Topic: Colored Coins and Coinprism takes Bitcoin to a whole new level - page 2. (Read 11162 times)

I'm not sure if this is considered on or off topic but asking anyway...mainly about the insertion of other information.

Is it already possible to add information other than just the value part?

To clarify, I'm wondering about why this isn't or couldn't be used to replace the way we do email...but then would that make the email or message be visible?

How does it work to include information or contracts or anything like this - colored though it is - from one to another?

Arrrgh I know what I'm trying to ask but apparently it's not coming out right.

Futures (forward contracts) need to be in place before you can build an options market upon them. Just check the gold/silver market in Nymex/Comex.

If you want to decrease volatility, make a market with options that will be settled in the underlying (BTC) instead of $, and no "settlement date", only "expiration date" (I think this is called European style options but not sure). So the counterparty may exercise the option any day. Then it becomes counterproductive to paint the tape eg causing a flashcrash: with a CFD, you would profit, the lower it goes. With a real PUT option, you need to sell your stuff at the agreed price and buy back, which causes buying pressure in the market (first you need to sell to cause the cascade, then you sell the BTC amount in the PUT option you bought, and now you'd need to buy both of these back cheaper, to realize any profit.)

Ah, decentralized. That is the tough point I would start by removing the USD/BTC exchange rate from the system still, because that is the easiest to manipulate and in a sense the least meaningful part. You either have the coins or not.

You bring up a good point.  I too wonder if this would increase or decrease volatility.  The fact that everything is fully transparent might help to mitigate whales from painting the tape near options-expiration dates.  I don't know what would cost more: painting the tape or making a few more bucks on the options.

What I'm trying to do here is brainstorm the lowest-risk decentralized method for hedging against the USD/BTC exchange rate.

There is no need to agree on the going rate when using PUT options, if the options are actually settled (and not contract-for-difference). I don't know which kind of options the market participants would prefer, but every time I offer to issue PUTs, I want them to be settled in an actual trade at the strike price, or expire worthless.

Building a synthetic derivatives market on top of something as fickle and easily manipulated as the USD/BTC exchange rate is a call to even more short-term manipulation and volatility.

I expect we will see USD-tokens in the not-so-distant future from credible third-parties.  I think these will be useful, however, they still have problems, for example:
   (a) the issuer cannot easily prove his reserves of USD,
   (b) the issuer cannot easily post a "proof-of-intent" bond that acts as reserves for settlement of the options contracts.

The USD/BTC put/call idea with settlement in bitcoin could allow one to hedge against the BTC/USD exchange rate completely outside of the traditional banking system and with 100% transparency.  The counter-party risk, although not zero, can be made very small by using colored coins + multisig with neutral third parties + proof-of-intent reserves.  

But isn't CoinPrism just centralizing the Bitcoin coloring aspect? I mean, when people started discussing the idea of colored coins, I thought they were referring to adding a color field to the distributed ledger somehow.

It's unlikely the FED does anything like this, but a company could easily do it, by either accepting USD deposits and issuing USD-coins in exchange, or simply allowing people to deposit BTC, convert it at the Bitstamp rate, and in the backend, convert the BTC to USD in order to cancel out the exposure.

any comments on this? http://www.reddit.com/r/Bitcoin/comments/25pax6/coinprism_colored_coin_metadata_great_use_of/

colored coin metadata stored on sidechain , instead of main blockchain or server

PM me if you can

I'm thinking more about these multisig colored coins with associated bitcoin reserves (i.e., reserves that are spendable with the same script used to create the colored coins).  Since the asset address (for the colored coins) is the hash of the output-script used to create them, I see no reason why the output script can't be multisig.  This means that it should be possible to create colored assets such that re-issueing more requires, say, 2 of 3 signatures:




My next question is, is it possible to send regular coins to the colored asset address and then transfer them out using the same multi-sig rules used to create the asset?

As an experiment, I tried to send coins to the Worthless Token address (33C124f3w4cJNAi3hVjNMhdegUTAcDRzmB).  Blockchain.info wouldn't let me but Coinprism would.  So now there's 100 bits sitting there.  

