I get people contacting me from time to time about the site, but I was delighted last week when Ronan Lynch, the organiser of the Bitcoin Dublin meetup group invited me along to the Guinness Enterprise Centre, located right beside the famous Guinness Brewery and Storehouse in Dublin’s Liberties area. Bitcoin wallet company Circle have an office there, and seem to be fairly active in supporting the local bitcoin scene in Dublin.
The Bitcoin Dublin group has been going since May 2013, and the event I attended was the 31st event they have ran in that time, which range from basic introductions to bitcoin, and more in-depth talks such as one in November where Bitcoin Foundation Chief Scientist Gavin Anderson spoke to a packed audience of over sixty people. On a cold and blustery night in December though, a more modest crowd of about thirty people were there to hear about Flavian Charlon, founder of Coinprism and his new project, Coloured Coins which use the blockchain to record changes in assets.
What are Coloured Coins?
So what is a coloured coin? It is a small fraction of bitcoin over 600 satoshi which is tagged with meta data, and linked to an asset in the real world. It gives you a way to store and transfer assets through the blockchain.
How can they be used?
Using the case of a vault company, holding gold, they could issue coloured coin backed by different quantities of actual gold. Two users may be verified in the vault after passing through AML and KYC verification. They can receive coloured coins linked to an amount of gold, ie a defined weight in gold. Once sent to the user (ie Jane), they could then sell or trade the coloured coin onto a third party (Bob) who would become the custodian of the coin, and therefore the asset behind it.
Bob could then sell it on, for instance to another user of the same vault (Paul), who could redeem the coin for the gold, or the cash equivalent. So this could open up a secondary market for a wide variety of tangible and non-tangible assets.
Another case use is for a business to raise money, ie creating a million coloured coins representing the investment. Investors could hold the coins, and their address would be used to send dividends to (ie bitcoin proportionally to the shares they own). It could also be used to hold votes, where an amount is sent to their coloured coin address, with a series of choices with corresponding wallets to send it onto, representing votes. In the likes of corporate voting, it is an efficient way to use the blockchain to transparently vote.
A further case use discussed is in the area of loyalty points. If a bitcoin accepting coffee chain takes payment in bitcoin address, they could send coloured coin representing loyalty points back to it. These could then be redeemed by the person for more coffee, or be sold on in the secondary market, ie selling €3 coffee points to someone else for €2.
It could also be used for smart properties, and he used two examples for this, a car and a house. The lock may have a special token (hardware, wallet) linked to it, and it will only open to people who have this token. If you get into the car with the token, the car starts. If not, it doesn’t. An extension to this is that you could send this onto someone to let them use the car. The same could be true with a digital lock on a house, and a way that the blockchain could be applied to the internet of things.
What tech is behind it?
Coloured Coin is build upon the open assets protocol. This has had several iterations, but the current application for the concept is open, powerful, and based directly on any bitcoin compatible blockchain. There is a lot of things that could be built on it, such as wallets (and coinprism is a wallet), exchanges, to provide liquidity for the assets, gateways to create their own coloured coins and give it a value, and merchants, who could accept payment in bitcoin knowing that something else is behind it with a euro value. With no chargebacks and fees, this would reduce exposure to bitcoin’s fluctuating price, as the coloured coin are backed by something else.
The benefits of the system allow anyone to send an asset across the world for very small fees. There is no additional cost on top of the normal bitcoin network transaction fee. This isn’t even necessary, but will just take longer to confirm, and is very economical and very quick, as the “blockchain knows no geographical boundaries”.
Whats the difference between this and other alt currencies?
Flavien went on to look at what called the two cryptocurrency families. On the first family, those using a separate blockchain such as Ethereum or Ripple which are there. But he quoted a recent repot which said that 93% of all cryptocurrency market capitalisation is in bitcoin, meaning that among all of the altcoins fighting for the other 7%, there is more volatility, and less liquidity.
He said that while these can do more technically, the vast number of people using bitcoin will be unlikely to use features that the more advanced altcoins support, and with the miners behind bitcoin, it’s less prone to double spend, and more secure overall.
On the second family, which includes the likes of Mastercoin and Counterparty, these are a little closer to coloured coin but still different. There’s an intermediate currency involved, and you have to use bitcoin to get in and out. They do have the likes of smart contract support, as well as features like betting which are very convenient. But if you want to only move assets between people, coloured coin this more simply, and they’re focusing on getting that right.
Where does Coinprism fit in?
Coinprism offers a web based wallet. People can send a small amount of bitcoins here, which lets you store, send and receive bitcoin, and also issue and manage your coloured coin. It has a block explorer, and also includes information on what asset is being transferred. He then proceeded to use an example of a sandwich shop, which wanted to raise money using coloured coin for crowd funding.
