Colored Coins - the incredible features this new protocol layer will enable

[dillpicklechips]

I wish to create a page on the Bitcoin wiki about colored coins. Since it's such a new technology layer being built on top of Bitcoin I'm looking for ideas on what kind of features will be possible. Both immediately and theories about what it could potentially enable as it matures. I will then try to condense the ideas into a wiki for a more general audience to become familiar with what colored coins are and what they can do.

I'll try to edit this OP too with some of the ideas:

-decentralized P2P exchanges
-user created currencies with the bitcoin network providing security of transactions
-asset marking or smart property


What else?

[bluemeanie1]

Colorcoins itself cannot enable decentralized exchanges.  Protocols built ON TOP of Color Coins would enable this.

There's a lot of disinformation out there regarding these projects unfortunately.

[becoin]

There's a lot of disinformation out there regarding these projects unfortunately.

Colored Coins is an excellent idea and implementation. It is incredibly powerful tool. I agree though that there is a lot of disinformation out there. One such example is the idea about decentralized P2P exchanges. Unfortunately many people don't understand that you can't have a decentralized exchange for a centralized asset! Whatever you do on the exchange or however you do it, at the end you have to deliver the asset they have purchased to the customer using legacy distribution channels like banks, payment processors and other money services that are heavily regulated i.e. centralized! Creating parallel distribution channels is forbidden by the law because it is forbidden to act like a bank, payment processor or other money service without proper license!

I hate to see on this forum so much talent wasting their time in fundamental disconnect with reality. My gut feeling is that people managing projects like Mastercoin and BitShares will learn this simple truth the hard way.

[justusranvier]

Unfortunately many people don't understand that you can't have a decentralized exchange for a centralized asset! Whatever you do on the exchange or however you do it, at the end you have to deliver the asset they have purchased to the customer using legacy distribution channels like banks, payment processors and other money services that are heavily regulated i.e. centralized!

I hate to see on this forum so much talent wasting their time in fundamental disconnect with reality. My gut feeling is that people managing projects like Mastercoin and BitShares will learn this simple truth in the hard way.

A lot of people in Bitcoin want to solve every problem via code, without realizing or accepting that sometimes the majority of your problem is unavoidably in meatspace and you can't code around it.

There's enormous opportunity for people who are willing to walk away from the keyboard from time to time and get their hands dirty in the real world, exactly because so few people are willing to do it.

[Meni Rosenfeld]

If you haven't already, check out https://bitcoil.co.il/BitcoinX.pdf, http://coloredcoins.org/ and https://groups.google.com/forum/#!forum/bitcoinx.

[BruceWayne]

I wish to create a page on the Bitcoin wiki about colored coins. Since it's such a new technology layer being built on top of Bitcoin I'm looking for ideas on what kind of features will be possible. Both immediately and theories about what it could potentially enable as it matures. I will then try to condense the ideas into a wiki for a more general audience to become familiar with what colored coins are and what they can do.

I'll try to edit this OP too with some of the ideas:

-decentralized P2P exchanges
-user created currencies with the bitcoin network providing security of transactions
-asset marking or smart property


What else?

We are currently working on an updated white paper, will be published soon.

Sent you a PM

[killerstorm]

Colorcoins itself cannot enable decentralized exchanges.

They enable decentralized exchanges in the sense that features they have (particularly, an ability to swap assets in one atomic transaction) are useful for decentralized exchanges. (As the main thing you have to solve if you build a decentralized exchange is a trust issue between seller and buyer, and that can be solved using colored coins.)

  Protocols built ON TOP of Color Coins would enable this.

You can remove "would" already:  we already implemented it 11 months ago...

Here's the post about the first p2ptrade transaction on Bitcoin mainnet: https://bitcointalk.org/index.php?topic=106373.msg1465549#msg1465549

[killerstorm]

Unfortunately many people don't understand that you can't have a decentralized exchange for a centralized asset!

In that case your definition of 'decentralized exchange' is different from definition other people use.

Whatever you do on the exchange or however you do it, at the end you have to deliver the asset they have purchased to the customer using legacy distribution channels like banks,

I guess you're thinking about USD<->Bitcoin exchange, but it isn't what we're working on. We're working on an exchange for securities which are issued in form of colored coins.

E.g. some company can issue its shares in form of colored coins. It never needs to deliver anything using legacy distribution channels.

Likewise, it works for bonds. E.g. some company might issue USD-denominated bonds in form of colored coins, and if company is reputable, owning those bonds will be almost as good as owning USD.

[killerstorm]

A lot of people in Bitcoin want to solve every problem via code, ...

There's enormous opportunity for people who are willing to walk away from the keyboard from time to time and get their hands dirty in the real world, exactly because so few people are willing to do it.

Cool story, bro, but what I see is there was no shortage meatspace inhabitants willing to use colored coins, but there was a shortage of programmers willing to work on implementation.

Well, until recently: two weeks ago we hired more programmers to work on this.

[TKeenan]

My gut feeling is that people managing projects like Mastercoin and BitShares will learn this simple truth the hard way.

either that, or you will. 

[becoin]

Likewise, it works for bonds. E.g. some company might issue USD-denominated bonds in form of colored coins, and if company is reputable, owning those bonds will be almost as good as owning USD.

You can't issue USD-denominated bonds and use BTC as transactional currency! The decentralized exchange will work only if you issue BTC-denominated bonds. If you issue USD-denominated bonds you have to pay dividend in USD. How will you pay USD dividend in decentralized way?

[killerstorm]

You can't issue USD-denominated bonds and use BTC as transactional currency! The decentralized exchange will work only if you issue BTC-denominated bonds.

You're wrong.

If you issue USD-denominated bonds you have to pay dividend in USD. How will you pay USD dividend in decentralized way?

Dividends will be paid in BTC, obviously. But not all bonds pay dividends: some are sold at discount and bought back at face value.

[becoin]

Dividends will be paid in BTC, obviously.

So, your decentralized exchange will need external feed for the BTC/USD exchange rate from a centralized exchange?! Nice. People can find solutions to every problem...

[o3u]

Dividends will be paid in BTC, obviously.

So, your decentralized exchange will need external feed for the BTC/USD exchange rate from a centralized exchange?! Nice. People can find solutions to every problem...

seems to me a decentralized exchange allows for a completely free market where the price is determined by the supply and demand.

Companies that already issue securities in a shitcurrency (Lets say USD, bidu, on Nasdaq) can decide to issue a new one in BTC.

It makes more sense if the company deals in BTC as part of their business, and would probably allow for automated reports over the network eventually as well!

Then it's up to the company if they want to get whatever accreditation to act as an exchange and allow for the transfer of BTC bought shares to shitcurrency assets.


In the case of companies that deal exclusively with cryptos, it's much simpler.

EDIT: Therefore... you don't need to feed the prices to it. "meatspace" is also "greedspace" and the prices will adjust on their own through arbitrage if the companies decide to allow exchanging between USD shares and BTC shares internally.

[killerstorm]

Dividends will be paid in BTC, obviously.

So, your decentralized exchange  will need external feed for the BTC/USD exchange rate from a centralized exchange?! Nice. People can find solutions to every problem...

It looks like you do not understand what is a decentralized exchange... People are free to do whatever they want, that's the central idea.

If bond relies on USD->BTC conversion, the party which issues these bonds must specify how this conversion is made and make them a part of the contract. If you don't like the contract, just don't buy these bonds.

But some party might offer a bond redeemable for physical USD, those bonds can be used as a benchmark for exchange rate.