Need Help Wrapping My Head Around Colored Coins, Stock Issues Etc.

[Sage]

I just ran across BitcoinX.org today.  How cool can Bitcoin get!  Exciting times…

But still wrapping my head round this colored coins concept. Someone in the know please help walk me through a basic transaction:

Say I'm starting a development project.  I want to give 10% stack to my developer.

I issue 1000 shares at 1 Satoshi each share.  I give it a name: MyCoolProject1

The receive address I imagine an address I control.  The Armory client then sends 1000 Satoshi's to that receive address.

That address is now "colored" with the label MyCoolProject1.

I then send 100 shares to my developer by sending 100 Satoshi's from the address the stocks were issued to.

Am I right so far?

My newbie questions:

Where/how is the MyCoolProject1 attached to the addresses?  I imagine it is somehow stored as a message signature?

Am I correct in assuming there is no way to issue anymore stock.  MyCoolProject1 will always and forever only have 1000 shares?

A few "Publish On Server" questions:

I'm getting a connection error on my computer? 

Is there only 1 central server listing the colored coins?

Or is there a way to scan the blockchain, getting all the colored coins info?


Dividends:

How's it done on this system?


The legals:

In order for these shares to have value there needs to be some kind of legally binding agreement.  Some paper somewhere.

Yet, no legal president for something like this I'm sure. 

So how's it done?  How would the legals part of this 1000 share stock issue for MyCoolProject1 be done?

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[behindtext]

bitcoinx.org is an interesting idea but it definitely requires backing legal documents and is essentially a rehash of the concept of bearer shares using bitcoin's "Script". Script is the mini programming language used to encode all sorts of stuff into transactions:

- it allows Satoshi Dice to embed annoying spam messages and small pieces of information like "gambling is boring!"
- it allows transactions to be submitted with a fee attached. this fee can be recaptured by the miner that solves the tx block that contains that tx
- afaik this is how coins become 'colored' or otherwise tagged

there are known issues with bearer shares in many jurisdictions, e.g. it is not uncommon for high-privacy jurisdictions to offer such shares for IBCs. tax laws vary from country to country and bearer shares may be illegal to issue depending on the jurisdiction and how the company is setup.

legally, these may also be treated as tokens of some sort. you should start doing some legal research on this

[killerstorm]

The receive address I imagine an address I control.  The Armory client then sends 1000 Satoshi's to that receive address.

That address is now "colored" with the label MyCoolProject1.

I then send 100 shares to my developer by sending 100 Satoshi's from the address the stocks were issued to.

Am I right so far?

Address isn't really relevant here, ArmoryX simply keeps colored coins it is aware of separate from uncolored coins.

But you need to make sure that color definition is installed before you send coins.

Where/how is the MyCoolProject1 attached to the addresses?  I imagine it is somehow stored as a message signature?

The way it is implemented now, it is not attached to address.

You can do that sort of thing manually, but it would be a bit hard to manage...

Am I correct in assuming there is no way to issue anymore stock.  MyCoolProject1 will always and forever only have 1000 shares?

We are still working on this... Currently it is possible to do that manually, and it isn't nice...

I'm getting a connection error on my computer? 

Is there only 1 central server listing the colored coins?

Currently, yes, it is hard-coded. But we just haven't got to a proper listing protocol.

However, note that it is a functionality just for convenience, it isn't required.

Or is there a way to scan the blockchain, getting all the colored coins info?

No, this information is not stored in the blockchain. (Although I think it would be nice if it was stored, Bitcoin network isn't friendly to such uses...)

As an issuer, you do not need to depend on listing server. ArmoryX produces a color definition file, and you can publish it in on your website, dropbox, anywhere...

Then you should give URL to such color definition.

How's it done on this system?

Not implemented yet. But it's fairly straightforward: you can identify all owners at block X and send money to their addresses.

The legals:

In order for these shares to have value there needs to be some kind of legally binding agreement.  Some paper somewhere.

Yet, no legal president for something like this I'm sure. 

So how's it done?  How would the legals part of this 1000 share stock issue for MyCoolProject1 be done?

You can see discussion here: https://bitcointalk.org/index.php?topic=119073.0

For now it can work exactly like existing bitcoin stock exchanges work: you need to post some verification (e.g. your full name, address, photo...) and swear that you will follow the contract.

[killerstorm]

a rehash of the concept of bearer shares using bitcoin's "Script". Script is the mini programming language used to encode all sorts of stuff into transactions:

No, it is entirely unrelated to Script.

legally, these may also be treated as tokens of some sort. you should start doing some legal research on this

There is a number of existing Bitcoin stock exchanges (web sites): mpex.co btct.co bitfunder.com cryptostocks.com etc.

All of them operate in a legal gray area, I think.

'Colored coins' are legal gray area too, but they are likely considerably more flexible.

[Sage]

Thanks for the info KillerStorm.

This one's gonna be a gamechanger I predict.

[calian]

Can't someone ruin your colored coins by sending some dust from elsewhere into your address?

[killerstorm]

Can't someone ruin your colored coins by sending some dust from elsewhere into your address?

No, color-aware wallet software prevents mixing.

 Coins are unspent-transaction-outputs, addresses are just keys which give you control over such outputs.