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Augur: Using Blockchain Technology In Prediction Markets

Bitcoin and Blockchain

Augur is a “decentralized oracle and peer to peer protocol for prediction markets … [it] is a set of smart contracts written in Solidity that can be deployed to the Ethereum blockchain.”[1] It is a protocol that allows users to predict elections or even the rise and fall of cryptocurrencies. Blockchain technology has mostly been used as the digital ledger to buy and sell cryptocurrencies, such a bitcoin, but now it is being used to buy and sell predictions. The prediction market is not new, particularly in regards to political predictions, however they have come across legal hurdles in the United States.

The University of Iowa started the Iowa Electronic Markets (IEM) in 1988, which is a futures market that provides a platform for “traders to buy and sell real-money contracts based on their belief about the outcome of an election or other event.”[2]  IEM is used as a forecasting tool, which requires users to be interactive and understand economic and political climates before trading. The benefit is that the more information and understanding one has, the greater they can be rewarded. PredictIt, a New Zealand based company, is also a real-money political prediction market, where traders can buy and sell predictions such as “how many yea votes will Kavanaugh receive in a confirmation vote by October 31?”[3] Despite their popularity, due to regulatory hurdles, private investors are hesitant to financially source prediction markets.

The Economist, explains that the “legal barriers have long hampered such attempts at crowdsourcing. In America many prediction markets are considered a form of illegal gambling, or akin to trading in commodities futures that requires a licence.”[4] IEM and PredictIt are permitted to operate because they are non-profits for research purposes, however, because Augur uses Ethereum’s blockchain platform to operate, it may be able to “sidestep regulatory difficulties.”[5] This is because Augur is not in itself a prediction market. The protocol merely allows users to create their own markets.

How does Augur work? Once users download the Augur software, they can choose an event to predict, create a market or check whether one already exists, and then buy and sell prediction shares. Once the event occurs, the user can report the outcome. Anyone using Augur who is a holder of the cryptocurrency REP, which was developed by the Forecast Foundation in 2015, may be a “reporter”, which allows the users to agree or dispute the outcome reported. Currently, the software has been reported as slow and not user friendly. However, Joseph Krug, an Augur developer, is not disheartened by this. There is only room for improvement and it is an innovative way to circumvent regulatory barriers.

[1] Augur. “FAQs.” Available at: Accessed on August 24, 2018.

[2] Iowa Electronic Markets. Available at: Accessed on August 24, 2018.

[3] See, PredictIt. Available at: Accessed on August 24, 2018.

[4] The Economist. “Blockchains Could Breathe New Life into Prediction Markets.” The Economist. Available at: Accessed on August 24, 2018.

[5] Ib.

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