If you're five? Hmm.

You know money? Well, almost everybody has very little of it because it's being horded. This means people want ways to get more of it. One way people get money is to make bets.

Bets are an agreement to pay a given amount of money if a certain event takes place, like your big brother winning his sports game. You could bet me a cookie that he'll win, and I could bet he'd lose. If he wins, I give you a cookie. If he loses, you give me a cookie.

Now, because your big brother is so cool, I might think it's really unlikely he'd lose, so to make it fairer, I might want you to give me ten cookies if he loses, while I still only give you one if he wins. With such a cool big brother who's so good at sports, you might still think it's worth the small risk to get a cookie.

Now, because someone can get lucky and make lots of money from a small bet by guessing the unlikely thing is going to happen, a lot of people REALLY like betting.

However, people around the betting people also see many of those people betting and losing everything, which is really bad for that person and usually bad for everyone around them too. To try to prevent this, people create rules that say 'no betting.'

Now, as you probably have experienced, a rule against something doesn't mean people don't want to do it. You don't suddenly NOT want to play games because the rules say you have to go to class. The people who want to make bets, still want to make bets.

So, a group of people built a website where you can enter 'contracts,' where, based on an event in the world, people can agree to have paid each other. You could offer a contract that says you'll put 50 pennies into a bag, and anyone who wants to can put another 50 pennies into the bag, and then you both will seal the bag and whoever correctly predicted the result gets to take the bag home. If you think no one would want to take that contract, you can also offer to put in more and let the other person put in less so you and they feel like it's fair.

Now, the people who made the website made this process easier and faster by making the bags and pennies digital. This means you can set up 100 bags or 1000 or even more without having to carry all those coins. They also help you find people who want to take the other side of the contract, tell you what amounts of pennies people are putting into similar bags for their contracts, and act as a mostly neutral outsider to hold the bag until the contract is done. This is technically work, even if the works is mostly done by their computers, so they take a handful of pennies from each bag before handing it to the person who made the correct prediction. Those people are polymarket/kalshi/etc.

Now, you might be thinking, 'That just sounds like betting.' The important distinction is that it's not called betting. Because 'entering contracts' is not against the rules, people are free to risk their money in a very similar way to betting without technically breaking the rules because the rules say 'no betting.'