Silicon Valley saw a new way of building markets that are predicting the future: blockchain.
Back in the 1880s, people stood near the New York Stock Exchange, bidding for elections, and newspapers reported the odds ratio, predicting the results of political elections.
Since then, economists have perfected this concept, and lately, the prediction markets have begun to use the “wisdom of the crowd” on the Internet, predicting everything: from the results of the presidential election to stock prices. This concept was blown up in 2012 when the site of predictions was closed against financial irregularities and because of pressure from the US regulatory authorities.
However, the Silicon Valley did not abandon this idea. Now it sees a new way of building markets that are predicting the future: blockade.
How does the market predict the future?
The forecasting market is similar to the stock market, but companies do not buy shares here. Here are the shares of the results of events.
Let’s say Donald Trump is running for president. The market for forecasting allows you to buy “stocks” in favor of what Trump wins, or in favor of what he is losing. If the forecast comes true, the buyer will pay the money. If the prediction turns out to be wrong, the buyer remains with nothing.
As in the stock market, you can sell your stocks here. The client wants to buy cheap and sell expensive. If the participation takes a sufficient number of people, the stock price should indicate the likelihood of a result.
“Prices are absorbing information,” says Eric Snauberg, an economist and political scientist at the California Institute of Technology. “If you have information that indicates that the price is too low, you buy and the price goes up. If you have information that the price is too high you sell “.
That is, the more valuable information the market participant has, the more he makes the bid. Using BlockCheck, a service like Augur, will improve these dynamics, expand the market, remove the limits of interest, attract more people and cash.
Blockchain is a global bookkeeper. It reliably fixes deals for the bitcoin’s digital currency, which is not controlled by any regulator. Now the same concept for different applications is used by startups and Internet communities.
The blockchain openness can create far more powerful prediction markets than ever before, extending them to a much larger number of people and simultaneously holding regulators at a distance.
Due to the unpredictable dynamics that govern the prediction markets, it can create concrete and accurate predictions – an antidote against media experts and sociologists who almost do not bear responsibility for false forecasts.
“They have to answer for their words,” says Andrew Miller, a specialist in Cryptology, a scientist from the University of Illinois.
However, like much other technology and financial traders working to create amazing and exciting services at the top of the blockchain, it’s believed that the Augur platform, will be able to provide facts to the world for other Internet applications. But other services are also exploring this area. Among them are Gnosis, Bitcoin HiveMind and Microsoft, which offers Augur platform services. It allows businesses to run their own internal forecast markets, just as companies like Google do.
The digital market of facts
Here’s how it works. Once a group of people joins the prediction market and bets on a certain result, Augur pays others to determine this result, that is, to check what happened.
However, it is not about a fixed amount of payment. On its platform Augur places its own crypto-currency, a digital token that prompts people to do everything right. This digital currency is called Rep. It does not allow you to buy or sell. She only monitors the reputation of the participant, that is how often he speaks the truth. People make bets with this currency, declaring that they are telling the truth: they set out the facts as they are. If others agree, the system will refund this currency to the participant and pay in cash.
This is a way to send everyone in the direction of one goal, something that characterizes new business areas, built with the help of blockchain. Since the case is related to real money, Rep assures that everyone is moving in the direction of truth.
There is always a risk that the majority will deny the facts, guided by a monetary incentive. The problem may be, for example, large bribes.
“There may be cases when you get the benefit of deception,” Miller says. “If everyone is moving in the direction of truth, you have the incentive to go in that direction. If everything changes direction, there is an incentive to step back from the truth.”
Nevertheless, many people believe in this idea. A market capitalization of Rep is now 89 million dollars compared with 50 million dollars at the end of February.
The Augur core can be the basis for other applications that rely on real data. It can help automate any financial contract from options and derivatives to insurance contracts.
When Augur reaches a large scale, there will be other possibilities. Augur confirms this information, and this fact falls into the blockchain. From now on, any application can use this digital fact: Wikipedia, Facebook, Google.
Like many other ideas that emulate the Bitcoin world, the concepts behind Augur are amazing and maybe overly optimistic.
“The instability of this crypt, which people will use for betting, can undermine their accuracy,” says Microsoft researcher David Rothschild.
Moreover, the efficiency of the system of determining the facts from Augur, which is lacking in the participants, has not been proved. And at a time when people not only do not know the future, and not confident in the authenticity of the facts of the present, such ideas are worth trying to implement them.