Decentralization Debate Sparks Fly Amid Augur Scammer Actions, Opening a Can of Crypto Worms

The issue of centralization over decentralization has been a heated topic regarding cryptocurrencies. Many from traditional financial institutions prefer a centralized power to overlook any changes. This is different from the new breed of brokers, traders, and leaders in the cryptocurrency sphere. They are mainly concerned with letting the community have more input and letting all stakeholders made decisions.

This is a topic that has been on again, off again ever since Bitcoin became a serious player in the financial sphere. It has erupted again following a Reddit thread that uncovered a scammer using the Augur network.

Augur is being gamed! from ethereum

Prediction Market or Betting Platform?

Augur is a prediction market. The phrase coined for this type of application is a decentralized oracle, which has been described as the founder of Ethereum as the “Uber for knowledge”. IT works by crowdsourcing opinions, with the prevailing opinion most likely to be the right one.

That's what the optimistic say about Augur. Others have been known to call it a decentralized betting ring. People speculate by placing money on possible events that may happen in the future. This is essentially what sports fans use bookies for. However, the key distinction here is that the community both votes (with money) on the outcomes and defines them at the same time.

A user may use the network and set up a number of markets of possible Superbowl Finalists. The community would then place bets on the options offered. When the future event comes to pass (in this case, when the finalists for the Superbowl are set), the money would be paid out to the community members who had chosen the right event.

This type of speculation is common in sports. It is not as common elsewhere, though there are electoral speculators. There is, however, no real limitation to what could be asked of the community.  A market can be created as long as there is an either/or situation.

A good example would be the weather. A market could be opened that asked the question

‘Will it rain or not one year from this exact time?' and as long as there is either rain, or there is no rain… there would be a payout.

Scammer using a bug and typos to make money

The scam, in this case, would be the perpetrator asking a question in English that has ambiguous wording. This is not an uncommon occurrence, as many non-native English speakers use the platform to post questions in English.

Despite on the outset having a reasonable either/or scenario, neither would technically be able to win. Augur takes care of this by offering a tool called a validity bond. The stake of the market creator is refunded if the occurrence is not invalid. Whatever option wins, the validity bond is refunded. The validity bonds should increase in the event of invalid markets (currently placed at 1%).

However, due to a bug in the chain, this number is currently 10% and validity bonds are not increased sufficiently to stop scammers from using these tricks to make off with money that is not theirs.

Augur founder reacts to Reddit thread

The founder of Augur has reacted to the thread on Reddit. He has said that there is a bug that is currently being fixed and will be fixed in Augur v.2. He has said that the decentralized system is working and does work. The validity bonds have been shown to work in the past, and this bug has only recently surfaced. He adds that if the bug was not present, this type of scam would not be an issue.

He has also reacted to people who say that there is a flaw in decentralization. Augur was built on game theory principles, and the game theory behind Augur is solid – it was an implementation issue and nothing else.

However, this has not stopped people from clamoring for a more centralized and more accountable system. The top rated comment on the Reddit thread is one that is calling centralization and form the number of upvotes it would point to the community leaning toward more centralization.

There is also the issue of the SEC. The SEC has noticed that there are markets that are very close to offering what a Binary Option does, and those types of derivatives are extremely regulated due to the potential for misuse. This could have severe long-term implications for Augur and for any other application that is looking to create a similar prediction market.


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