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Augur

Augur is a decentralized prediction markets platform launched on top of the Ethereum blockchain network developed and operated by the Augur Project. Augur was built on the extension of Bitcoin’s source code utilizing Bitcoin’s input-output style transactions to run its prediction markets. Co-founded by Jack Peterson and Joey Krug[1​], the Augur Project’s goal is to revolutionize global prediction markets and alter the way individuals receive and verify the outcomes of an event. [2​]
Prediction markets, according to Augur, are platforms where individuals can wager on the outcome of future events. Individuals who forecast the outcome of the events correctly are incentivized, while individuals who fail to do so lose money. As individuals participating in prediction markets are incentivized to get the best outcome as possible based on their predictions, users are motivated to bet on the most likely outcomes. Hence, Augur believes the price listed on prediction markets can serve as an “excellent indicator” of how likely a particular event is to occur.
Augur’s main objective is to provide a blueprint of a decentralized prediction market. Augur believes centralization presents a problem for existing prediction markets. A common practice employed at centralized solutions is that a trusted entity is maintaining the ledger, however, Augur is skeptical about the level of trustworthiness of centralized entities. According to the organization, such trusted entities present a single point of failure as prediction markets are often disliked by powerful interests, such as governments.
In some cases, powerful interests tend to shut down the centralized prediction markets, as seen in the case of InTrade, which was closed down by the U.S. Commodity Futures Trading Commission. By decentralizing its prediction markets platform, Augur believes such actions from authorities could be avoided.
Augur, built as an extension to the source code of Bitcoin Core, includes betting and consensus mechanism, which are important features required for prediction markets to operate. According to Augur, their platform is built on a system inspired by the structure of bitcoin to benefit from the additional security and scalability of the Bitcoin blockchain.
In an interview with a cryptocurrency news publication Cryptocoins News, Augur co-founder Joey Krug said that prediction markets, such as Augur, are incentivizing the revelation of information, and thus, prediction markets serve as valuable information aggregation tools. According to Krug, if one has valuable information or expertise on a particular topic or event, he or she can bet on it and can profit while he or she improves the market’s estimates. [3​]
Krug stated that most of the prediction markets do not allow users to create new markets. Contrary to centralized platforms, Augur allows the free creation of markets, which, according to Krug, could be used to “unlock” new markets to collect a wide range of information from users and allowing the market to choose which events to predict.
Wisdom of the Crowd
Opposed to centralized prediction markets, Augur seeks to utilize the “wisdom of the crowd”. The wisdom of the crowd is an idea based on a principle that large groups of individuals are smarter than one person in various topics, including problem-solving, decision making, innovating and predicting, even if that person is an expert on a specific topic. The concept of this idea was popularized by James Surowiecki in 2004 through his book, the Wisdom of the Crowds, which showed how large groups have continuously made superior decisions compared to single individuals in the fields of pop culture, biology, behavioral economics throughout history. [4​]
By utilizing the wisdom of the crowd, Augur seeks to benefit from the insights and awareness of individuals from various places, perspectives of the world with different access to various sources of information. This way, according to Augur, a more honest, better informed and instant report can be generated and distributed to the public.
Reputation (REP)
Reputation is Augur’s token, which is the “score” of an individual participant on the Augur platform. REP tokens symbolize the reputation one has on the prediction of an event. Those who hold Reputation are expected by the community to report accurately on the outcome of randomly selected events within Augur in a particular period of time. If one fails to report accurately or is dishonest about an event, the Augur system will redistribute the REP to those individuals who have been accurately reporting in the same reporting cycle. [5​]
Those who do not hold any Reputation tokens can also use Augur. REP is only used by reporters to report about the outcome of the events. “Regular participants” (non-reporters) use Ether or Ethereum-based tokens to conduct transactions in the Augur network.
REP has a fixed supply of 11 million tokens, from which 80 percent were sold during the Augur Project’s token sale in 2015. During the token sale, which ended on October 1, 2015, the organization raised approximately $5.2 million through an Initial Coin Offering (ICO). At the time, the Augur Project was one of the top 20 organizations that raised the most amount of capital through Initial Coin Offerings.[6​]
Users benefit from holding Reputation and participating in the reporting of activities on the Augur platform. Those holding REP are entitled to a portion of Augur market fees. Each Reputation token gives users 1/22,000,000 of Augur’s total market fees. If one owns more Augur and reports correctly, the user is entitled to receive a bigger portion of Augur’s market fees. The Augur community has developed a calculator, called the Repulator Calculator, which provides users with a rough estimate of the expected earnings through Reputation tokens.[7​]
Apart from the token sale, REP tokens are listed on some of the major cryptocurrency exchanges in the global market, including Poloniex, Kraken, Bittrex, Gatecoin, and ShapeShift.
