{"id":8821,"date":"2018-07-30T17:48:55","date_gmt":"2018-07-30T17:48:55","guid":{"rendered":"https:\/\/davidgerard.co.uk\/blockchain\/?p=8821"},"modified":"2018-07-31T13:41:17","modified_gmt":"2018-07-31T13:41:17","slug":"augurs-big-problem-is-not-the-assassination-markets-its-being-a-bucket-shop","status":"publish","type":"post","link":"https:\/\/davidgerard.co.uk\/blockchain\/2018\/07\/30\/augurs-big-problem-is-not-the-assassination-markets-its-being-a-bucket-shop\/","title":{"rendered":"Augur’s big problem is not the assassination markets \u2014 it’s being a bucket shop"},"content":{"rendered":"

After years in the making \u2014 the ICO was in 2015<\/a> \u2014 the Augur prediction market<\/a> is open for business!<\/p>\n

And the first thing crypto libertarians did was put up “predictions” that are functionally an assassination market — but on the blockchain.<\/a><\/p>\n

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The mechanism is: I bet you a large pile of cryptos that X won’t<\/i> die by Y time. Oh look, X died by Y time \u2014 here’s your large pile of cryptos!<\/p>\n

I predict that these won’t be Augur’s big problem! Holders of Augur’s REP token decide how a bet was resolved \u2014 “yes,” “no,” “indeterminate” or “unethical.” They probably<\/i> won’t be foolish enough to let assassination bets through. Probably.<\/p>\n

Instead, I think Augur’s problem will be that “prediction markets”<\/a> are what we used to call “bucket shops”<\/a>\u00a0\u2014 for gambling on security and commodity prices. And the regulators really aren’t fond of these.<\/p>\n

Prediction markets and the oracle problem<\/h3>\n

Chapter 10<\/a> of Attack of the 50 Foot Blockchain<\/em><\/a> goes into the “oracle problem” at length.<\/p>\n

In software testing, an “oracle”<\/a> is any mechanism that determines if a test has passed or failed. The “oracle problem” is how to do this in a completely automated way\u00a0\u2014 without costly human intervention.<\/p>\n

This also applies to smart contracts that want to interact with the real world \u2014 how do you tell if your real-world condition has been met?<\/p>\n

And remember\u00a0\u2014 garbage in means garbage out. Per Matt Levine on Bloomberg:<\/a> \u201cMy immutable unforgeable cryptographically secure blockchain record proving that I have 10,000 pounds of aluminum in a warehouse is not much use to a bank if I then smuggle the aluminum out of the warehouse through the back door.\u201d<\/p>\n

For questions with a subjective element \u2014 was the President murdered, or did he die of natural causes? \u2014 humans have to decide whether the event has occurred.<\/p>\n

A common proposal is to outsource your oracle to a prediction market that is also on your blockchain\u00a0\u2014 such as Augur.<\/p>\n

There are third-party services<\/a> such as oraclize.it, which act as an interface between public websites \u2014 such as stock tickers \u2014 and the Ethereum blockchain.<\/p>\n

This isn’t a panacea. If your question isn\u2019t popular enough to attract sufficient uninvolved wagers, then it will often be worth it for one party to just bribe the bettors. You can\u2019t get rid of the human element by adding another layer of indirection \u2014 it\u2019s oracles all the way down.<\/p>\n

And in the case of a bet that a particular person won’t<\/i> die … well, there’s an obvious way to win the other side of that bet.<\/p>\n

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Augur sets its DAO free!<\/h3>\n

Pure smart contracts have no human intervention possible \u2014 they’re just a program running on its own, forever. This relies on being able to write a computer program that’s perfect, bug-free and never needs updating ever again once deployed … which is a set of conditions that holds approximately 0% of the time.<\/p>\n

The usual method \u2014 which is recommended in the Ethereum white paper<\/a> \u2014 is to make a variable in your smart contract that points to a separate program that does the real work. If you want to update your program, change the pointer to refer to the new code.<\/p>\n

Of course, this means your “smart contract” is not immutable, and is functionally just another completely centralised computer program. Not that this ever stopped an ICO promoter from saying “decentralised!”<\/p>\n

Augur, however, are purists. Also, they wanted deniability.<\/a> So … they removed their ability to change their own contract!<\/p>\n

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Happy two weeks! \ud83c\udf89 Ownership of the escape hatch has been transferred to the 0x000..0001 address.<\/p>\n

— Augur (@AugurProject) July 24, 2018<\/a><\/p><\/blockquote>\n