Imagine a world where you get paid to tell the truth and you can get a glimpse into the future simply by asking a question about it. That’s the power prediction markets offer us. This is not science fiction and will probably be the closest thing we ever get to time travel. Prediction markets rely on the idea of the wisdom of the crowd. Aristotle wrote about this concept centuries ago, but the idea didn’t gain widespread recognition in modern times until around 1906. Below, in a somewhat cheesy manner, PBS and Neil deGrasse Tyson recount the tale of Francis Galton and the shocking discovery he made during his quest to prove the failure of democracy.
If you didn’t have time to watch the video, it describes how Galton asked a large crowd to guess the weight of an ox. He had a strong hunch that no one would get the correct answer, and he was right. He also discovered, though, that the median of all their guesses resulted in a number almost exactly right. This is the wisdom of the crowd.
Galton was trying to use his experiment as proof that common people were incapable of electing an appropriate representative for themselves through voting. His experiment failed though. Unfortunately, as we’re seeing in our own governments, corruption often seeps its way in and makes the voices of some individuals louder than others. Luckily, with mathematically sound rules like those found in the Blockchain, corruption will be greatly minimized. Smart contracts can enforce rules with no corruptible middlemen, and blockchain-based identity systems can ensure voting is completely fair. Government’s are already beginning to experiment with the technology in ways that could open whole new areas of the world to commerce and investment. Other startups are innovating in the prediction market space.
Over the past few years, Augur has been hard at word trying to take prediction markets to the next level, beyond what some of the first in the space like Intrade offered from 2001-2013. Augur wants to make the markets decentralized and allow everyone to be a reporter on the outcome of events. Their approach, utilizing Ethereum, should eliminate the possibility of fraud and the cessation of the market. The video below explains the platform perfectly:
Augur was initially funded through the crowdsale method, and participants were rewarded with the native cryptocurrency, Reputation (REP). The token will soon be freely exchangeable to Bitcoin and other cryptocurrency. Investors or future reporters eager to get their hands on some REP while the prices are still low currently have only one exchange to choose from, Gatecoin. However, there is a caveat—you can’t buy actual REP at the moment. Instead, you can purchase an IOU or “promissory note” that will be redeemable for REP when trading commences. I’ve never used Gatecoin before, so I can’t vouch for their rep, but the user interface is pretty slick. Investors can also purchase an exchange-traded note on the OpenLedger platform. Personally, I’ll be waiting to buy more REP until the coin itself is available on a platform like Poloniex.
Startups like Augur are incredibly exciting, and if successful will serve as the backbone of a reliable, well-known prediction market. The possibilities are incredible. If the platform becomes used enough, AI and other programs could tap into its wealth of knowledge and predict the future. Perhaps we’ll better be able to predict storms and other natural disasters to save lives and money. Or maybe we’ll be able to see who will win the next election months in advance and if supporting another candidate, take steps to ensure their defeat doesn’t happen. As we approach the singularity, this sort of data will become more and more valuable and have wider applications than we can even fathom today. Invest accordingly.
*Disclaimer: The writer of this article owns REP tokens but cannot guarantee their future price. Potential investors should do their own independent research on any new project before putting money into it
*The Augur logo in the header image is from their Google+ page.