I honestly know very little about MasterCoin, but it is built on top of the Bitcoin protocol and not a new blockchain, right?
This is about the extent of my knowledge of it as well, beyond that I have no clue what it is, or what it does, or why I should care, or not care about it. This isn't the first complaint though, so I'd like to see this get hashed out one way or another, so we can be fair. Nobody has cared enough to do that up to this point, and nothing will change until that changes.
The Mastercoin project is an experiment in crowdfunding.
Mastercoins themselves are just an instance of colored coins created in a particular way.
The business model:
1) Programmers create some mastercoins for themselves in a process that isn't quite premining since the public is allow to participate as well.
2) Speculators bid up the price of mastercoins, allowing the programmers to fund the development of new services by selling their mastercoins.
3) The new services will all be paid for in mastercoins, not bitcoins.
4) Users will flock to these services, which means they have to buy mastercoins from the speculators.
5) Since these services are so wonderful and useful, the price of mastercoin relative to bitcoin will reach some stable value.
Note that nothing about these services inherently require special colored coins - that's a feature built into them for the benefit of developers and speculators.
In fact, any of these services which are open source could be trivially modified to not require mastercoins at all.
The Mastercoin promoters believe that the Mastercoin developers will have stronger incentives so will always be able to compete successfully with services which work directly with Bitcoin.
The entire premise of Mastercoin rests on whether or not Mastercoin developers can create services so good, and which nobody else can replicate, that users will be willing to buy an entirely different currency just to get access to them.
If that doesn't happen, the entire experiment falls apart.
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