The owner would sign up on site, with their username and password. email addresses are optional. All coloured coin addresses begin with an “a” , representing assets. You would then create an asset, ie sandwich factory share, and select your bitcoin address with funds. You then define information about the asset, explaining what it is, who the issuer is and an image/logo for the asset. You can define if it is divisible up to 8 decimal places, or indivisible. You can store information on the asset on the coinprism site which is displayed on the blockchain entry, but they recommend you host it yourself, or use something like a bittorrent magnet link which will help recover details if they were to change later on, or a domain went offline.
Once set up, issuing coloured coins starts with you lodging an amount of bitcoin on the account. You would verify the details, and put in a password to sign the transaction. Once this is done, the transaction is broadcast to the blockchain, and within about half a minute the account updated. These could then be divided up and sent out, ie to people who have paid in cash, bitcoin, paypal, bank transfer)
Flavien pointed out that the private key is installed on an encrypted server, meaning that even if the site was hacked, there would be no way for hackers to recover passwords. An alternative is to use something like Master Exchange, put in an asset code, create an order book, put up a sell order at a price, and people can sing up and buy the amount they want. They also support Bitcoin Armory, which lets you add a public key, and use armory to sign it offline.
The only thing at the moment is that the password is needed to process batches of transactions, so whoever is issuing the coin will need to log in a few times during any sales period to process these.
Revising an earlier slide, if you wanted to ask an investor a question, such as voting on a decision, you could make a votecoin, define the question, and give people different proportional coins, and several different addresses. The wallet with the biggest balance has the most votes, letting you finalise a decision in a very fast, efficient manner. To do this, and saying you have 200,000 colour coins, you’d create the same amount of votecoins, select the dividents option and select a votecoin. Decide how many coins you want to distribute. Before you process the transaction, you can download a CSV to see the details. When you’re happy, you sign the transaction, which gets broadcast to the blockchain. People get the coins andvote accordingly.
Flavien wrapped up by letting people know they can see the simple and transparent specifications of the protocol at http://www.openassets.org
Q&A from the audience
After the talk, Flavien took a number of questions from the audience in attendance.
The first question asked about web wallets, such as coinbase, which use randomised sending addresses. He said that there is a risk of spending coloured coins alongside normal ones, hence the need for a dedicated coloured coin wallet.
The second question asked about proof of stake. Flavien said that proof of work for bitcoins is where miners are doing real world work doing hashes, which is hoe they validate tihngs. With proof of stake, you use the amount of coins or NXT you own. You can use that to mine more NXT. He quoted a paper published which said that proof of stake can’t work because you’re using the system to validate itself, creating a circular dependency. When there’s a fort in the chain, in bitcoin a miner chooses which chain to mine, under the assumption that one will win, one will lose. There is an incentive to jump to the winning chain.
With proof of stake, you can mine on both chains without losing out. There is no incentive to move from one to the other other, creating a “nothing at stake” problem. It doesn’t resolve things by itself, and needs something like heurestics to solve it.
The third question asked about the minimum fee of 600 satoshi, and he responded they just rounded up from the new minimum network fee from v0.9.
A forth question asked if coloured coins can be traded between people. Flavien responded saying yes, they can. They can do automatic swaps, either swapping bitcoin for assets, assets for assets, but it also supported people swapping assets in different directions in the same transaction.
A fifth question asked about preventing fraud, ie if a company like Coca Cola were to issue coloured coins, what is preventing someone else saying they’re Coca Cola, with the inten to to defraud. Some systems let you reserve names by paying fees, which doesn’t solve the problem, as anyone can register a name like Apple.
He elaborated, that there are ways to prove the name. Firstly, if things aren’t verified, this is flagged on the asset screen. But if a site has a SSL certificate issued to it, you can go through a validation procees. You can use the SSL cert to sign the tokens, showing that a token was issued by a particular company. This can only be done by people with access to the keys for that cert, so Coca Cola can prove it is indeed Coca Cola. Also, verified assets have a visual check mark, while unverified ones have an explanation mark.
A sixth question asked if it’s making money, and Flavien replied it doesn’t, but he is working on a premium service letting people have custom/white label wallets, referring back to a loyalty program example.
A seventh question asked if anyone has used it yet, and he replied that a Salon in Australia was looking to open up a new branch, and used it to generate a crowd sale. They also offered to buy back coloured coins after two years, but would also pay a dividend based on a proportional share of profits.
An eight question asked about ways to destroy coloured coins, say if a fraudster used stolen credit cards along the way to acquire the coins. He said that if acted on quickly, a issuer could reissue new coins, excluding the fraudster, rendering the ones they hold worthless.
Wrapping up, he said that it was mainly himself, with help from the local bitcoin community and gudance from Chromawalle, and that there is both the web based docs.coinprism.apiary.io and an open source client, Colourcore, which works with bitcoind.
After that, the meeting ended, and a couple of people went to the nearby Arthur’s pub for a couple of pints and further discussion. There was an interesting mix of technology, finance and miners in the audience, and some interesting post-event chats over the pints. But overall, it was great to see that there is a passionate, if small, bitcoin community in Dublin, and with events like this continuing with the support of both local people, and support from the likes of Circle, it certainly seems that bitcoin is establishing a solid presence in Ireland.
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