Augur, a decentralized platform allowing individuals to create prediction markets on a vast array of topics, announced today that it was launching its alpha test.

“Traditionally, prediction markets have fallen short due to their need for volume in order to be valuable forecasting tools,” explained Jeremy Gardner, the Director of Operations at Augur. “Having a global, unstoppable, blockchain-based prediction markets platform means anyone in the world with internet can connect to Augur.”

However, Augur is not, itself, a prediction market. Rather, it is open-source code for a prediction markets platform. In essence, the team doesn’t actually operate the software nor does the team own it.

One of the concerns for prediction markets is that they will come under assault from the Commodities Future Trading Commission, which is very strict about new markets being launched. Other prediction markets, such as Intrade, have been forced to ban United States users from the site. Gardner doesn’t believe this will be an issue.

“We’re just writing open-source code for a [prediction market] platform. That is constitutionally protected activity,” he explained. “In addition to speaking to a former CFTC Commissioner, my lawyer and myself have spoken to one of the CFTC’s top prosecutors along with a couple of the great guys at Coin Center. What we’ll likely see is the CFTC going after market-makers like the RIAA went after torrent uploaders, not after Bram Cohen and BitTorrent.”

How Augur Works

The platform works by allowing anyone to download the client where they are then able to create a market. A market could be a scenario such as: “Will aliens come to Earth tomorrow?”

The user would then set the deadline for the outcome as well as determine what the trading fees are for that specific market.

People would then bet on the likelihood that aliens were going to actually come to Earth tomorrow. In the event that no aliens came, the vast majority that likely bet against it happening would get their reward. However, if the majority of people bet that aliens wouldn’t come and then they actually did, the group that bet that they would come could wind up making a significant amount of money depending on how big the market was.

Users are able to make bets with cryptocurrencies such as bitcoin or ether. When the deadline for the outcome has come and gone, those that participate in the upcoming crowdsale will determine the outcome of the bet. These people who participated in the crowdsale will own a token referred to as REP. This token allows the holders to act as “judges” of the outcome.

In the above example, if aliens did, in fact, come to Earth, those with REP would say yes and the rewards would be allocated accordingly. The trading fees, which the market maker sets up, would then be split evenly between the market maker and the reputation users.

Crowdsale

In an effort to raise funds to continue working on the platform, the team has deployed a live-action model for crowdfunding. All told, there will be 11 million REP software licenses, which are what allow for the completion of all markets. The founders will receive 16 percent and the Forecast Foundation will receive 4 percent. The other 80 percent will be sold to people that want to be reputation users.

In the live-action model, the amount of licenses a user gets is directly contingent on the amount of money donated in comparison to the total amount donated. If there are 8,800,000 total pieces (80 percent of the total 11,000,000 REP) and someone donates $10, they would have all 8,800,000 licenses. However, if someone else came along and also donated $10, now both parties have 4,400,000 licenses.

The idea here is that a user gets a percentage of the licenses directly correlated to the percentage that the user’s donation was in comparison to the total pot.

To encourage early buying of the licenses, Augur will give bonuses to people at the start. The schedule of the event and the bonuses are:

July 1-5: 10

July 6-15: 7

July 16-31: 4

August 1-15: 0

Users can participate with cryptocurrencies through Shapeshift.io or by purchasing bitcoin from exchanges/broker-dealers.

The Future of Augur

This open-source software is completely free for users. However, Gardner revealed that the plan is to create a for-profit product similar to the model that OpenBazaar recently announced.

“We will create a search website with for-profit [expectations],” Gardner said. “There’s also a huge amount of investor interest. Correspondingly, we’ll be raising a round for a for-profit sometime in the fall.”

For now, though, users are allowed to download the Alpha tool and start experimenting with creating markets.