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Overview

Assaf Shomer edited this page Jun 9, 2015 · 30 revisions

Bitcoin is the money of the internet. By design, bitcoins have several highly desired technical attributes

  • Fixed supply
  • Non-counterfeitable
  • Divisible
  • Easily transportable

On top of that, Bitcoin is decentralized. Decentralization adds an extra layer of robustness because the Bitcoin network has no single point of failure.

Any and all Bitcoin transactions are publicly available on the a ledger a.k.a “The Blockchain”, and are immutable ([1](##### Immutability)). While originally designed to be a currency, Bitcoin supports a limited scripting language that can be used to store metadata on the blockchain.

The term “Colored Coins” refers to a protocol that uses the blockchain as a public ledger for asset manipulation. The basic trick is to create digital tokens by associating metadata with a bitcoin transaction that can unambiguously represent the creation or transfer of an asset (hence “coloring the (bit)coins”). The value of such digital assets is tied to a real-world promise by the asset issuers that they are willing to redeem those digital tokens for something of value in the real world. The advantage given by using the blockchain as the backbone for such asset manipulation is that one can rely on the blockchain’s transparency, immutability, ease of transfer and non-counterfeitability to transfer and trade such digital tokens with unprecedented security and ease.

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Immutability:

In fact, Immutability is only guaranteed statistically, but the design of the system ensures that the difficulty to change a record increases exponentially with it’s age. In practice, records that are more than, roughly, an hour old are for most practical purposes immutable.

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