Alt Title: NYSE and NASDAQ should be paying attention to Augur.
Quiz: Ethereum is:
- Trying to be all things to all apps and will be beaten by more focussed platforms that target specific niches.
- A truly revolutionary platform that will bring in a new age of decentralized applications that happens to be well funded enough through a well executed currency crowd sale to pay for all the brilliant people who work there.
I am on record as being an Ethereum fan. My one reservation has been a question about can they deliver? Augur is a new service delivered on Ethereum. It is a Decentralized Application (DAPP, pronounced Dee-App).
If Augur works, it should indicate that Ethereum works.
There are some other DAPPs starting to appear. Last week we looked at Digital Identity services on the Blockchain. These are at the infrastructure layer. Augur is different because it works at the application layer where you and I could use it today. I am seeing a few other DAPPs at the application layer coming down the pipe, but none is as mature as Augur.
Augur is a prediction market. This is where the Alt Title comes in:
NYSE and NASDAQ should be paying attention to Augur.
A prediction market uses crowdsourcing to forecast the future.
The biggest crowdsourced prediction market is…the stock-market.
Millions of traders try to predict where prices are headed. In aggregate the market is a superb predictor, even if lots of individuals get it wrong.
Prediction markets are nothing new. Nor are betting sites, which are simply a way to monetize a prediction. I predict that Harry The Horse will win the 3.45 at Cheltenham and if I am right I get a reward. Or I can take a long shot bet on Bernie Sanders being the next President of America. Or that Lending Club will be worth a lot more or less than the $6.8bn it is worth today.
Augur will reward you for getting the prediction right. In a world where retail investors have been crushed by professionals (see Crushed Dream of a Democratized Stock Market), there is a need for something that enables people to use their experience, intelligence and hard work to make a prediction and get rewarded. Of course you can do that by betting, but a rewards scheme that does not require the threat to your financial health from betting sounds good.
This still leaves one with the question:
“Why do prediction markets need a decentralized blockchain?”
You could build a crowdsourced prediction market using your favorite programming language and bung it onto AWS.
Augur’s answer to that question is that centralized prediction markets suffer from two problems:
- They can be shut down. That can happen for all kinds of reason – regulation, bankruptcy, fraud.
- Somebody has to report on what happened that triggers the payout. In many markets that is pretty obvious. I can see whether Harry The Horse won the 3.45 at Cheltenham and it will be front-page news everywhere if Bernie Sanders becomes President and it is easy to track the price of Lending Club. The beauty of a decentralized prediction market is that it can cover so many more markets and events – as long as there are enough people reporting on that event to be statistically significant.
Augur enables the long tail of prediction markets.
In the long tail you cannot rely on institutions to report. The chance of the one expert trusted to report on the event being subject to fraud or mistakes is high. So you need a trustless decentralized network to do the reporting.
Augur is a prediction market based on reputation. This is the game-changing part of decentralized applications using Blockchain:
Reputation is no longer stored in silos (eBay, AirBnB, etc). It is an asset that each human owns and that can be used Internet wide.
In historical analogies, Augur could be like Visicalc for the PC. In other words this is still early days but I think we are moving from the “bleeding edge” stage of decentralized blockchain systems (incredibly high risk with monetization, if feasible, far in the future) to the leading edge stage (where lots of money can be made, albeit still with a lot of risk, because feasibility has been established and it is possible to plan a timeline to monetization).