Augur’s digital project seeks to leverage the open, global, peer-to-peer ledger functionality that blockchain technology provides, as well as game theory and financial incentives, to better explore the concept of the wisdom of crowds (also known as collective intelligence) and try to get more accurate predictions about future events. The specific technologies used would theoretically allow for more participation and volume compared to traditional betting platforms, therefore augmenting the quantity of markets available and their accuracy.
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The backbone of Augur is tradable tokens called Reputation (REP). The total amount of Reputation is fixed at 11 million coins when it was launched in August 2015. The tokens give the right for individuals to report or weigh in on the outcome of events. It can be earned by people who provide truthful reports.
Additionally, people who submit correct predictions are also awarded a portion of the winnings whereas people who report against the consensus (untruthfully) will lose their REP tokens and earn nothing. Furthermore, the more REP a user has, the more value or trust is assigned to that person’s input.
In other words, Reputation tokens are gained and lost depending on the reliability of users votes with the consensus. The Augur Team released an infographic to explain how the Reputation tokens work.
People can set up events in any topic and buy shares for the possible outcomes of those events. Ether and bitcoins are accepted in the platform. The algorithm will then work with the crowdsourced information and provides top predictions based on consensus. Once the event is concluded, the funds associated with shares of the correct outcome are distributed to ‘winners’.
Augur can be used beyond mere betting platform. Joey Krug, co-founder and lead developer of Augur said that the platform ‘could be used by farmers in Argentina to hedge against weather cycles or by Chinese traders who are unable to access the US stock market’, and even suggests that ‘prediction markets could be used by doctors to more accurately diagnose patients.’
Prediction markets are not new concepts, but it’s highly decentralised nature means that Augur is somewhat unaffected by limitations set by regulations.
A bond posted by anyone to have an Open Market re-adjudicated by every reporter. If the consensus remains the same when the market is resolved, the Appeal Bond is paid to reporters to supplement trading fees.
If the final consensus is different than the one appealed when the market resolves, the Appeal Bond is doubled in value at the expense of reporters that reported in opposition to the consensus and sent to the Appeal Bond poster.
When a chain of transactions splits into two seperate time-lines due to irreconcilable disagreement. When a Fork Bond is posted towards an appealed market this conensus disagreement creates a time-line in which the original consensus is valid and another where it is not.
This duality should eventually collapse as the invalid fork rapidly loses all value. This collapse of activity and value is monitored by the Augur system to autonomously select the honest fork for Open Markets.
After an initial desire to build the backend on the Bitcoin blockchain, the Augur team settled on Ethereum, explaining that it currently offers a better development platform for rapid deployment, that making use of Bitcoin as the foundation would not have offered clear security benefits, and that it intends to integrate into the Bitcoin network through sidechains as soon as that technology becomes available