Augur is a decentralised prediction market which can forecast the outcome of an event based on the 'wisdom of the crowd' principle. With this method, information collected from the crowd is averaged into the most realistic possibility and therefore the most probable outcome. Correct predictions are rewarded by the network, while incorrect reporting is penalised - this incentivises truthful reporting.
The Augur aims to revolutionize prediction markets, and, in doing so, changing the way people receive and verify 'truth'. The main idea is to make more accurate predictions by large groups of people, rather than a small team of experts.
Augur is also the first major decentralised application (Dapp) developed using Ethereum, and represents a major proof of concept for this underlying technology. Decentralisation ensures that Augur cannot be censored by governments that deem prediction markets as gambling, whilst ensuring the sustainability of the application. This decentralised nature ensures honesty in reporting the outcome of events, using crowd wisdom to cancel out individual frauds.
Augur's crowdsale raised more than 2,000 BTC and 100,000 Ether on its first day. It ran from 17 August 2015 until 5 September 2015. The platform is currently in beta phase.
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.
What Predictions are Used For
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.