Topic: Colored Coins and Coinprism takes Bitcoin to a whole new level - page 7. (Read 11162 times)

You're right, it's not relevant because the amount is so small. But if you had for example 1,000 colored coins incoming transactions than you can uncolor them and recycle them back to bitcoins. Each transaction is 600 satoshis, so you would have 1000x600 Satoshis or 0.006 BTC ($2,64).

If they represent real dollars than the price is pegged to the real dollars. As an issuer you always buy and sell it at 1:1.

I really wish they had a better name than "Colored Coins". Some might get it confused with Blackcoin, Whitecoin, etc.

You can either rely on a trusted third party to handle your vouchers, futures, stocks, etc. which is expensive because you have to pay for their service. Or you can issue them yourself, but then people won't be able to trade them among each other unless you can create paper notes that are as hard to counterfeit as money (or better).

Colored Coins gives you the option to issue them yourself and it lets people trade them among themselves safely without a third party and all this for a few cents. It gives you the best of both solutions and none of the headache.

A great offering to the community.  It will provides a pure colored coin model that can be an alternate to mastercoin and others.

Looking forward to seeing the platform evolve.

You can emit as many bonds as you like, but people will see that you are doing so and won't buy them if they don't trust you (and they may start selling the bonds they currently have thereby limiting your ability to sell the newly-issued bonds).  This is no different than how a company can right now issue as many bonds as it likes: what stops them from doing so?  Potential loss of credibility and the fact that no one will buy them unless they are sold at a high discount (larger effective interest rate).  

Colored coins make no attempt to solve the problem of issuer credibility.  If the issuer is a scammer or just a business that got unlucky, the colored coins will lose their value.  The open-assets protocol is just a way to track color and allow decentralized trading of the assets.  

Comparing colored coins to traditional banking is non-sensical because colored coins are not money.  Colored coins represent promises, agreements, IOUs, etc.  We have hundreds of years of case law for resolving disputes involving promising and agreements, but now colored coins makes them more transparent and implements an accounting system for tracking them.  



It doesn't.  Colored coins are similar to ripple IOUs, bitshares, Nxt assets etc.  The value comes from the underlying promises, not the method used to "write the contract."  It would be like saying "why are pens useful for writing contracts if I can use pencils?"

The answer is that both pens and pencils allow you to write contracts, but pens are better because ink is more difficult to erase than lead.  The analogy is that since colored coins are secured by the largest single-purpose computing network ever created (70 quadrillion hashes per second), writing your contracts using bitcoin is like writing them using permanent and unforgeable ink.  

So yes, colored coins secured by dogecoin would still work, but there are two weaknesses:

1.  The colored coins are only as secure as the dogecoin network (which will become highly insecure within 8 months unless changes are made)

2.  Assuming coinjoin transactions are possible with the open-assets protocol, it is advantageous to issue your colored coins on the most liquid cryptocurrency because the assets can only trade in a trust-free manner against that underlying cryptocurrency.  If you issued DOGE colored coins, you would need to use a third-party (e.g., an escrow service or centralized exchange) if you wanted to trade colored coins for bitcoins with someone who you didn't know or trust.  

I was about to answer smugly that "blockchain.info shows if your bonds originate from the original emission or somewhere else". But that is probably not the only or even practically functioning way. What could be?


Network security. Anything else but the largest coin is always at the mercy of the miners of the largest one. (Yes, I know they have different algo, but would still take Bitcoin for now)

Coinprism, are you affiliated with https://www.coinprism.com ?  

Is there a formal publicly-visible mechanism to remove the color from a coin, or is it up to the issuer to keep track of redemptions?

Does the open-assets protocol support coinjoin transactions?  If the answer is "yes," this means that two entities that don't trust each other could trade colored coins for bitcoins without an escrow service.  This would be very useful.  

I have a  doubt

Scenario:

I create 1000 colored bonds and sell it.

Q: How the bond holders can verify the total emission and that I don't emit more and more bonds?

Someone had better come up with a better marketing pitch or it will fall on its arse. Im guessing colored coins are great. But I just suffered through this whole thread and no offense but I have no interest in colored coins so far. And stop using apples as your example object. Use something that means something to the average person. If you're talking about mortgages or shares or wills then fine but selling apples doesn't take anything to a new level. Plus they contain fructose which is a bigger killer than cigarettes. Again, no offense intended but I took nothing away from reading the thread.

Well thats good.  It works like traditional banking.

But why does it need BTC why not color dogecoin or litecoin?

