Normally I try to stick to discussing the technical parts of Mastercoin but I want to offer my opinion about the whole clone discussion.
We are developing a protocol, we are not developing an investment vehicle. This might not be a popular opinion but in the end we want to build technology that enriches peoples lives by offering features Bitcoin currently lacks like distributed exchanges.
People will be able to clone Mastercoin and there is nothing we can do about that or even want to do about it.
I actually agree with your opinion that it is about the protocol. But the protocol requires an escrow and cloning might break the protocol if the value of Mastercoins becomes 0.
As long as Mastercoins can serve it's function as an escrow then competition wont be a bad thing. The competitor to Mastercoin could also have their clone work as an escrow but in either case even the clones would have a higher price than BTC because it would have to.
The only problem would be if the clones release infinite amount of coins and at a price of 0, in my opinion it wouldn't even work technically. To sum up my opinion, if it doesn't work as an investment vehicle then it doesn't work at all because Mastercoin by design is built around escrow in such a way that it requires Mastercoins to be worth a lot.
Now if Colored Coin works better somehow and is somehow free of course we'd all switch to it, but it wouldn't be able to have escrow unless something of value is used.
From the technical standpoint, you're spot on; and it's indeed a noble task you and the other devs are performing. However, due to the fact that a hard limit was put on the very small quantity of MSC created within a very small window, dacoinminster has strategically turned this into an investment monster. If the intention was purely to "enrich peoples lives by offering features Bitcoin currently lacks", then there should not have been a time limit for sending BTC to the Exodus address to obtain MSC. If that window did not exist, then people could convert BTC to MSC any time they wish to use these new Mastercoin features as if it were native to Bitcoin. In this case MSC and BTC will always be at par and the investment incentive for MSC would have been non-existent.
No amount of technical magic can produce value from nothingness. Value is only transferred from one thing to another. Even in the case of Bitcoin value isn't created from nothing. The math and protocol did not give value to Bitcoin alone, but the services, products, and the computing resources dedicated to mining produced the value.
So we need to see Mastercoin as an abstract object which we can inflate with value. This inflated value gives weight to that abstract object. Then we put that abstract object on a scale and we use that object to measure it's weight/density against everything else. So it is a requirement of the Mastercoin protocol that Mastercoins be very valuable (the most valuable object in that closed system) because that is all Mastercoins exist to do.
To say we shouldn't be concerned about it as an investment vehicle? What exactly is supposed to power the user currencies if it's not the value of Mastercoin held in escrow? If the Mastercoin value were to go too low then you cannot do as much with it. This rule applies to clones as well, so the clones should want to be valuable too.
Since we require that for Mastercoin to work (or really for any clone to work), then even the clones would have to be over 1:1 with Bitcoin to be useful at all. If it's not over 1:1 with Bitcoin then why not just use Bitcoins for that purpose?
The reason we can't use Bitcoins for that purpose is because Bitcoins cannot adopt the functions of Mastercoin and keep the functions of Bitcoin. Colored Coin is an attempt but it's not going to be able to match the capabilities of Mastercoin.
Mastercoin can work because it gives the community something to spend on. The mad rush to buy into Mastercoin will power up Mastercoins, the protocol, and make it bigger and heavier on the scale. The bigger and heavier it is on the value scale the more useful it is (the more value density it has) as an escrow. And if people buy Mastercoins directly with cash, gold or physical items then it adds even more weight/density to the scale and powers it up to function even better as an escrow.
Value of Mastercoin --> Value of user currencies -> value of Mastercoin. It's a loop where value is just transferred back and forth to create an exchange and it is a closed loop and by my understanding it has to be a closed loop.
I don't know how Colored Coin will offer escrow. Someone will have to explain if it can even do it. But if it does then at some point we will have to add value to it in some organized fashion. So are we going to be buying Colored Coins to feed the escrow or what?
I don't think just writing code produces value. People have to be willing to work for those coins, or sell something for them, or trade their car for them, and when it's an escrow then imagine houses, cars, private islands and mansions held in escrow vs an escrow with a lot less stuff in it. Which one would make a better protocol and be better for users?
