What is the concept of Colored Coins?
The term “colored coins” can be applied to a number of mechanisms for issuing and tracking particular Bitcoins. These Bitcoins can then be used to represent assets other than their literal Bitcoin value. Colored coins can be used to represent stocks, bonds, smart properties, other currencies (such as dollars, pounds, yen, or
euros etc.), and and different tokens like access tokens.
How Are Colored Coin Coins Different From Regular Bitcoins?
Bitcoins only represent Bitcoins, while colored coin coins are used to represent other assets. For example, a colored coin might represent a stock in a company, or a gram of gold, or a US Dollar. As long as one or more parties are willing to recognize the backing of a colored coin, that particular colored coin can be used to trade the underlying assets as easily as Bitcoin can be traded.
Can Anyone Issue Digital Assets Using Colored Coins?
Yes. Anyone are able to issue their own colored coins. And the issuer is responsible for defining what the colored coin represents. Just use one of our tools.
Where Can I See All My Digital Assets?
You need a colored coin app/wallet to give you your digital assets balance.
Can I use any bitcoin wallet or do I need one that essentially supports Colored Coins?
Your wallet must be Colored Coins aware -send and receive digital assets.
What will happen if I will send Colored Coins to unaware wallet?
Your Colored Coins won’t remain intact and they are essentially to be “burned” since the wallet won’t be able to read the specific bitcoin dust that represent the Colored Coins.
Are Colored Coins A Kind Of Alternate Cryptocurrency?
Colored Coins might represent an alternate cryptocurrency if you consider where they get their value, where they come from, and who backs a colored coin. The rules for generating a colored coin can vary, how you track them can vary, and the value of a colored coin are independent of Bitcoin itself. For example, a particular colored coin might be inflationary, allowing the issuer to create ever more colored coin as they choose. So most of the aspects of Bitcoin could be overridden by a colored coin.
The argument against colored coins as an alternate cryptocurrency is that they simply use Bitcoin represent other assets. Colored coins can represent all sorts of assets, and colored coins are not limited really in what assets that they can represent. Cryptocurrencies are not so flexible, though a cryptocurrency can be designed to represent other assets (Ripple is such a cryptocurrency).
In the end, what is a colored coin and what isn’t is a matter of definitions. If you are interested in trading colored coins purely to exploit the changing values of the various colored coins vs other colored coins and other cryptocurrencies, then the difference between colored coins and alternate cryptocurrencies may be uninteresting to you. Because you are just interested in the value of the colored coin or cryptocurrency. If you are actually interested in the assets behind the colored coins, then colored coins are very different from Alternate Currencies.
Does Colored Coins Tied Directly To Particular Bitcoins?
Bitcoins do not have an individual existence.
A transaction has a set of inputs, and a set of outputs. The sum of the inputs = the sum of the outputs + the transaction fee. But nothing about that statement indicates which input goes out on which output. So a colored coin cannot be tied to a particular Bitcoin.
Most Colored Coins algorithms define a way to map the input Bitcoins to the outputs. Then we can tie colored coins to particular Bitcoins, but the flow of Bitcoins from outputs to inputs isn’t defined by Bitcoin, but the colored coin algorithm.
Most generally, Color Coins only require an objective and unambiguous method for calculating the colored coin values available on the inputs of a transaction, and an objective and unambiguous method for calculating the colored coin content of each output on a transaction.
The favored method of calculating Bitcoin Balances maintains a fixed ratio of Bitcoin to colored coin on transaction outputs. Other methods do not.