Excellent news! Yet again bitcoin ecosystem grows. Good job guys!

The investor can redeem his coin by going back to the farmer: the investor gives his apple coin back to the farmer, and the farmer makes physical delivery of the apple. The investor is now free to do whatever he wants with the apple (eat it?), and the farmer can either keep the coin or uncolor it.


Yes, this is a very good explanation of how colored coins work.

To summarize, the colored coin comes into existence when the issuer issues it, and disappears when the issuer redeems it for a service or good.

I think it's rather
Value of colored coin = max {value of IOU, value of underlying BTC}
because you can either  use it either as IOU  or spend the BTC but not both

Also, on coinprism the minimal amount of BTC to creat a coloured coin is 600 satoshi,
which is rounded up from the 540 satoshi dust limit

Ok that is what i wanted to understand.
It might be a "problem" as the value of the dust today may be not so "dusty" tomorrow.

The amount of bitcoins underlying each colored coin is irrelevant from the financial perspective--it is only relevant from the technical perspective because without a small amount of bitcoins the miners wouldn't register your trades and the accounting system wouldn't work.  

I am not sure how much bitcoin you actually need to make it work, but I assume it is larger than the dust limit but still quite small.  I would like more clarification here too.  

And since the bitcoins that are colored are still "real" bitcoins, when you redeem your colored coins, you should get back an equal amount of uncolored coins + whatever was promised.  So the value of a colored coin is:  

    Value of colored coin = value of IOU + value of underlying BTC

Ok so when i color some bitcoin, the amount of bitcoin colored is not relevant, right ?
To go back to the applecoin :

If i create 100 applecoin for my apple growing company, can i just color 100 satoshi to trade?
What is the difference if i color 100 bitcoin?


Am i missing something?

The free market determines the value of the colored coins.  

Say Bitstamp issues a bunch of BitstampUSD colored coins.  As long as people believe that Bitstamp is solvent and honouring USD redemptions, then their colored coins will trade near par value.  But if something starts to smell funny (like we saw with MtGox in the fall), then the BitstampUSD coins will trade at a discount to real USDs.  

The beauty is the market automatically takes care of this for us, and in fact provides helpful signals (e.g., warning signs).  If we see the price of BitstampUSD diverge from KrakenUSD, it will be a pretty good indication that something is up!  

I think he wanted to understand what colored coins are and used a silly example of an apple farmer selling vouchers for apples.  Cbeast pointed out that by issuing futures contracts the example wasn't silly at all because it actually gives the apple farmer a useful way to fund his crop without involving banks.  



Apple farming aside, you might be on to something.  A promotional site like Groupon could create colored coins on behalf of their small businesses clients and sell/give away the colored coins as vouchers.  It would be trivial for the merchant to verify and redeem the vouchers and it would make the entire process more transparent and probably a better deal for the small businesses.  Consumers wouldn't even know they are using bitcoins.  

This actually seems like a really good idea!



To help fund your next apple crop, of course.

Or to fund the development of your new innovative device.  Instead of conventional "pre-sales" where a company just sits on your deposit, companies could create a sort of pre-sale future contract.  In the case of Butterfly Labs, people could have traded their ASIC pre-sales on the open market rather than being stuck waiting.  This would promote price discovery in the pre-sales market (which has been a problem in the bitcoin ecosystem to this point).  

The more I think about colored coins, the more I like them.  



Colored coin speculators do not need to take delivery on futures contracts they may hold--they would instead trade into cash (bitcoin) at the appropriate time.  For example, a trader may have bought-up Butterfly Labs pre-sales colored coins at a sharp discount after BFL made several delays in the production schedule, expecting BFL to get back on track and the price to go back up (at which point they would sell).    



Liquidity is highly dependent on the size of the market.  Liquidity for BFL pre-sale miners would never be as deep as liquidity for pork-belly futures on the COMEX, but that's not the point.  The point is that the liquidity would be infinitely than not having any at all.  



Trustless exchange of colored coin transactions are as fast as bitcoin transaction (the network propagation time), but on-chain transactions would not be suitable for high-frequency trading like you pointed out.  For HF trading, you would send your colored coins to a centralized exchange and trade them there.  I think it would be several years until there was enough demand to create exchanges for high-frequency trading of colored coins, however.  



Has this thread not made it obvious by now?  You already said "I understand what colored coins are and they sound cool." 

The advantage of colored coins on the blockchain is because you can do things that are impossible to do otherwise!