Bitcoin Forum

Colored Coins: NYDFS Reviews Ways To Transfer Ownership With Bitcoins

One theme that kept reoccurring at the New York Department of Financial Services’ hearing on virtual currencies was the idea of colored coins. When Charles Lee, creator of the cryptocurrency Litecoin, first mentioned colored coins in the hearing, Superintendent Benjamin Lawsky seemed completely unaware of the implications. “It’s the fact that you can color a coin to represent something else,” Lee stated.

Colored coins are essentially a way of attaching ownership to a bitcoin transaction, providing a real world link to the somewhat ethereal concept of ownership. The object in question doesn’t really matter. Since bitcoins, and almost all virtual currencies in general are infinitely divisible, you can color a coin (mark ownership of something) for something as little as a DVD or something as big as a house, the object doesn’t really matter. 

“You can color a set of coins to represent deeds for example, deeds of houses or cars or anything that you can think of,” Lee said.

“But you are actually sending the deed, youre not just coloring it?” Lawsky questioned, trying to understand the concept of virtual ownership markers.

http://www.ibtimes.com/colored-coins-nydfs-reviews-ways-transfer-ownership-bitcoins-1551765

How do you color a bitcoin that's gone through a mixer? Any address with existing balance that sends and receives coins is a mixer.

I think you need a separate protocol that sits above bitcoin to track the coloured coins.

More importantly, how do you let someone who doesn't have a firm grasp of the concept of 'virtual' currencies make decisions governing them? It's like letting a cave man dictate where to put traffic lights.