If a company does an IPO they represent the shares with tokens. Pretend each BTC representing the share is equivalent of 1/100 of a $US cent. Do you really think people care how much that value goes up or down of BTC? No. They will keep it because it represents something else more valuable. The underlying BTC value is just a bonus. As long as BTC network survives so does colored coins. Mastercoin depends on the network too.
This works only for stuff like shares though. What if I want to create a transaction where I make a bet with you that the price of Bitcoin will be $1000 before December 2014? If you don't believe they'll be over that price then you'll agree to buy the Bitcoins from me thinking that they wont be that expensive by December 2014.
How would a futures contract be possible with Colored Coin?
Colored Coin on the other hand I am skeptical if it can even do derivatives, or smart property, as it seems to be just about doing shares and a decentralized exchange.
Well, for the start, colored coins is a generalization of "smart property" concept which was described by Mike Hearn. Mike described how it applies to physical property like cars and such, but the concept works for digital property as well. But we needed to generalize it to make it more convenient.
Colored coins can be used for derivatives trading. There are several different approaches, ranging from completely centralized to completely decentralized.
Show me how derivatives trading can be done without an escrow? I do not understand where Colored Coins get their value. And don't say from Bitcoin. That is like saying dollars get their value by being dollars. Dollars got their value originally by being backed by gold and now they have no value at all and represent debt. The gold standard at least allowed for dollars to originally be worth a specific price in gold. That gold was used to provide the initial value for the dollar.
Mastercoin is like the gold which is set up to provide the initial value. Mastercoins themselves can be backed by gold itself if you buy Mastercoins with gold bars. Now you have Mastercoins backed by gold bars. Now Mastercoins inherit the value of gold and you can use that value to create an escrow to create gold coins which can actually be redeemed at some time in the future for gold bars because.
I don't understand how Colored Coins get any value at all. Stocks are worthless unless the company is successful and it asks us to trust that the company will be successful for trading stocks is often on faith in the Bitcoin community because it's unregulated and could very well be a scam.
But you don't believe anyone could ever clone Mastercoin?
Your arguments seem to be what you want to be true, rather than what seems most likely.
I'm sure people will fork it but unless they can get just as much value into their cloned coins as the original Mastercoin their protocol wont work at all. Their escrow would never be healthy. It might work as an attack on Mastercoin but I don't see any incentive to doing it other than for pump and dump. I don't see how it would necessarily remove the value put into Mastercoin once that value is put in.
For instance Cunicula confronted this question. He proposed a scheme which utilized demurrage to provide interest for issuers. As long as there is interest there will be a reason to put your value into Mastercoin because that value will have the potential to increase through demurrage over time.
I think it's like with MCXNow. If MCXNow were cloned it doesn't mean everyone who owned Feeshares and who has their coins on MCXNow receiving interest on their deposits would suddenly go to that other clone which couldn't offer nearly as much interest. The end result is that by providing interest you can actually encourage loyalty to the original Mastercoin protocol and maintain escrow health. Mastercoin would be the best place to put your Bitcoins when the Bitcoin price collapses for no reason like it does sometimes, and when the price of Bitcoins rises tremendously like it's doing now then you could switch your altcoin holdings to the stable Mastercoin instead of Bitcoin and then switch back.
The point is that Mastercoin would be the perfect store of value. You can use it to back all kinds of other currencies and smoothly switch from alt currencies to Mastercoin.
The problem with Colored Coin is what do I do if I'm holding a bunch of Litecoins and the price of Litecoins are collapsing while the price of Bitcoins are going up? I don't want to buy Bitcoins because the price of Bitcoins could collapse back down again soon after I buy it causing me to lose money. So enter Mastercoin, I could buy a bunch of Mastercoins and know for sure the price will be going up and will be more stable than Bitcoins. If I could earn interest on my Mastercoins in some way then it would guarantee that I'd have an incentive to do this in that scenario and every time the price of an alt coin or some other coin collapses I'd be able to go to the Mastercoin safe haven.
When Bitcoin prices collapsed people were putting their Bitcoins into Litecoins and when those collapsed too then people started putting their coins into Asicminer and other stocks. When the centralized stock exchanges went down and the price of Asicminer collapsed then people started putting their coins into MCXFee shares and MCXNow.
People need a place to put their value as investors and they want to have interest. Right now there is the Xbond but you have to rely on a centralized exchanged, or there is Mastercoin.
It could be cloned, it could fail as a project, but if it doesn't and if it's designed to promote loyalty to its implementation of the protocol in the form of interest then if a clone does form that clone would have to recreate the same amount of value, attract the same amount of investment, and pay interest. If it's profitable for investors then they'll probably use both and it wouldn't make a difference. If there were too many clones then people would probably just use the original because there would be no logical reason to use the copy.
