and the rulebook still isn't written. That should tell you something about how hard this actually is — and why getting there first is worth more than people realise.