In terms of possible application trends for Blockchain technology there is always room for novelties. In this post we will talk about prediction markets, and especially about a proposal called Augur.

Before delving into the details about Augur, you first need to understand what a prediction market is. In essence, a prediction market is a stock exchange market created for predicting the outcome of events. By allowing traders to buy and sell shares in the results of events, market prices are indicative of what people believe the probability of an episode occurring.

Prediction markets are as reliable as institutions that predict similar outcomes privately and independently through a group of experts.

These markets are based on the predictive accuracy of a collective, which is usually a wise estimate due to a conjecture known as the wisdom of the crowd. The underlying meaning of this principle is that, given the input of a sufficiently large population, the mean response across the group tends to be much more accurate than that of any expert or small group of experts.

What is Augur?

At present, still in beta, it is a decentralized prediction market in which participants are rewarded for their knowledge, vision and, ultimately, their ability to predict future events.

As is the case with many other industries where blockchain technology is flourishing, the fundamental problem with existing prediction markets is that they are centralized. Augur is decentralizing a platform for prediction markets. With Augur, anyone can create a market by asking a question about absolutely anything; Sports events, election results and even the genre of a famous baby. The market maker asks a question, and once the market is open, thousands of people can buy shares in the results of events.

Augur makes use of three cryptographic currencies: bitcoin, ether and Augur’s own ERC20, ‘reputation’, abbreviated to REP.

The current settlement currency of Augur is ether, which means that bets on the outcome of an event are facilitated through the Ethereum block chain. Bitcoin enters the equation under the side chains linked above, allowing merchants to use bitcoins to bet as an alternative to ether. REP is used as a reputation system among people who report the truth on the spot and is not used for betting.

Augur offers a better alternative to centralized forecasting markets. In the decentralization of the market, a culture based on honesty and integrity is cultivated. Good actors are rewarded for their truthfulness and bad actors are punished for misbehavior. These principles allow the market to flourish in good character.

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