Information Markets and Augur: A legal analysis, U.S. law

Greg Rigano, Esq.
Jul 27, 2018 · 9 min read

The advancement of truth, science, morality, and arts have the full protection of the First Amendment — U.S. Supreme Court (1957) citing the U.S. Constitution (Amend. I)

For educational purposes only.

I am not your lawyer. This is not information to be relied upon on earth or in the galaxy, in law or any other form. This is not financial advice.

Congress shall make no law … abridging the freedom of speech, or of the press … — U.S. Constitution, Amendment I.

Augur is an open code base that has been called the printing press of value.

Issue: Is the Augur code protected under the Constitution of the United States, Amendment I: “Congress shall make no law … abridging the freedom of speech, or of the press … ?”

Prediction markets have a significant role to play in the future of knowledge, especially in science. There is extensive evidence that using these markets as forecasting tools could substantially improve decision making in the private and public sectors while managing risk more efficiently. Because of this governments should facilitate rather than hinder them.

Applicable Laws

As per the U.S. Supreme Court,

The protection given speech and press was fashioned to assure unfettered interchange of ideas for the bringing about of political and social changes desired by the people. Roth v. US, 354, U.S. 476 (1957). All ideas having even the slightest redeeming social importance,” including those concerning “the advancement of truth, science, morality, and arts” have the full protection of the First Amendment. Id. Journals of the Continental Congress 108 (1774); (Members of the Continental Congress included George Washington, John Adams, and Thomas Jefferson amongst other Founding Fathers).

The fundamental freedoms of speech and press have contributed greatly to the development and wellbeing of our free society and are indispensable to its continued growth. Id. Ceaseless vigilance is the watchword to prevent their erosion by Congress or by the States. Id. The door barring federal and state intrusion into this area cannot be left ajar; it must be kept tightly closed, and opened only the slightest crack necessary to prevent encroachment upon more important interests. Id. All ideas having even the slightest redeeming social importance — unorthodox ideas, controversial ideas, even ideas hateful to the prevailing climate of opinion — have the full protection of the guaranties, unless determined to be for national security. Id. Historical moments in which freedom of speech censorship was opened include against Japanese prisoners of war during WWII, after Pearl Harbor. Korematsu v. United States, 323 U.S. 214 (1944).


Augur is a set of smart contracts that enables decentralized p2p information markets aka prediction markets. Information markets are an old idea, go back to the 1800s as a generic tool to buy and sell shares of any publicly determinable event in what you believe will happen. Information markets enable collection of vast amounts of information held by individuals and synthesizing it into a useful data point, without the biases that plague traditional forecasting methods, . (A. Mann, The Power of Prediction Markets, Nature (October 2016; discussing Austrian economist Friedrich Hayek points). Why? Because information is contained in prices. (P. Polgreen, et. al., Using Prediction Markets to Forecast Trends in Infectious Diseases, Microbe, Vol. 1, Number 10 (2006). Transactions that traders make to maximize their profits effectively reveal their private information to the marketplace. Id. Election based prediction markets have produced more accurate results than national surveys or polls with the 10x number of participants. A. Mann, The Power of Prediction Markets, Nature (October 2016). Economist David Rothschild of Microsoft Research in New York City has stated that prediction markets are well placed to take over if polling goes into decline. Id. “I can create a poll that can mimic everything about a prediction market — except markets have a way of incentivizing you to come back at 2 a.m. and update your answer.” Id. Beyond political outcomes, prediction markets have been used for advancement of science and truth:

“One of the first prediction markets devoted exclusively to scientific questions grew out of a project started in 2011 by economist Robin Hanson of George Mason University in Fairfax, Virginia. Eventually known as SciCast, the project included a website where participants could wager on questions such as, “Will there be a lab-confirmed case of the coronavirus Middle East Respiratory Syndrome (MERS or MERS-COV) identified in the United States by 1 June 2014?”. (There was.) SciCast’s assessments were more accurate than an uninformed prediction model 85% of the time. SciCast was discontinued in 2015, when it’s funding ended. But it helped to inspire Metaculus, a market launched in November 2015 by physicist Anthony Aguirre and his colleague Greg Laughlin, an astrophysicist now at Yale University in New Haven, Connecticut. The site grew out of Aguirre’s interest in finding ‘superpredictors’ — people whose forecasting skills are far above average.

Metaculus Information Market Screenshot July 27, 2018

Metaculus asks participants to estimate the probabilities of such things as, “Will a clinical trial begin by the end of 2017 using CRISPR to genetically modify a living human?” or “Will the National Ignition Facility announce a shot at break-even fusion by the start of 2017?”.” Id.

Fortune 500 companies use information prediction markets to produce more efficient outcomes for enterprise. Reports include utility by Google, Intel, Microsoft, Motorola, Qualcomm, banking systems, Eli Lilly, Pfizer, Siemens, to name a few. Wikipedia, Prediction Markets. Prediction markets have also been successfully used to determine the spread of infectious disease to best contain them limiting further infection. (P. Polgreen, et. al., Using Prediction Markets to Forecast Trends in Infectious Diseases, Microbe, Vol. 1, Number 10 (2006).

These prediction markets usually do not use fiat, government backed currency — but some form of virtual value based in code/information. The Augur code only enables ETH, native to Ethereum code and REP, native to the Augur code, as computational information value transfer. The Augur code does not support fiat, government backed currency.

Notes on Augur:

· Augur is open source code that runs on Ethereum, which is also open-source code.

· Augur likely cannot be shut down unless Ethereum is shut down

· The onus to make and participate in an information market is with the parties who use the Augur code, not one entity or person.