When I look at the address in a blockexplorer, it implies that 33C124f3w4cJNAi3hVjNMhdegUTAcDRzmB is the same address as 12Vz6XAcPAHvH11caQ4mw5GiXxAT4YR7kZ.  Can anyone explain this?  For example, is it possible to spend that 100 bits sitting there?  What would the private key be?

Creating bitcoin put and call options with colored coins

I think it is possible to create put and call options for the USD/BTC price with low trust requirements using colored coins.  

Here’s an example:  

You might want to buy a put option to hedge your downside risk on the bitcoin exchange rate.  Say the price of bitcoin is currently $450.  You buy an option to sell Counterparty A a certain number of bitcoins on July 31, 2014 at $400.  If the price of bitcoins is less than $400 on July 31, then obviously you exercise your option and sell the coins to Counterparty A at $400  / BTC.  If the price is higher than $400, then your options expires worthless.  

Now here’s where the idea gets unique:  Rather than settling in dollars, if the contract is written for settlement in bitcoins, then it would be possible for Counterparty A to prove that they are adequately capitalized to settle put options in bitcoins rather than dollars.  A reserve of bitcoins spendable with the same script used to issue the colored assets automatically become the proof of reserves.  

So now Counterparty A has shown they have sufficient reserves to make good on the put options.  Next, we must somehow force transfers from the reserve address to the outstanding colored coins, should the puts expire “in the money.”  I don’t think this process can be entirely trustless because we need to agree on the bitcoin/USD price; however, I think by using multisig with keys held by neutral third parties, that we could at least make it completely transparent.   Any fraud should be obvious and provable.  

There is one “catch” of course:  The reason you buy a put option in the first place is to hedge your downside risk.  But if the price of bitcoin completely collapses, receiving settlement in bitcoins would be impossible since they would no longer have any value.  I don’t think this is a show stopper, but it would mean that the put options would be able to settle in bitcoins for all values of bitcoin greater than, say, $100 / BTC.  The floor price could be made lower by increasing the bitcoin reserves held at the colored coin address.   Put options with lower floors would be more valuable.  

It cuts both ways trusted company's can issue there own money (coloured coin tokens) redeemable for a fixed service or product.

Money becomes the domain of the producers not the banks - Hayek's private money dream is realised.

Thanks! Received. Who was doling out owl coins? I'd end up collecting coins! It'd be so nice to get in on the ground zero floor of something that actually takes off for a change. I hate that I didn't know squat about btc until a month and a half ago. But to be fair, I doubt seriously I'd have invested anything in a virtual currency for 32c.




Got it. So basically before sending anything from that wallet with multiple things in it, I'd need to move the btc out to a normal one first?



Yeah, that's basically the idea. There was a thread on here somewhere I read a few weeks back where someone had raised the possibility or was already working on a vote coin - not sure if they called it votecoin or not - that used the bitcoin platform as a voting mechanism that couldn't be tampered with, rigged, etc. so all votes were counted, tallied, and kind of revolutionizing elections, which I'd get behind in a split second if I hadn't already gotten behind it a split second after I read it in that thread  



 

Now I see why they just went with colored coins! But I still wanted blue ones!!



Initially, I figured alt coin but the more I read, the more it seemed like a labeling layer - and that being said, I still have no clue how to read the blockchain properly so there's that...




Thanks for the explanations!

I can see governments and the banking cartel short circuiting over that one... 

You can already accept colored coins to a paper wallet, for example.  You just can't move those colored outputs without a color-aware client (or issue your own tokens). 

Note that the open-assets protocol is public so you could "fix" any problems that you perceive.  We are lucky that people are moving projects like this forward and then making them available to the bitcoin community.  On that note, I don't see why Coinprism couldn't charge a fee to allow you to issue colored coins through their wallet service.  Right now, the only alternative is to write your own client! 

I refuse to put one satoshi in a wallet that's not mine.
Until they fix this, I am not interested.  But once that's fixed, then I'll be all over this.

One worthless token (1 WTK) has been sent to 1Q5uQbo73YrPgHx2NvkycuoVyMNsFuZZgG!  You should see this in your coinprism wallet, but you'll need a small amount of bitcoins to issue your own colored tokens or move them from address to address. 



