Vitalik Buterin envisioned the Ethereum network as a blockchain-based platform on which developers can create their own decentralized applications. Buterin suggested that the Bitcoin network needed its own scripted language that developers could use to expand the functionality of the network. When his idea for the Bitcoin network didn’t gain enough support, he started and successfully ran a crowdsale for the Ethereum network, a network with a scripting language for developers and a possibility to add functionality to existing blockchain technology.
Buterin started his research by himself. Later, Dr. Gavin Wood joined Buterin and became a co-founder of Ethereum. The original Ethereum project team included four members. They were Buterin, Alisie, Hoskinson and Di Lorio.
Because of the available functionality of the network, the network has already seen a number of very successful and interesting Ethereum-based projects.
Augur and the wisdom of the crowds
Augur positions itself as the first open-source Ethereum-based marketplace for predictions. One of the goals of the project is to explore the possibilities of collective intelligence or wisdom of crowds as it applies for forecasting of various trends and events.
Collective intelligence is a term that describes intelligence that comes out of group collaboration and joint efforts of multiple individuals. Sciences that widely use the term are sociobiology and political science. Collective intelligence is linked to consensus decision making that may involve social capital, various voting mechanisms and consensus.
Prediction markets that will exist on Augur platform will provide the public with very powerful and precise data about feelings, sentiments and beliefs of the marketplace because any share in any enterprise or event on any marketplace is fundamentally a reflection of the belief of investors in the success of the enterprise or event.
The idea behind the wisdom of the crowd is that an average prediction made by a group of people is more likely to occur compared to a prediction made by any individual in that group. Markets are the best known to mankind way to collect data about the wisdom of the crowd. This is because in any market, trends in the market and its prices reflect the collective beliefs of its members about the entities that are being traded in the market. As an open-source predictive marketplace, Augur will provide a financial incentive to marketplace members to reveal their opinions about outcomes of real-life future events.
How Augur platform will work
The Augur protocol is a collection of Ethereum smart contracts that allow users to invest in the outcomes of events that occur in the real world. For example, if you think that Steven Spielberg is going to win an Oscar during the next Oscar ceremony or that Tesla will release a fully autonomous self-driving car available for sale to the public faster than Alphabet’s Waymo (Alphabet is a company that was created in 2015 as a result of corporate restructuring of Google), you will be able to buy shares in these outcomes. If your predictions turn out to be correct, you will win real money.
The ratio of prices for the outcomes always equals to 100% and the prices of shares always add to $1. This means that a share that is worth, say, 73 cents, is a share in an outcome with 73% possibility of happening.
Let’s say you believe that the probability of a certain outcome is 50%. This means that a share in your outcome will cost you 50 cents. If you are right, you will end up getting back your 50 cents and you will also get 50 cents extra for every share that you buy. People that end up being wrong will lose their money and their 50 cents per share will go to you because they were wrong and you were right.
As with any other marketplace, prices of shares available on the marketplace will fluctuate according to the laws of supply and demand. Applied to a betting marketplace, this means that the more people believe in an outcome and buy shares in it, the higher the price of the shares in that very outcome. Because all outcomes for a certain event add up to 100%, the prices of other outcomes will start going down. In simple terms, this means that the fewer people believe in an outcome, the more profitable the outcome can be.
The Augur marketplace will also give users an opportunity to buy and sell shares in outcomes for profit before the actual event occurs and the result becomes known.
Benefits of decentralization
Because Augur is a decentralized marketplace, it will not have central servers that can be shut down. Using Augur, users from all over the world will be able to create their own prediction markets by asking questions about anything. Marketplace creators will have to fund the creation of marketplaces. As an incentive to create a marketplace, a creator will be receiving 50% of all the fees from trading that occur on the marketplace he or she creates. Just like with other peer-to-peer blockchain networks, users and not the network itself sets the fees, which means that fees are likely to be much lower compared to existing betting platforms. All funds on the platform will be stored in Ethereum smart contracts, which eliminates the risks associated with the trust factor. Winners in trades will be getting their payments quickly and automatically. Deposits and withdrawals from the marketplace are also going to be fully automated using blockchain technology. There will be no human management or intervention possible during any step of the process once the platform goes live, which means zero possibility for human errors or fraud during contract execution.
Brief overview of the history of the Augur project
Jack Peterson and Joey Krug started the project in 2014. They released the first alpha-version of their software on the Ethereum test network in June of 2015. They have subsequently funded the development of the project via a crowdsale that ran in August and October of 2015. In March of 2016, Krug and Peterson published a beta release of their software. In October of 2016, the project has distributed the tokens that it sold during its 2015 crowdsale. Kraken and Polonex cryptocurrency exchanges have added the token to their trading platforms.
In July of 2017, Zeppelin Solutions conducted an open audit of the Serpent compiler for smart contracts that Augur was using and found critical security vulnerability, which is why Augur started migrating the funds to more secure Solidity-based smart contracts.