Augur is a dApp which has been created on the Ethereum platform designed to create a marketplace for predictions and pay users who successfully give the correct answer to a question. The app covers markets such as Sports, Politics, Crypto, Agriculture, Cimate, Housing, Finance, Medicine, Science, Stocks and Temperature.
Prediction markets are one of the prospective use-cases for blockchain technology being popularized today. These applications rely on crowd-sourcing intelligence on future events. The argument states that the wisdom of the crowd is more accurate than the opinion of any single professional. The chances are that if you ask a lot of people a question their average answer will be very accurate and more reliable than an answer from any central authority.
Prediction markets are similar to binary trading options and works on an all or nothing principle. The user only receive rewards if they predict the correct outcome.
The name Augur seems very aptly chosen as the platform is essentially an oracle. Despite prediction winnings, there are other ways to earn cryptocurrency on Augur.
How Does Augur Work?
Users receive rewards for contributing their knowledge and insights to the Augur platform. How this works is that users can buy shares in the outcome of any event. The price is calculated on how likely that future event is bound to happen. The price of a particular outcome increases as more people buy into that outcome. There is also another way to earn profits. Users can invest in outcomes with low probabilities and hang on to these shares before the final results are released. As the chances rise of these outcomes being right users can sell their shares and earn a profit. Each of the shares of a particular event costs $1. If users buy shares at even odds the share will cost them 0.50c. It means that they if they are correct in their prediction that they will earn $1 for every share invested. If they are wrong their lose their investment. The odds are calculated out of a hundred percent. At even odds it means that an event has a 50% percent chance of happening.
The Prediction Market
A tremendous amount of forecasting data is available to the Augur prediction market. In this way the developers can create an immensely powerful tool. The prediction market is also decentralized. The outcome of any event is logged by the users who have made these predictions. Instead of a central person who can manipulate the outcomes of any event or make a mistake, the smart contracts take care of this. Thus there is more incentive for people to be honest about their views on the outcome as it has a financial implication for them.
The Augur system relies on a community score called Reputation or REP. All payouts are automated so there can be no human error. Imagine the ability to search for any future event and that the probability of outcomes for this event will be publicly accessible via a search engine.
Augur has a functioning beta dApp which you can try out now.
What is REP?
The REP token is an Ethereum-based ERC-20 compatible token that runs on the Ethereum network. The REP token is a reputation token that is linked to reporting on the actual outcome of events. Users who report on events have to do this every two months. They will then earn REP rewards. Half of all the transaction fees in the system are divided up and and paid out to each user. This reward is calculated as a percentage of the amount of REP each user owns. Bonds are posted in Ethereum (ETH) and converted to REP on the platform for certain transactions. Market creators do not have to own REP tokens but initiate the market in a single ETH transaction. The bonds are automatically split into two separate transactions.
How to Buy REP
You are not able to purchase REP with “Fiat” currency so you will need to first purchase another currency – the easiest to buy are Bitcoin or Ethereum which you can do at Coinbase using a bank transfer or debit / credit card purchase and then trade that for REP at an exchange which lists the token. Read on to see how to purchase it.
Register at Coinbase
For first time buyers of crypto currency, we recommend that you use Coinbase to make your first purchase – its easy to use, fully regulated by the US government so you know it is one of the safest and most reputable places to purchase cryptocurrency from. Coinbase offers the ability to purchase Bitcoin, Litecoin and Ethereum with a credit or debit card or by sending a bank transfer. The fees are higher for cards but you will receive your currency instantly.
You will have to carry out some identity verification when signing up as they have to adhere to strict financial guidelines.
Make sure you use our link to signup you will be credited with $10 in free bitcoin when you make your first purchase of $100.
To get started, click the “Sign up” button where you will be taken to a registration form where you will need to enter your name, email and choose a password.
Purchase Ethereum
In Coinbase, visit the “Buy / Sell” tab at the top, select “Ethereum”, choose your payment method and enter the amount you wish to purchase – you can either enter a US Dollar amount or a number of Ether.
You will then be asked to confirm your transaction, if paying with a card you might have to complete a verification with your card provider. Once that’s complete, your Ethererum will be added to your account.
Purchase REP at an Exchange
You can now send your Ether to an exchange and trade it for REP. Augur was created last year so there is a wide range of exchanges to purchase it from, the most popular options are as follows:
Market Creators & Bonds
The market creator must put down a collateral bond for two reasons. Firstly, a validity bond is required so that creators post quality markets with well-defined objectives. The more chance that the market could be invalid, the more ETH the creator has to put up in. Secondly, market creators also have to post a no-show bond. This is a fee that they lose if a market reporter does not report the outcome of an event within 3 days. Creators are encouraged to choose a reliable reporter or forfeit their bond collateral.
What Are Reporters ?
Users who have been designated by market creators to log the outcome of an event are known as reporters. Within three days they are required to log the outcome of the event privately on the blockchain. If they fail to do so, the reporter role is then publicly available to the community. The first person to report the outcome is known as the first public reporter. To ensure quality reporting there is also a 7 day dispute phase where anyone can dispute the outcome of a report. There can be multiple rounds of dispute for up to 60 days. If there is no resolution, which is highly unlikely the market will fork. If there is no dispute, after the 7 day period the market is finalized and traders can cash in on their positions.
How Are The Payouts Calculated?
After the reporting phases consensus is reached on what actually happened. Smart contracts execute on these events automatically. Users who bought shares are rewarded if they predicted the correct outcome. Reporters are paid out in REP if their reports were honest and accurate. Similarly, if their reporting was deemed incorrect or they simply did not respond they are penalized and lose REP. Their share of rewards also goes to the honest reporters as extra incentive.
Are Only Certain Prediction Markets Available?
No. The Augur prediction platform allows anyone to create a market and ask questions. It is not limited to certain countries and has a global reach. Market creators are encouraged to create relevant markets that have a sensible outcome. This is incentivized through the bonds that they have to put up when they create the prediction market.
How Does Augur Make Money?
Augur charges two fees namely a creator fee and a reporting fee. The creator fee is set by the user when they create a market. Reporting fees are calculated dynamically. These fees are very low compared to traditional prediction platforms. To start a new market the market creators have to send some initial funding to get the market started. In return they will get to keep 50% of the trading fees generated on Augur. It is then open to anyone to buy and sell shares in that particular prediction market.
Does The Team Have A Good Reputation?
Most notable, the team lists some very prominent figures in the cryptocurrency community as their advisors. Vitalik Buterin, one of the founders of Ethereum is listed as well as Elizabeth Stark, founder of the Lightning Network.
Conclusion
The Augur platform has a very comprehensive whitepaper that goes into minute detail. The founders and developers have spent much time explaining their concept and have a very good use case for the blockchain technology.
The wisdom of the crowd is more accurate than a single person when it comes to predicting future events. Ethereum smart contracts can be used to automatically execute on predetermined winning conditions and send payments to those whose predicted correctly. This cuts out human error and manipulation of outcomes.
While the most obvious use case for Augur is gambling, it could also prove to be useful for other purposes such as hedging your exposure to existing positions. For example, farmers could hedge against weather cycles, traders could hedge their stock positions and there can also be numerous other uses which become apparent over time.