Augur Alpha
On June 14, 2015, Augur announced the launch of its alpha test platform. Participants of the Augur Alpha could either download the application for Windows, Mac OS X, or Ubuntu or access the Augur Alpha platform via a browser. At the time, users needed to possess Ether (ETH), the cryptocurrency used in the Ethereum ecosystem, to run the alpha version of Augur.[8​]
The Alpha version of the platform had multiple limitations compared to the current version of Augur. On the Alpha platform, users had to wait a few minutes before the test chain of the platform was downloaded. Other limitations included its sole support of binary markets, lack of implementation of limit orders, and incomplete installation process. [9​]
Augur Beta
Launched on March 14, 2016, Augur’s open beta is the current version of the platform, as of October 2017. One major improvement regarding the beta version of the platform , in contrary to the alpha version, participants of the beta software are not needed to download or to install the application. Augur’s beta can be accessed via a web browser at Augur’s domain. [10​] In the course of the seven months when Augur has transferred from alpha to beta, the organization has improved its smart contracts, thus, Augur has more scaling potential. [11​] The User Interface (UI) was also improved in the beta with the UI going through a complete re-design and with the initial page loading 75 percent faster. For reworking the User Interface, Augur has hired InTrade’s front-end development and design team who had used their experience with prediction market platforms to rebuild Augur’s UI. [12​]
In the beta, Augur added new functions to its platform including a portfolio section, market searching and sorting, ability to create multiple-choice and numeral markets, exporting and importing Ethereum keys, simple trading metrics, the ability to tag markets by topics and include detailed metadata relevant to the specific markets, and newly created user walkthroughs and tutorials. Augur encouraged all beta participants to report any issues related to the organization’s platform.
Security
In June 2016, Augur Project partnered with the San Diego-based startup Airbitz. Airbitz is a provider of a bitcoin wallet service and its Edge Security Platform. The partnership of the two organizations enabled Augur to allow a highly secure account creation process for its users. The newly added security features included automatic encryption, backup, and synchronization of private account data across various devices. The Airbitz Edge Security Platform encrypts the data on the user devices before the data reaches a network of a server.[13​] [14​]
Since all the data is encrypted before reaching the server, even is the case of a successful hack into a central database (which is not applicable to Augur as it is a decentralized platform), the attackers could only retrieve fully encrypted, private data. By using Airbitz’s Edge Security Platform, Augur seeks to reduce the incentive of individual or groups of hackers from conducting attacks and breaches on their platform.
The utilization of the Edge Security Platform, according to Augur, removes the “significant learning curve and friction” of onboarding new users, which the organization sees as a major barrier to the mainstream adoption of the Augur’s decentralized application. Jack Peterson, Co-founder and Core Developer of Augur, stated that the Augur Project seeks to seem as a regular website for the users. According to Peterson, Augur’s partnership with Airbitz allows a more traditional account system on the Augur platform as opposed to the manual management of the users’ cryptographic keys.
Augur Joins Microsoft Azure
In March 2016, Augur announced its join to Microsoft Azure, a set of cloud services where developers and IT professionals build, deploy and manage applications through Microsoft’s global network of datacenters along with Microsoft Azure’s diverse ecosystem featuring a wide variety of technologies. [15​]
According to Microsoft, with Augur listed on the Azure platform, businesses will be able to utilize prediction markets to forecast product launch dates, whether projects should be funded, sales numbers and other key metrics relevant to the startup and tech industry. On Microsoft Azure,
Augur offers “turn-key” solutions for enterprises who are interested in running an internal version of Augur’s platform. This way, according to Microsoft, organizations on the Azure platform can avoid their markets revealed to the public and dealing with the compliance costs of running a public market. Employees of the organizations can be incentivized to predict and forecast future events related to the companies by rewarding the accurate forecasters with internal or external perks.
RoadmapJoey Krug, on June 9, 2017, wrote a blog post detailing Augur’s plans for the future and how he and the organization envision the full version of the Augur platform. [16​]
According to Krug, Augur’s purpose is to democratize and decentralize finance, which the organization seeks to accomplish by enabling all the individuals in the world to create and speculate on derivatives at a lower cost. Krug stated that prediction markets present the world’s population better forecasts for the future, more direct hedging, as well as improved speculation mechanisms.
