Augur's fundraising push exceeded three million dollars, despite Bitcoin's sliding price. The decentralized prediction market struck a chord across the cryptocurrency world, drawing far more attention
Augur's fundraising push exceeded three million dollars, despite Bitcoin's sliding price. The decentralized prediction market struck a chord across the cryptocurrency world, drawing far more attention than observers anticipated.
What distinguishes Augur from conventional betting platforms is its consensus mechanism. Instead of relying on a central authority to settle outcomes, crowdsale participants who purchased Reputation tokens (REP) can vote on event results. Voters who align with the majority earn additional REP tokens, building an economic incentive toward accuracy.
Jeremy Gardner, Augur's Director of Operations, and Core Developer Joey Krug outlined how the system functions. The mechanism mirrors Bitcoin's distributed consensus model. Bitcoin assumes more miners behave honestly than dishonestly. Augur rests on the same principle: more voters will act truthfully than conspire to corrupt results.
The parallel has limits. Bitcoin's network confronts myriad attack vectors. Augur's markets are often binary — an event happens or it doesn't. That simplicity creates vulnerability. Suppose a group of REP holders bets against an outcome. They could coordinate their votes to move the result their way. The group has incentive to vote falsely.
The system nonetheless resists such tampering. Most REP holders won't carry financial stakes in any particular market. They're voting to maintain the network's credibility, not to profit directly from the result. Beyond that, REP tokens have value. Destroying faith in Augur would demolish the token's worth. Mining pools command vast computational power but gain more from a healthy Bitcoin network than from exploiting it. The calculus works identically here.
"Following that logic, it seems that Augur will be safe from malicious actors, but this is uncharted territory," Gardner told me. Greater numbers of REP holders voting makes attack harder. The crowdsale's reception suggests broad token distribution.
I initially viewed Augur as a gambling tool. Prediction markets exist already, but they suffer from illiquidity. I'd rather bet with a major sportsbook than chase liquidity across multiple platforms. Gardner and Krug see their project differently. Sportsbooks don't rank as their primary competition.
Augur offers something distinct: visibility into collective knowledge. Conventional opinion treats crowds as ignorant. Donald Trump leading Republican primary polls lends weight to that view. Gardner rejects the premise. Groups forecast more accurately than individuals.
The jelly-bean-guessing experiment demonstrates this. No one gets the exact count, yet the average across many guesses lands close to the true number. How does the principle extend to harder problems? Will a game developer ship a product on time? Which horse wins the Kentucky Derby? These far exceed bean-counting in complexity. Augur aims to test the crowd's predictive power on such questions.
Gardner also raised a use case I hadn't considered: whistleblowers. A market could post rewards for evidence that senior officials took bribes. Someone with that knowledge could anonymously bet on that outcome and then provide proof to authorities, knowing a profit awaited. That goes beyond gambling.
During our conversation, I asked Krug about the technical side of their Ethereum-based fundraising. Bitcoin transactions simply forward to their multisig address through blockchain.info's API. The Ethereum approach was more intricate. They deployed a smart contract to receive Ether and built a helper interface at sale.augur.net where users entered their address and desired amount. The site provided code to paste into a computer, which sent funds to the contract, recorded the timestamp and sum, and forwarded the money to Augur's account.
Gardner stressed REP's appeal beyond speculation: "Unlike with altcoins, there are tangible incentives to hold the REP token. You help create and maintain the world's first decentralized oracle/consensus system. You get a portion of the trading fees distributed at the end of each reporting cycle. So, as Augur scales, and more people use it, with more trading fees being collected, the more you're rewarded, simply for saying whether an event occurred or not."
I wondered if rapid growth could overwhelm the system. Would REP holders balk at voting on dozens of events each day? Gardner explained the voting process. REP holders vote during eight-week reporting cycles with a one-month voting window. They need only spend a couple of hours once every two months on this task.
Krug added: "The way we plan to scale things is there will be a minimum set of markets you have to report on — the ones with the most volume, every 2 months, then beyond that you can report on more events if you like, but you're not required to. We want the minimum set to take roughly two hours every two months."
Thin markets present a separate problem. I've watched betting platforms where user-created wagers never accumulate enough activity to draw other bettors. How does Augur escape this trap? Krug explained their technical solution: "We use a market scoring rule as opposed to traditional order book, so there doesn't always have to be a direct counterparty at the time you trade. Another is that we're currently talking with market makers to help provide liquidity on augur."
Gardner noted: "By having this sale, what is created is a massive network of supporters of the project that will create and participate in markets and encourage others to use the platform."
Betting on Augur depends on the outstanding shares on each side of a market, Krug said. For multi-outcome events like horse racing, categorical markets allow numerous options. On the subject of competition, he sidestepped: "It's hard to say because on Augur anyone can create a market on whatever they want. The market itself will answer that question."
Gardner was more forthright: "I don't see any primary competition. I see secondary competition such as sports books, Vegas. However, I think they stand to benefit from us more than compete with us. They can use the global odds-making engine that is Augur for their own profit. But to say that we are our own niche would not be inaccurate. I simply don't believe there can be two of what we do succeeding."
Las Vegas balances bets at 50-50 to win money regardless of the actual outcome. I asked whether Augur's odds might flip that dynamic — whether Vegas could end up following Augur's consensus rather than leading it.
"I think that's right," Gardner said. "The odds made by Augur, assuming liquidity and volume, will force Vegas to conform to the predicted odds as set by the masses. But we're far from experts on gambling. We really see Augur more as a forecasting engine, than as a gambling tool. We are giving probabilities of any event."
That distinction mattered to him. Would Augur demonstrate that crowds outpredict so-called experts? Gardner qualified his answer: "Mostly. There are anomalies, always. Will American Pharaoh win the Triple Crown? Odds said yes, but there's a chance the car carrying the horse overturned, or it spontaneously combusts on the race track." He meant the horse had superior odds to competitors, but the unexpected remains unpredictable. "But, when it comes to fairly predictable outcomes, such as elections and general trends, I think the masses will vastly outperform any given expert. Even product launch dates or climatological events."
I raised the credibility problem experts face. Search "do cell phones cause cancer?" and credible-sounding voices appear on both sides. Education should teach people to judge competing experts instead of rote memorization. Could Augur help people identify reliable voices? Gardner saw the mechanism clearly: "Any PhD can be bought off to represent specific interests. Look at the climate change debate and the Koch brothers. However, when the PhD themselves has to put their money where their mouth is, things get a lot more interesting. Especially with topics where there isn't as much vested financial interest."
He circled back to the broader vision. "This is a tool for understanding the collective wisdom of humanity, and rewarding those who make good predictions about the future. Sure, you can talk about Vegas and sports books, but I think that misses the point. This is an early warning system for the world. A way to tap into our collective consciousness in a manner that has never before been possible."
Looking five years ahead, Gardner imagined a Google search for "Will Jeremy Gardner be elected CEO of Bitcoin in 2020?" The result would display Augur's assessment: ".0001%." Krug offered another scenario: "Or you ask Siri that question and she pulls the latest augur estimate from Wolfram Alpha."
The crowdsale runs through October 1, 2015.
