Many people believe that the main idea behind blockchain technology is to create decentralised cryptocurrencies that are not regulated by any governing authority. And even though this is true to a certain extent, many developers have already gone beyond the scope of traditional digital currencies to bring the best out of blockchain. Augur is one such platform that is centered around prediction markets and is revolutionising the way we forecast events.
What is Augur?
Simply put, Augur is a trustless, decentralised prediction market platform built on the Ethereum Blockchain. To understand Augur better, let us first take a look at prediction markets.
A prediction market is essentially a market that revolves around outcomes of an event or an activity. Traders buy or sell positions based on the outcome of this future event. This future event can be anything, ranging from something like ‘Will Bitcoin touch $50,000 by the end of 2018?’ to ‘Who is going to be the next President of the United States?’
The idea here is to buy shares or positions, the price of which is based on the probability of a specific outcome. For instance, if a futures contract stating that Tom Hanks will be the next president is trading at $40, then it means that according to the market, there is a 40% chance that Tom Hanks will win the elections. The total payout, in this case, is $100.
These futures contracts can be designed to pay a fixed sum if the predicted outcome materialises and in case it doesn’t, the payout is 0.
The prices of these contracts vary depending on time, participants in the market, and the build-up to the events. For instance, if Tom Hanks starts performing well in his presidential campaign, his odds of winning improve and as a result, the price of the futures contract moves up to say $70. In this case, the buyer who bought the contract at $40 can now sell at $70 and make a decent profit.
The driving principle here is that the aggregated answers given by a large group of people are often superior to the answers given by the individuals/experts within that group. This principle is known as ‘Wisdom of the Crowd’ and is the driving force behind Augur.
On Augur, prediction markets can be utilised to forecast the outcome of any event. Its decentralised platform averages the information collected from the crowd into the most realistic possibility and as a result, the most probable outcome.
The native currency of the Augur platform is Reputation, also known as REP. This is essential for the Augur platform to perform. REP tokens are primarily needed by two groups of people - market creators and reporters. Market creators are those people who create a market based on any real-world event. As for the reporters, their responsibility is to correctly and truthfully report on the outcomes of the real-world events of the markets.
In order to determine the outcome of a market, the consensus of that market’s reporters is taken into account after the event has occurred. Reporters who make correct predictions are rewarded with a portion of the winnings whereas reporters who go against the consensus lose their REP tokens. This ensures that the information reported is true and owing to its decentralised nature, it cannot be manipulated. Furthermore, the community members also have an opportunity to dispute and correct the reports. These profit-motivated reporters comprise the decentralised oracle of the Augur platform.
Therefore, it is evident that REP tokens play a central role in the functioning of Augur. However, when it comes to trading in the markets on the Augur platform, users do not require REP tokens. They can buy shares with either Ether (ETH) or Bitcoin (BTC), or any Ethereum based cryptocurrency.
Even though the concept of prediction markets is not new, Augur has definitely added another dimension to this by moving the entire process on blockchain. Owing to smart contracts, prediction markets are now free of manipulation by a central authority and have the ability to correctly forecast the outcome of any future event.
Where to buy REP tokens?
REP tokens are available for purchase on some of the leading cryptocurrency exchanges like Kraken, Bittrex, Poloniex, Liqui, Bitfinex, et cetera. Being an altcoin, REP tokens need to be exchanged with either ETH or BTC.
As mentioned earlier, REP tokens are to be used by those people who are looking to create markets on Augur or those who are looking to report on the outcomes of a particular event. The best way to store REP tokens is in hardware wallets like Nano Ledger S or Trezor. Other options include Jaxx and Exodus.
A total of 11 million REP tokens were created by the developers. Of these 11 million, a little over 8.5 million tokens were sold to the investors that were a part of the crowd sale. The remaining REP tokens were kept distributed to the developers and Forecast Foundation.
It is not possible to mine REP tokens directly.
REP Tokens Price Trends
REP exhibited a bullish run in late December 2017 and January 2018. The price of 1 REP token went up from around $20 to $107 in just two months, driven primarily by the hype in the cryptocurrency space. However, the coin shed its excellent gains in a matter of days and the price took a massive nosedive. At the time of writing this article, 1 REP token is worth approximately $29.
Risks of Investing in REP Tokens
REP token is the native currency of the Augur platform. As explained earlier, it is required by reporters and market creators only. Therefore, buying REP tokens is feasible as long as you belong to either of these two categories. From an investment point of view, investing in REP tokens is a risky prospect mainly because of its high volatility. Furthermore, being a cryptocurrency, it faces massive hurdles in terms of legality and regulations. The sharp drop in its price in January was a result of authorities cracking down on cryptocurrencies.
Hence, it is advisable to invest your money in safer instruments like mutual funds. It does not take a lot of money to start investing in mutual funds and in addition to this, they are not subjected to extreme volatility like cryptocurrencies.