For general questions, please read our F.A.Q.
Disclaimer: Cryptomover is not a licensed financial advisor. The information presented in this piece is an opinion, and is not purported to be fact. Cryptocurrency is a volatile virtual commodity and can move quickly in any direction. Cryptomover is not responsible for any loss incurred by following this advice.


45. Colored Coins (Published: 18th Aug, 2017)
Colored coins, as known as meta coins, refer to protocols that are built on top of an existing cryptocurrency blockchain(usually speaking, Bitcoin). Tokens can be created with additional functionality to the Bitcoin protocol and distributed to other users. Color is just an attribute so for example in terms of asset ownership – “the right to own something” - as well as further applications.
Counterparty is one of the systems that is built on top of Bitcoin blockchain and allows other users to do so through their system. For instance, people can do ticket sale using Counterparty system. By creating new tokens on top of Bitcoin blockchain, the transfer and ownership of tickets (in forms of tokens) are all recorded and a central authority is no longer needed for distribution. The cost of creating a new token on Counterparty system is roughly $7 and it is a threshold normal people can pass. Other examples of colored coins company include Mastercoin and Coinprism.

Future Development
ICO has been crazy this year and many claim that as a bubble that may finally lead to a plummet in overall cryptocurrency market. By token sale, companies earn massive amount of capital by promoting their ideas and protocols, and those may not be maturely developed. There are risks that the platforms do not succeed and all the tokens’ value drop to zero, while the companies still earn from the capital raised. In light of this loophole, Counterparty may have developed an alternative based on colored coins - proof-of-burn.
Proof-of-burn is a method for distributed consensus by sending existing cryptocurrency to an unusable address. By burning some existing coins, users can get a proportional amount of tokens after that. The purpose behind this is to ensure a fair distribution of tokens and to avoid the developers of the new platforms being enriched before the success of the platforms.  This eliminates the chance of the developers getting quick profits while fails to offer the final products.

Opportunity and Risk
Bitcoin is facing severe competition from Ethereum because of the functionalities of the latter. More developers are using ERC20 standard when issuing their own tokens as programming is less required and it is easier to use compared with colored coins protocol. Although issuing new tokens is an uprising trend in recent years, people may prefer issuing ERC20 tokens instead of colored coins. Nevertheless, the proof-of-burn concept originated from colored coins can still be used as a distributed consensus method for tokens development in the future

© 2018-2019