· The Forecast Foundation helped create and supports the Augur open source code with the open source community to enable globally efficient information discovery.

The United States does not dispute that it is possible to use code to represent and convey information and ideas. The fact that a medium of expression has a functional capacity should not preclude constitutional protection. Id.

The Augur code functions as follows:

· Market maker makes a prediction to be resolved in pre-determined period of time and provides liquidity to make a market

Example: will the US FDA approve a cure for ALS before Dec. 31, 2020?

· Market-maker may take a fee in ETH or REP for creating this market.

· Market reporter stakes his reputation aka REP, to report on the information outcome of the event (dispute resolution may occur), reporter is paid a fee in ETH or REP.

· On resolution of event outcome, winner is paid out in ETH or REP.

Because computer source code is an expressive means for the exchange of information and ideas … it has been deemed to be protected by the First Amendment. . Roth v. United States, 354 U.S. 476, 484, 77 S.Ct. 1304, 1 L.Ed.2d 1498 (1957). Journals of the Continental Congress 108 (1774).

While further analysis may be required as to scrutiny of the regulation of free speech, generally the free exchange of code is protected as free speech. Id. This goes back to Phil Zimmermann, the creator of ‘pretty good privacy’ (“PGP”) fighting the Clinton administration as PGP, a cryptographic software was classified as a munition, along with missiles and other weaponry and therefore could not be exported without government permission. Zimmerman believed that code is just free speech protected under the First Amendment to the Constitution. The U.S. government started an investigation against Zimmermann. After years of fighting, the government eventually dropped the case as it was recognized that, generally speaking, code is free speech. J. Markoff, Data-Secrecy Export Case Dropped by the U.S., New York Times (1996). See also Wikipedia, Phillip Zimmerman. This was a major milestone in protecting privacy and the cypherpunk movement, which gave rise to Bitcoin. Side-note, Hal Finney, the first person to ever receive Bitcoin worked very closely with Phil Zimmerman and PGP. Theories postulate that because of his front row seat to witness Zimmerman’s difficulties with the U.S. government, Finney released Bitcoin “anonymously.”

The Augur code can be used in a deterministic fashion with the global computer ethereum. It is code that enables p2p value storage, escrow and payout without reliance on any one party. Because the Augur code uses information markets, based informational value for information discovery, the Augur code base itself as a whole is likely protected by the U.S. Constitution, Amendment 1. Depending on how market makers utilize the Augur code, e.g. is it used for the advancement of truth, science, morality, and arts, it will be able to point to the Constitution to support such informational value. Outcomes are expected to be on a case by case basis.

Parties that use the Augur code to create encroachments on potentially more important interests, e.g. national security, require further analysis to determine if there is the slightest redeeming social importance as a step to truth. When determining whether something encroaches on national security and is no longer protected by the freedom of speech and the press, it must be regarded as a whole. It should be noted that assassination markets and other potentially morbid utilities of the Augur code are a small minority of what the Augur code is being used for. As per the Supreme Court of the United States, “The fundamental freedoms of speech and press have contributed greatly to the development and wellbeing of our free society and are indispensable to its continued growth.” Roth v. US, 354, U.S. 476 (1957). Information markets have proven to provide health, economic and diplomatic efficiencies for productivity growth.

Further quotes by the U.S. goverment:

· The Supreme Court noted that although an asserted governmental interest may be important, when the government defends restrictions on speech “it must do more than simply ‘posit the existence of the disease sought to be cured.’ ” . (Quoting Quincy Cable TV, Inc. v. FCC, 768 F.2d 1434, 1455 (D.C.Cir.1985)).

· The government “must demonstrate that the recited harms are real, not merely conjectural, and that the regulation will in fact alleviate these harms in a direct and material way.”

Given that the Augur code is likely sufficiently decentralized, it may be difficult for regulation to alleviate certain harms, if any.

Conclusion: . It is likely that the Augur codebase in and of itself is protected under the Constitution, Amendment I. If it is determined, for any utility of the Augur code base, that it is protected by the First Amendment, the legal inquiry likely stops there. If utility of the Augur code is determined to not be protected, other laws may be triggered. Part II will go into utility of the Augur codebase.

Other Notes:

Potential economic implications of Augur

o It is difficult to create new markets. You can pay a financial institution a million dollars for a custom contract, but it likely won’t be exchange traded and you will just kind of have to hope liquidity takes off. This is why futures markets are limited — startup costs for doing it are so high that it’s not worth experimenting. There is significant overhead in cost in storing value, processing value, coordinating payouts and markets. Ethereum has the ability to do this in a deterministic fashion.

o The most efficient markets have the most efficient information discovery, enabling most efficient value-based transactions, enabling productivity growth. (Ray Dalio, Founder of Bridgewater Capital, How the Economic Machine Works)


· See here for two videos in REP and how to use Augur courtesy of Augur community:

all ideas having even the slightest redeeming social importance,” including those concerning “the advancement of truth, science, morality, and arts” have the full protection of the First Amendment. — the Continental Congress of 1774, which eventually went on to become the U.S. Congress.

Written by Gregory Rigano, attorney at law, free speech maximalist, founder of the Blockchain and Law Meetup NYC, and counsel to IKU. Educational purposes only. Do your own research. Stay safe.

Feel free to reach out if you have any comments, questions or if you believe there is anything inaccurate:

IKU Network

A decentralized research organization for staking and developing bio r&d.

Greg Rigano, Esq.

Written by

Renaissance, Hashes, Bio

IKU Network

A decentralized research organization for staking and developing bio r&d.