Topic: ChromaWallet (colored coins): issue and trade private currencies/stocks/bonds/.. - page 9. (Read 96886 times)

Hmm, well, in simple terms, colored coins are transferred together with Bitcoins, thus many properties of Bitcoin are also applicable to colored coins.

For example, Bitcoin escrow and dispute mediation contracts: ( https://en.bitcoin.it/wiki/Contracts#Example_2:_Escrow_and_dispute_mediation ) also work for colored coins.

On the other hand, Mastercoin works by embedding messages into the blockchain, semantics of those messages is entirely different from semantics of Bitcoin transactions.

1. Lightweight wallets: to check whether Mastercoin payment is correct, one needs to obtain the whole list of messages, and the only reliable way to do that is to scan the whole blockchain starting from the first exodus transaction. This means that client can't be lightweight. On the other hand, to check whether colored coin payment is correct it is enough to check transaction history from genesis transaction of a color up to a transaction in question, it is anticipated that this history is much smaller than the whole blockchain, and it is possible to obtain it from anybody (e.g. a guy who pays you) as client can verify history independently without scanning the blockchain on his own.

2. Bitcoin network ignores conflicting transactions, and thus merchant can accept small-value transaction without confirmations, knowing that double-spending it is hard. On the other hand, Mastercoin transaction conflicts are not recognized by Bitcoin miners, thus double-spending Mastercoins is pretty much trivial, thus vendors shouldn't ever accept them.

3. Bitcoin contracts which I mentioned above can be used to implement secure instantaneous payments: a third party can guarantee lack of double-spends. Same can be used for colored coins. But since Mastercoin doesn't use Bitcoin scripting, it cannot use this approach.

4. Colored coins trading is done through a separate protocol, p2ptrade. Blockchain is used only to fix trades. Being a separate protocol, it is very flexible. On the other hand, Mastecoin trading is a part of the protocol and it needs to be done through a blockchain, and one needs to wait until offer is confirmed before accepting it, confirmations take time.

5. It is also possible to combine p2ptrade with 3rd-party double spend prevention to achieve instantaneous secure trading. No such thing is possible for Mastercoin, they'd have to use fully centralized services to do this.

6. It is possible to do p2ptrade transactions without publishing them on the blockchain for some time, which means that it is possible to do more transactions than Bitcoin network allows with only very limited trust to trading service, and without paying large fees. Again, no such thing is possible for Mastercoin...

To elaborate on the last point, this requires some kind of centralized trading service which will coordinate trading, but it won't be able to steal anyone's coins.

would you mind to elaborate the most crucial point(s) a bit in non technical terms? I'm not having a technical background...

Well, I'm not a big fan of Mastercoin, you know, they haven't really thought it through:

• lightweight wallets have to trust payment verification done on servers
• trade requires waiting for several confirmations, and this is slow
• fundamentally incompatible with accepting zero confirmation payments
• incompatible with Bitcoin contracts

I really don't know why would one prefer a platform which is slow, has higher fees and is inconvenient. But then again, they have more money to spend on PR, so who knows.

So we agree on all that!

What do you think about chances of Mastercoin's approach to colored coins replacing colored coins applied directly to bitcoins?

Yes, I think colored coins will be a part of bigger infrastructure. There might be companies which offer verification services and things like that.

Most likely it will be very sloppy at first, but eventually we'll see more and more serious and sophisticated players on this market.

That's not so far away from my perspective... What is needed though would be a real world identity of the issuer or a proof of trust record (keyhotee or something) or a trust voting system like in ebay...

Well, an issuer is supposed to provide a contract which is digitally signed by him. In most countries law recognized digital signatures, they are widely used by banks etc.

So the issuer can write a contract like this: "I owe $100 to person who can produce proof of ownership according to the following protocol: ...".

Essentially, colored coins can be seen as a decentralized database which contains records of ownership of digital tokens, with transfers being authorized using digital signatures and secure decentralized timestamping.

I don't think that it explicitly needs to be approved by the government. For example, let's consider PayPal: they record information about user balances in some kind of a database. Suppose one day PayPal goes under and users will want to claim their funds. It's unlikely that government said that a certain database is approved for storing balances, more like they'll just collect evidence from PayPal and use it to distributed liquidation proceedings.

Same thing about Amazon gift cards: it doesn't matter how Amazon stores information about them, it is important that they constitute Amazon's liabilities.

(Disclaimer: I'm not a lawyer, everything mentioned above are just ideas.)