Colored coins and regular coins can co-exist.  For example, I could have 0.02 BTC, 1 WTK, 100 OWL and some other IOUs at 1 specific address.  The thing people need to be careful of is that most wallets are "color blind".  What this means is that if you load the private key for an address that contains colored coins into a normal wallet and spend some coins, the transaction might "uncolor" the coins. 

Coinprism is color aware so it can send all colors of coins as well as regular bitcoins. 



The shares would be valued by the free market.  It is confusing right now because colored coins are so new.  But eventually, there will exchanges set up where people can trade various colored assets.  This will allow for transparent price discovery. 

Of course you are also free to trade your colored coins privately with whoever you like, perhaps using the market rate on an exchange as the price. 



I'm not familiar with vote coin, but colored coins would allow share holders to vote in a trustless and decentralized way.  Each colored coin would give a share holder 1 vote. 



Lol, I was discussing this with someone else today too.  The idea of "color" is just an abstraction to indicate that the 60 bit tokens have been "market" in a unique distinguishable way.  There are 1461501637330902918203684832716283019655932542976 possible colors so we won't run out!



I agree that it is confusing, but hopefully it sorts itself out.  The problem is that "colored coins" is a noun but really what we are usually talking about is the action of coloring (a verb).  We color (verb) bitcoins to create new tokens that have some sort of meaning.  For example, the coins I colored to create WTK have the agreement that they are just worthless tokens!



I think some people are just imagining a future where we can register and trade assets directly on the blockchain.

But already we can create legal agreements with colored coins.  Many people think that only formal contracts written by lawyers, signed in ink and witnessed by witnesses are legal.  But this is not true.  Even an agreement written on a napkin is legally binding if both parties understood and intended to enter into it.  We just use the formal contracts, ink signatures and witnesses to make it more clear and proveable that an agreement was actually made. 

But now with colored coins and digital signatures, we have a new tool to make agreements in a way that both parties can prove that the agreement was actually made.  We don't really need notaries anymore, and the role of lawyers can be scaled back too.



That is one application, and there are many others too.

This is very cool...even being mostly n00bish on bitcoin all the way around I can see a number of possibilities here. I set up a wallet also to try this out and understand it better if the WTK is still available for testing.

1Q5uQbo73YrPgHx2NvkycuoVyMNsFuZZgG

If so, thanks. If not, no harm...I'll hang onto the wallet for awhile and see how this shapes up.

Now questions.

1. Do we need multiple wallets per multiple transactions as is suggested for btc holdings even if the color coins aren't "worth" anything on their own and are serving as vouchers in kind?

2. If I'm understanding this correctly, it's possible for Company B to issue public color coins as shares, for example, at whatever price, say $50. So the general public could pay Company B $500 and receive 10 CompanyBCoins, and trade or potentially profit the more successful Company B becomes? And the shares then would be valuated according to what - the company itself and if so how is it measured - or the bitcoin market rate, or both/other? I may be blurring things between getting btc on the exchanges and trading, and the scenario mentioned previously about the mining equipment and raising capital.

3. Could this be implemented similarly to the person who suggested the truly awesome votecoin?

4. I'm taking color coin literally so how are these color codes distinguished between people who choose the same color? (don't even...you're the one who's calling it color coin!)

5. I do agree that before the platform gets too popular, maybe consider a more sleek, techno name and keep color coin as a description. I agree the color coin is too easy to mistake for alt coins and this may be an unnecessary barrier to its adoption or getting people to stop and actually go through the information.

6. In the example on coinprism site about buying and selling things like cars and houses, I'm not real sure how that actually works in a practical sense. The example was Joe Blow sells the car to John Smith, JS pays JB the money and JB signs a transaction on the blockchain - basically it's done via the network but at least in the USA, there is more involved to it than that...titles, in particular, purchase agreements, and so on and in some cases the property transaction has to be notarized and there's all kinds of paperwork required by law. Most people will follow that law regardless so how does this overcome those problems?  If I sell Joe Blow a lawnmower, he pays me in btc, cool...end of it. But anything like property, houses, vehicles, boats and whatnot this isn't going to work other than an extra step.

7. At the end of the day, is this basically crowdfunding with tokens?

I'm sure I'll have more questions but this is good for a start

That would be awesome.  For example then coin colors could easily be added to exchanges etc...

P.S. Very nice website/wallet you guys have developed here.