Delivering a Share of the Future
Imagine a world where you could be paid for being right—and for helping accurately predict the future as a result. That is the sort of world the Augur Project envisions.
Augur is an open source, decentralized prediction market platform that uses information aggregation—the “wisdom of the crowd”—to project outcomes of future events, and allow participants to buy shares in those outcomes.
Augur is built on the Ethereum decentralized Web 3.0 publishing platform. In a blog post, Augur core developer Joey Krug explained, “With Ethereum, we don’t have to deal with low-level networking or security, that all falls under Ethereum’s purview… . It’s also much simpler than building on Bitcoin core; we can write smart contracts… and compile down to EVM opcodes that are more robust than Bitcoin’s opcodes. Finally, building on Ethereum allows extremely quick iterations: instead of taking weeks or months to make small changes we can make and test them within days. This means we can build our software faster and improve upon it quicker than with any other method, which after enough iterations, allows us to build the best possible platform for prediction markets.”
Vitalik Buterin, founder of Ethereum, has come onboard as one of Augur’s key advisors. He has provided both financial and technical support for the project.
“I found out about the Augur project in late 2014, back when it was not even called Augur and was still simply a fork of Truthcoin,” Buterin told yBitcoin. “I had been interested in prediction markets and concepts like futarchy, which bind prediction markets directly to decision-making processes, and was excited to see a project actually implementing them. It seemed immediately obvious to me that this was one of the first few concrete applications of cryptotechnology that was going to be actually useful and potentially quite huge.”
In an interview with yBitcoin, Joey Krug and Jeremy Gardner, Augur’s Director of Operations, explained that Augur’s mission is “to create better public forecasting tools” that can be used to enhance decision-making processes. When people have accurate information, they can make better decisions. The platform operates on the principles that (a) people will choose event outcomes that will preserve their funds, and (b) the most popular answer in a large crowd is usually the most accurate and truthful when it comes to predicting outcomes.
How Does Augur Work?
Augur is an open source, decentralized application platform—not a company—that uses bitcoin as its principal token; that is, funds go into the platform as bitcoin and are taken out as bitcoin.
Participants can set up prediction events and/or buy shares in the outcomes of events. All prediction events and share transactions are recorded on the decentralized Augur platform. An example that Augur commonly uses is the outcome of the next U.S. presidential election. “Hillary Clinton will be elected president in 2016” a market could state. An individual can then buy “Yes” or “No” shares of that event, selling at any point before the market closes. If 63 percent of shares purchased were “Yes,” then the price of such a share would cost 63 cents. That percentage, according to economic and academic research, can also be understood as the probability of the event occurring. People owning shares in the correct outcome can collect the value of those shares, without paying a trading fee, when the market closes.
How does the platform recognize the real outcome of an event? This is where Augur’s unique “Reputation” (REP) tokens come into play. Jeremy Gardner explained that your Augur Reputation is like a score attached to your address. The Reputation scoring system relies on the idea that the truth is a “schelling point,” or answer people naturally come to: a meeting point of truth. Put another way, the consensus of a crowd tends to gravitate toward the truth.
Augur users are required to report the outcomes of events using verifiable Internet sources. If a user reports on events with outcomes that match the rest of the crowd, his or her Reputation score increases. People who make false reports—outcomes that disagree with the consensus—will lose Reputation, and their reporting will carry less weight in the future compared to other, more truthful reporters. Thus the more Reputation you have, the higher the value of your reporting—so as more people report on events and greater voting weight (Reputation) is given to reporters who’ve proven they’re the most reliable in sticking with the consensus, event outcomes will become more trustworthy.
Gardner and Krug explained that earning and using Reputation is entirely optional; users can simply buy shares of given event outcomes and do nothing more. However, they stressed the importance of having as many “oracles” or reporters involved in the platform as possible, in order to create a decentralized and accurate system. Furthermore, Reputation holders receive a portion of the trading fees in the markets, with market makers receiving the rest. Should Augur succeed in reaching a large audience, reporting payouts could be quite considerable.
When Augur launches its Reputation token sale later this year, “Our goal is not to raise a ton of money,” said Gardner. “We want to garner as many REP holders as possible, in order to sustain the software—the software relies on a large crowd to generate a reliable “crowdsourced” consensus on the truth of whether predictions happened or not. What we do raise will fund our nonprofit, the Forecast Foundation.” The foundation provides operational support for Augur, with the overriding goal of creating and maintaining the prediction market software.
The Future of Decentralized Prediction Markets
“Augur does a good job of showcasing one of the benefits of decentralization beyond the incredibly low-hanging fruit of regulatory avoidance: survivability,” said Vitalik Buterin.
Because Augur is fully decentralized, it has no central point of failure. It has no main server; no one owns it; no one controls or operates the market; and its code is open source.
Like Bitcoin and other decentralized protocols, Augur is not at risk of being seized or shut down. People who want to use the software simply click on a link to download the Augur client as an app or a Web page. Users must agree to terms of service that prohibit use of the software in violation of their locally applicable laws.
At first glance, prediction market platforms may appear to be nothing more than dressed-up betting sites. But Krug and Gardner insist that is a severely limited perspective. As Augur evolves, its founders expect people to find uses for it beyond anything they can imagine or predict today. Augur is a public forecasting tool. With better forecasting tools, people are better equipped to make all sorts of decisions. The implications for political, social and economic policy decision-making are far-reaching.