The miners may do so but they won't get their coins back since the transaction fee will subsidize future block reward. Doing this is equivalent to reduce mining variance by receiving less reward. It is also very risky when the block becomes orphaned and the whole world will see those transactions. We may also have a limit for the amount of difficulty reduced.

That means nothing. Most people are pool mining and you never know where they are

We need a feedback mechanism to minimize very long rounds (and less importantly, very short rounds). I have proposed this before.

Instead of collecting transaction fee, miners will use transaction fee to offset part of the mining difficulty. For example, today's difficulty is about 3,000,000 ("baseline difficulty") and block reward is 50BTC. If the total transaction fee is 0.1BTC, which is 0.2% of block reward, the miner will only need to mine the block with difficulty = 3,000,000*(1-0.002) = 2,994,000 (effective difficulty).

In the 90-minutes block, the transaction fee was 0.612BTC, which would reduce the effective difficulty and expected block discovery time by 1.22%.

This scheme will also minimize very short rounds: at the beginning of rounds which transaction fee is zero, the effective difficulty is equal to the baseline difficulty. The effective difficulty will decrease as transaction fee accumulates. Therefore, it is more difficult to mine at the beginning of rounds. This will also punish those miners who refuse to include transactions in their blocks.

The fee will contribute to the mining reward in the far future, which will slow down the depletion of the mining reward.

There's nothing to surprise. There are many miners in China and one of the most famous FPGA designer is Chinese.

I don't think the colored coin trading system requires any message encryption. Those orders and announcements should be public. If encryption is required, people can simply use GPG

I am not sure if this has been mentioned by someone else. To make the decentralized exchange works, we need a standard peer-to-peer protocol to broadcast all the required information: IPO invitations, definition of assets, ask/bid orders, and cancellation of such orders. It's just like how transactions and blocks broadcasting on the bitcoin network. All messages should be signed by the private key of associated bitcoin addresses and/or GPG. For example, IPO and asset definition should be signed by GPG of issuer, and ask/bid orders should be signed by addresses holding enough bitcoin or colored bitcoin for completing the trade.

The peer-to-peer client should be able to check the validity of ask/bid orders. It should also generate raw transaction based on colored coin trading rules, allow transmission of partially singed transaction among the trading parties, and broadcast the completed transaction to the bitcoin network. It should also work as a bot, which will automatically sign transactions based on user instruction.

The efficiency of such system is a big concern. Some user may post a valid ask/bid order but never complete the transaction. Some user may try to double spend their bitcoins or colored bitcoins. Therefore, we need a peer-to-peer rating system to keep a track record of the traders, based on the bicoin addresses or GPG key used.

 

I think a better version of rule 4 should be: If the colored coin transfer does not follow the Colored Coin Rules(tm), the last owner retains the extra value of the colored coin. (i.e. the last owner will still receive dividend etc.) However, that person may no longer transfer the extra value to other owners. The issuer may re-issue a new colored coin to the last owner to replace the burnt one, with or without service fee charged.

This will prevent most "money burning accident".

Got Resident Evil 5 free. Thanks so much!

I think I'm the third one. May I have a free game?

The colored coin algorithms do not violate any part of the bitcoin protocol. Instead, it is exactly how bitcoin works: you can trace every satoshi back to its generation to make sure there is no counterfeit. The untraceability of bitcoin is just your fantasy. If you believe this is the end of bitcoin, you don't understand bitcoin at all and you should sell.

Back to genius melting pool. You cannot broadcast your melting transactions as usual. You have to mine your own block to include them. These "hidden transaction" could be spotted out by monitoring the network. If there are lots of such transactions, that would looks suspicious. The difference between a legitimate miner and a laundering miner is: those hidden transactions will never go to a legitimate miner.

Also, to launder merely 1BTC (which is basically nothing in the world of money laundering), you need 200 transactions. With only 144 blocks each day, how many TH/s do you have?

You mention TOR. Yes, a much easier way is to launder through SR.

The standard fee at this moment is only 0.005BTC. To launder 1BTC without paying suspiciously high fee will take 200 transactions. You can't put these into the same block or it will become too obvious, and you need to generate more than 100 blocks for laundering only 1BTC. Even worse, the FBI may just monitor all unconfirmed transactions on the network. If they find many "hidden transactions" that were not broadcast to the network before they appeared in a block, they will further investigate that particular miner.

He absolutely have no idea what he's talking about. He thinks coins are magically laundered by using as transaction fee. Transaction fee is nothing more than a special type of output. If someone tries to melt some dirty coins by sending unreasonably high fee, the block reward will simply become dirty. Not to mention that setting up a coin melting pool cannot stop people using colored coins, unless he is able to spend coins that are not belonging to him.

However, I still hope he will set up a pool like that, so I may be able to grab some of those easy coins.

I think it is because the fail of GLBSE. The next generation of bitcoin security exchange will be colored-coin-based p2p system. The role of a centralized exchange (if any) is to facilitate bid/ask matching, to advertise IPO, and to rate the trustworthiness of security issuers.

I think my scheme provide (much) higher anonymity. Imagine a secret society use this system for some secret trading etc., they can embed some colored satoshis in a normal size transaction, and it will just look like an ordinary transaction. With some tailor made algorithm, they may even "swap" the color of two satoshis. You system has more strict requirements. The dust inputs and outputs with special order could be spotted out easily from the blockchain.

Then you should add this rule explicitly to your scheme: if a coin is decolorized, the last holder retains the value of the colored coin. The issuer may issue a new token to the last holder on request (service charge may apply).

There is one more advantage: the color information won't lose if coins with different color are mixed.

Good. We may transform it to Base-58 format, which will take 9 characters. We may also add 3 characters as checksum

Assuming we have an unsigned standard transaction with 2 inputs (A, followed by B) and 2 outputs (C, followed by D). After the input A is signed, is it possible to alter the order of inputs or outputs without voiding the A signature? (Obviously we cannot alter the order of inputs / outputs AFTER the transaction is recorded in the blockchain since that will change the transaction hash and will be regarded as double-spend. My question is about altering the order before the transaction is broadcast, or when it is partially signed)

Similarly, when a correct nonce is found for a block, will changing the order of transactions within the block voiding it? (I guess it will since it should change the block hash. Just want to confirm)

Thanks!

It depends on how do you define it. For example, with my proposal https://bitcointalk.org/index.php?topic=117224.0 , it is possible to trace every satoshi. With other definition, you may conclude that a satoshi is associated with a finite number of blocks. No matter how defined, all satoshi must be linked to one or some block generation, or that means bitcoin could be generated without proof-of-work.

With the blockchain structure, bitcoins are actually LESS anonymous than cash. Even you may launder your coins, every single satoshi is still traceable to its generation block (or people can print bitcoin out of thin air). You can't just close your eyes and ignore the blockchain and say bitcoin is not (or should not be) traceable.

If you want increased anonymity, there are some proposal like automatic coin mixing. But that is your own choice.