Krug explained that the long-term goal of Augur is to overtake all derivatives trading through liquidity and network effects, however, in the beginning, Augur is expected to to face limitations as the platform has to enter new markets. Augur seeks to overtake the new markets by eliminating the middlemen in the process and lowering the costs to the “economic minimum”, therefore, Augur’s platform will be suitable for every individual. Augur seeks to take advantage of the Ethereum network’s features, which is high liquidity and the global nature of Ethereum’s blockchain.
The futures contracts will be resolved on the Augur network without trusted third parties. Instead, the organization seeks to develop a security similar to the network of Bitcoin and Ethereum, which is vulnerable to 51% attacks but can be forked in the event of an attack. Augur also seeks to implement the use of leverage so users will be able to utilize leverage positions on their trades.
One of Augur’s future plans is to implement the 0x protocol, a permissionless cryptocurrency exchange protocol allowing for ERC20 tokens to be traded on the Ethereum blockchain. As 0x allows partially off-chain trading enabling individuals to create, modify, and cancel orders quickly without the need to post each individual transaction to Ethereum, the 0x protocol will decrease the costs for placing and taking orders on the Augur platform.
Krug highlighted the issue the with Ether denominated markets as there is a possibility that Augur would remain too volatile for a significant period of time. Augur seeks to avoid such cases when an individual forecasts an event correctly and ends up losing a part or all of his profits because of Ether’s high volatility. Krug believes the solution for this is to denominate the markets in stable cryptocurrencies with the respect of the USD or other fiat currencies. Augur considers utilizing Makerdao’s services, a decentralized autonomous organization working on stable cryptocurrencies, in the future. One other option for Augur is to use Ether denominated in USD for the cryptocurrency to gain more stability. However, Augur sees one of Makerdao’s stable cryptocurrencies as a superior option to the USD denominated Ether.
According to Krug, Augur needs to add capability for automatic rollovers via an additional smart contract, which he had already written an interface for. Krug stated that automatic rollovers are needed in prediction markets as each market has an expiration date, and as such, one can’t just buy one side and hold indefinitely. The automatic rollovers would enable the selling of past positions every month and would allow users to buy back in the new positions. This is all done automatically, thus, users do not need to manually exit their positions and buy back each month when the contracts are expired.
Krug emphasized that such automatic rollovers would allow users to pay complete set fees. But, users won’t lose any funds due to market movements from exiting and entering positions. Augur also seeks to implement various system changes, such as Proof of Stake, Wasm, Sharding, and Raiden, to allow more transactions per seconds to be processed on the Augur platform. When the Augur platform finishes implementing al ofl the required changes pertaining to scalability, the organization will be able to expand to “all of the world’s” derivatives markets, said Krug.
References
1. https://augur.net/
2. https://bravenewcoin.com/assets/Whitepapers/Augur-A-Decentralized-Open-Source-Platform-f or-Prediction-Markets.pdf
3. https://www.cryptocoinsnews.com/augur-looks-succeed-darpa-cia-dod-failed-open-source-pred iction-market/
4. http://www.investopedia.com/terms/w/wisdom-crowds.asp
5.http://blog.augur.net/guide-to-augurs-rep/
6. http://augur.strikingly.com/blog/the-crowdsale-what-s-new-and-what-s-next
7. https://repulator.github.io/
8. http://augur.strikingly.com/blog/the-augur-alpha-is-now-available-to-download
9. https://bitcoinmagazine.com/articles/augur-launches-alpha-version-prediction-market-platform- 1434506163/
10. http://blog.augur.net/beta/
11. https://cointelegraph.com/news/decentralized-ethereum-based-prediction-platform-augur-ente rs-beta-testing-partners-with-azure
12. http://www.ibtimes.co.uk/ethereum-powered-augur-brings-its-beta-microsoft-azures-blockchai n-cloud-1549630
13. https://news.bitcoin.com/airbitz-partners-augur-prediction-market-utilize-edge-security-platfor m/
14. http://blog.augur.net/augur-partners-with-airbitz-taking-edge-security-platform-beyond-bitcoin/
15. https://azure.microsoft.com/en-us/blog/azure-blockchain-update-6/
16. https://medium.com/@AugurProject/augur-master-plan-42dda65a3e3d