A real world IOU for gold would be based on a contract (written paper, contract between two parties) and contracts (if they fulfill certain requirements stated by some law) are enforceable. Based on the law and on the contract you can sue someone that doesnt fulfill his promises. And the state enforces it in the end...
But with colored coins: There would have to be some law that defines issuing colored coins as a legal form of issuing property. It is the same with the question whether a contract with no signature is legally legitimate or contracts made on the phone verbally.
It is always the same: If there is no completely decentralized trust less process legal enforcement makes it valid.
Is my thinking wrong? 

All IOUs issued by Bitstamp on Ripple right now:
https://ripple.com/tools/info/#rvYAfWj5gh67oV6fW32ZzP3Aw4Eubs59B (sum the account_lines responses)
https://ripple.com/graph/#rvYAfWj5gh67oV6fW32ZzP3Aw4Eubs59B <-- easier to see here, though it would maybe crash your browser with the graph display

Maybe you mean that the amounts that could be issued in the future are not known? This is true, while with ColoredCoins you create a fixed amount of IOUs you are flexible in that regard in Ripple.

In the most general sense,  any colored coin that is issued by an issuer conveys certain rights.  These rights can be that if a coin is tendered to the issuer a certain amount of gold is delivered.   It could be virtual stuff as well, if a minecraft coin is tendered a certain amount of redstone is delivered. 

It is an a IOU where the quantity of these IOUs are made public in the block chain.

By contrast, with Ripple, the number of IOUs that are issued is not known publicly.

 

So colored coins (as with ChromaWallet) would need law enforcement and a legal backing if you do not only want to use it transfering gold from your dad to you? The bitcoin that is colored as e.g. 1 ounce of gold is essentially a digital IOU right?

Just made me realize that just enabling the capability in the iXcoin daemon is just one tiny step forward.

To actually get higher adoption, we need to engage exchanges.

I know for one that eToro is extremely interested in this technology.

At this time, i look at iXcoin as a extremely viable platform for building this.

Oh... BTW...  read somewhere about OT and colored coin integration... something about placing the colored coins in escrow.... do you know about this and do you have a more detail explanation?

ooops.... my apologies... I though this was the iXcoin thread.

There is no way to invest into 'colored coins' in general. It is just a concept, not something you can buy.

You can invest into concrete securities, however.

For example, if ActiveMining will issue its shares in form of colored coins, you'll be able to buy those shares via ChromaWallet p2ptrade... But in that case you're investing in ActiveMining shares, if company goes bust their value will be negligible.

Currently there are no real assets issued in form of colored coins, our software is alpha and should be used only on testnet. We plan to release beta software in end of January.

Perhaps, one day you'll be able to invest in colored coin startups...


LOL

Can someone explain me short how i can invest to colored coins? I download software, transfer some BTC there and mark that to some color and then to waiting? :O

BitShares uses both collateral and derivative market incentives to peg value of digital coin to value of a commodity.

(Open Transactions is more-or-less honest cryptocurrency accounting system.)

What colored coins do is guarantee the quantity of coins.   

Which is actually

So in the case of say Open Transaction based issuer,  the cryptocurrency is placed in escrow.

What happens if value of cryptocurrency held in escrow drops?

Thanks for explaining!  


What are the arguments that such a system would not work?

Colored coins can be used to track ownership of securities, such as shares, bonds, IOUs and so on.


The guy who issued "gold coins" is supposed to demonstrate a signed contract and evidence that he is trustworthy and owns the asset.

It's up to you to decide if he is trustworthy enough.

In simple terms, colored coins allow you to do same things you could do on centralized Bitcoin 'stock exchanges', like BTCT.co, BitFunder.com, HavelockInvestments etc., but in a decentralized way: you don't have to trust your bitcoins to exchange.

However, trustworthiness of assets (securities) is the same, and I'm sure we'll see a lot of scams and bankruptcies.

As for gold, there were funds traded on BTCT.co, e.g.: https://bitcointalksearch.org/topic/btc-tc-bitcoin-gold-trust-closed-133556

Some guys actually posted photos of physical gold coins they own.

But I think at some point bigger and more trustworthy companies will get involved.


If somebody tells you that it is possible to create gold-backed coins which require no trust, he is lying.

I know that some projects (not related to colored coins) put cryptocurrency into escrow to "guarantee" value of "gold" coins... I hope I don't need to explain why it won't work so well...

Can you be a bit more explicit?
Do you mean anyone can say I color this coin to be worth 1 kilo of gold and whoever wants to can buy this from me for 60 btc or send me 45k usd in cash via wire transfer? So this concepts makes it necessary that people trust me as the issuer?