Augur is prediction market platform that rewards a user for correctly predicting future events. Prediction markets allow users to purchase and sell shares on an outcome of an event. The current market value of a share is an estimate of the probability of an event actually occurring. The prices of each share add up to one dollar so if you buy a share at even odds it will cost you $0.50 cents. If you end up being right, you receive a dollar for each share. These markets rely on a scientific principle known as the "Wisdom of the Crowd" which states if you ask enough people something, your average answer is far more accurate than any expert.
This allows Augur to create one of the most powerful forecasting tools. The problem with previous predication markets is that they were centralized. Allowing them to be easily shut down. Another problem is that with any prediction markets, someone has to report what actually happens after the event occurred. In centralized markets, one person does this, which means there can be mistakes or outright manipulation.
With Augur, there are thousands of users reporting on these outcomes using something calling reputation. Using Augur, anyone, anywhere in the world can create a market asking a question about anything. Market makers provide some initial funding for the market and in return, it costs them some trading fees. Anybody can freely buy and sell shares in the outcome of that market. In the current share prices provide the best estimate of that event occurring. Imagine being able to Google questions that haven't happened yet and receiving accurate odds of their occurrence. That power, the power to glimpse into the future is what Augur believe everyone should have access too.
People can make some pretty odd decisions. Those pants with that shirt? Really? But when you group us in a group we have an uncanny ability to make smart decisions and even predict the future. Predictive markets are all about buying and selling shares based on the outcome of future events. It's like stock market trading. Although people can bid on everything, from the weather to sporting events. Each wagers an opinion, and if we harness those opinions on a grand scale, we can build the most powerful forecasting tool mankind has ever seen. That's when Augur comes into play. Augur is a decentralized prediction platform anyone can use.
Create markets, buy shares, report on outcomes, all while adding each individual's knowledge to the crowd's predictive muscle. Augur works by using blockchain technology to rally the power of the group. First, a user creates a prediction market. For example, will a penguin get elected president in 2016? Next, people place wages using a simple market-based odds system When the event passes, the crowd verifies the results. Participants are rewarded for honest reporting and of course for bidding on the correct result. Augur opens predictive markets to the entire world putting the forecasting power of the crowd to the ultimate test.
In our example prediction market, let's use the odds of Donald Trump winning the presidency. The event, in this case, an election occurs and Trump wins. We need to report this data to who won into the blockchain. How can we report on the transaction if the contract never has access to the internet? We simply ask the crowd. Each user has a score called reputation which is a cryptographic token. These rep tokens require users to buy them as reporters to report them on the predictions on Augur which lets them serve as an oracle on Augur. Augur does this during a reporting period that is split into two parts, within the first month of the event reports are securely and privately submitted to the network. One month later the second part of the reporting period occurs and the report is submitted in plain text for all of the public to see. When this period is over consensus on the outcome is generated and two financial events occur.
The wager itself is paid out to the person who made the correct prediction. Reporters who own reputation are also rewarded for honesty, as fees paid out by the wagerers. Reporters who lie or failed to report end up losing reputation which goes to the people who reported honestly.
One of the longest-lived applications on the Ethereum platform. Augur is on an entirely separate blockchain, it's a token. Augur is a decentralized prediction market, now that seems pretty complicated but in reality, we've all interacted with one of these before. It's a way of people voting on things that would happen in the future.
People vote with their money that something in the future will occur. Augur pitches itself not as just a gambling platform but has the ability to predict the future. By gathering all of these data points. They place a lot of value in the crowd as opposed to in experts Why do these vote from all of these different people have value? Well, that's because their votes have money behind them. They have a stake in their vote. So why would people vote with their money? Well, their money could become more money if they vote and their vote turns out to be right. The thing that they predicted ends up coming true, they get paid.
So people all have an incentive to vote correctly so that they could make money. Therefore we get all of these different data points from around the world on the blockchain which is Ethereum in order to get better data. So these are predictions that are backed by actual money.
There are a few examples of these decentralized prediction markets worked in the past. First, companies like Google, Microsoft, HP have all used prediction markets internally by allowing their employees to vote on what projects to proceed on and we all know these companies have been incredibly successful and prediction markets seem to have worked for them. This concept can trace itself back into Austrian economics which was really powerful economists in the mid 20th century that really pushed forward the idea of free market. And what's more free market than letting your money do the talking for your voting? Where the people as a group have more influence then just some experts, there is one major risk with this, and there is a crowd mentality where you vote on what you think other people will vote on instead of what you think is the best outcome. But there are many ways to circumvent this and we think that the Augur team has a bright future ahead of them.
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