“Potentate of Profit?”
Augur is a decentralized forecasting tool – designed to create more accurate and a wider scope of identification for any of the potential outcome of any particular event.
Released in 2014, the system was developed by Jack Peterson and Joey Krug on top of the Ethereum network, with a beta preview release going live in March 2016.
Unlike most other crypto systems, it’s been designed around a core system – to provide predication services to buyers. The idea is that people will buy questions on a central website (with fiat currency), to which people are able to bet on the outcome.
For example, “Who will win the Presidency in 2020?” – the way the betting system works is $0.50 each way, meaning that anyone can place a $0.50 bet and win $1 if their answer is correct. They lose $0.50 if they are incorrect.
The primary reason for the system is to explore a psychological phenomenon called “the wisdom crowds” – the notion that if you take the opinion of a crowd, their average responses will often predict the correct answer. Obviously, this is highly subjective – which has made the space somewhat tricky in the past.
If Augur can provide a decentralized way to achieve this, their system not only provides for the likes of political polling, but the likelihood of a stock retaining its value and even whether a particular weather pattern will occur (hurricane etc).
An intruiging proposition, but will it work?
What is Augur?
The point of Augur – as mentioned – is to provide consensus-driven “events prediction” for any event that may happen in the world. Whilst it sounds very similar to betting shops and casinos, the underpin of the system is the idea that people will pay for questions, which are then facilitated by people who answer.
Because of the decentralized nature of the system (and that it’s built on Ethereum’s platform), the removal of any centralized clearing-house means that the more pure data can be used in the system. Not only does this allow for much sharper predictions (based on real information), but also allows for faster turnaround times.
What’s interesting about Augur especially is its adoption into the blockchain community at large – with Ethereum’s Vitalik Buterin stating “[Augur] could produce some incredibly useful data” and that it was “super exciting. We talk about it a lot internally”.
The system has also enjoyed a strong roster of partnerships with companies such as Microsoft and IBM providing it to their cloud computing clients.
Whilst the system works well, and seemingly provides a useful way to encourage large amounts of people to voice their opinion (with incentives that make most put the choice they feel will be the genuine outcome).
The main markets for this type of system are sports betting, stocks/shares/financial, entertainment and research. Even applying the system to the likes of Twitter consensus would give users the ability to determine whether a topic is worth following.
Ultimately, a novel concept that’s not trying to reinvent the currency system of the world (like all the Bitcoin clones are doing). If it gains traction, it could provide a very good ecosystem from which businesses, and even governments could gain valuable insights into what the citizenry really think.
Who created it?
Founded by Jack Peterson and Joey Krug , the system was designed on top of the Ethereum platform (originally meant to be Bitcoin).
- Dr. Jack Peterson
Becoming fascinated with blockchain & software development during his doctorate, Jack determined that peer-to-peer technology is the most effective, and committed the majority of his time to projects around this topic. He is responsible for the Augur API and JS frontend.
- Joey Krug
Senior tech mind working on the project, Krug dropped out of Pomona College to work on Augur full time in 2015. Having worked on a number of blockchain projects previously, his talent is well regarded in the crypto system community. He became a “Thiel Fellow” in June 2016, joining Vitalik Buterin.
Why does it exists?
To quote the Augur Whitepaper:
Augur is a trustless, decentralized platform for prediction markets. It is an extension of BitcoinCore’s source code which preserves as much of Bitcoin’s proven code and security as possible
Each feature required for prediction markets is constructed from Bitcoin’s input/output-style transactions.
In other words, the system is designed to provide a decentralized way to gauge opinion / sentiment on any topic (granted if data exists). Whilst a number of notable figures have come out in support of the system, its lack of adoption is concerning.
The problem with this system is that it borders on gambling.
Thus, whilst it may appear to be a good thing that it gains trajectory, as we’ve seen with Bitcoin, ANY financial incentive often leads to massive speculative trading . This may warp the system.
And – as the 2016 US presidential election showed – “opinion polls” could almost entirely be wrong, the idea that the crowd will provide an accurate array of data to determine the outcome of an event might not be so valid.
Consequently, in order to measure the success of most crypto coins, you need to examine several metrics; namely the adoption a coin may have (number of companies / exchanges supporting it), and then the velocity of its transactions (how much is being put through its network).
Whilst all of this can be indicated through the price and market cap of the system, you can only really gain the correct insight into it by having boots on the ground. To this end, general consensus with the system is that it has a number of hurdles to overcome in order to become universally accepted as an accurate representation of public opinion:
- Do people really care about prediction markets?
This is the main problem – if people don’t really need a market prediction tool, they won’t use it. Consequently, if you’re looking at whether this system will become economically viable, you need to consider the base ideal – do people even care?
- Will it achieve critical mass?
The main idea behind the system is to encourage users to vote on the outcome of particular events. The main way this will work best is if the user-base is huge. The bigger the user-base, the more effective the predictions will be. Getting to this level is known as critical mass and is necessary in order for the system to be considered successful.
- Can Ethereum scale enough to accomodate it?
Because it’s built on top of the Ethereum platform, it’s vital that ETH can carry the weight of any of the transactions that Augur sends through. Whilst the team at Ethereum are confident that it can, there are some in the community with questions.
- Will any competitors come?
The sports betting market is huge, and likely one of the main avenues for growth of this type of product. However, there are many vested interests in the space who have multiples more money, influence and connections. These could easily wipe out any attempts Augur has to try and achieve market share.
- Will the Solidity rewrite cause any further complications?
The original version of the system was written in “Serpent” (an older Ethereum scripting language). It was discovered that this had bugs, leading to the development of “Solidity“, pushing back their “go-live” time even further.
As with any crypto system, you have to take most of the hype with a pinch of salt.
Yes, the idea is interesting and the proposition certainly makes sense – but there are a number of roadblocks that could derail the project. If you’re interested in investing into the system, you’ll probably be best waiting for any further developments – especially involving user numbers.