Colored Coins: Bitcoin’s Everlasting Gobstoppers

Whenever I think of Bitcoin and the attributes that go along with its protocol I’m always reminded of Roald Dahl’s, Charlie, and The Chocolate Factory. It’s a pretty cool feeling when you are first introduced to the 1.0 aspects of cryptocurrency, and it’s caused a lot of people to research its many facets.

The archaic thoughts that money must be a “thing” have drifted from society since the inception of bitcoin and its underlying blockchain. The current paradigm of money has shifted to a new concept of a digital scorecard producing real value.

Bitcoin’s protocol has given ordinary humans the ability to send money between two individuals directly without the need for a third party intermediary. With this comes a distributed recording system that comprises a digital ledger of linked addresses and their corresponding transactions. This gives an entirely new meaning to monetary management and potentially erodes the traditional finance system of today.

"Everlasting Gobstoppers! They’re completely new! I am inventing them for children who are given very little pocket money. You can put an Everlasting Gobstopper in your mouth, and you can suck it and suck it and suck it and it will never get any smaller!”
— – Willy Wonka, Charlie And The Chocolate Factory

Stumbling upon the 2.0 ideas within the digital currency space opens up a whole new world, filled with thousands if not millions of colorful and tasty new financial candies. Children and adults from all backgrounds, no matter if the person is rich or poor, can participate in this new system of market inclusion.

Now that virtual money has given individuals the concepts and tools to create a fair system of wealth inclusion, its algorithmic system has matched itself with a desire for transparency. One important idea that has come to light is the creation of decentralized asset management.

Bitcoin depends on recording specifically measured value, and the voluntary agreements between individuals. The protocol also provides a system where users can create unique assets on the blockchain, representing contracts and physical goods.

Digital assets can be created by adding additional metadata to a bitcoin transaction, recorded into the blockchain. The preeminent implementation of this system is a protocol called Colored coins, which provides a broader landscape of sovereign economic distribution.

The system encodes the asset with a promise from the issuer to redeem them for a real world asset. This information is stored on a memo, holding roughly 40 bytes of data, and can be associated with all manner of goods or services. With these assets, value is defined by the issuer, and can act as backing for a new form of socio-economic barter and trade.

These resources use a bitcoin transaction as the moving mechanism to push and hold these newly created digital tokens. The concept gives new meaning to how Wall Street and the financial systems of today are losing their grip on trading situations. For instance, there is no need to use finance lawyers and trust executives to create backed value within trading processors, giving ordinary individuals opportunities that typically are non-existent.

“Mind you, there are thousands of clever men who would give anything for the chance to come in and take over from me, but I don’t want that sort of person. I don’t want a grown-up person at all. A grown-up won’t listen to me; he won’t learn.”
— – Willy Wonka

Coins pressed into digital assets are not really "colored," but contain differentiating contrasts to other bitcoins in the network. These differences within the added metadata act as tokens that can represent anything from precious metals, commodities, and property. Additionally they can correspond with assets that act like bonds, trusts, and stocks.

The traditional financiers of today are being disrupted by this new “candy factory” and are either accepting defeat or adapting to its democratized magic. Financial organizations such as NASDAQ are already using the colored coins concept with a system called “Open Assets”.

Open Assets was created in 2013, and was integrated into the NASDAQ Private Market Platform in May of 2015. This is a huge milestone, an economic behemoth has collaborated with blockchain technology showing that it is indeed a valued protocol and mechanism for transferring assets.

Despite financial magnates adopting the technology, it is available to anyone who would like to create a decentralized environment, without any prior qualifications or authority from third parties. Everyday people can now operate digital ETFs, retirement trusts, unique currencies, and brokerage or exchange centers. Slugworth surely wants to get a tasty sample, but we know that human life is finite and this technology will be understood best over time by kids like Charlie.

Just like bitcoins, these digital tokens can be traded and moved all across the bitcoin network, and various altcoin platforms top. Altcoin blockchains such as the NXT platform, Counterparty, and Omni-layer all offer the same functionality with their issued tokens, the only significant difference being their separate ledger systems. These new sugar-coated crypto treats are amazing people with many new implementations and are opening a whole new world of economic inclusion.

"The waterfall (Blockchain) is most important! It mixes the chocolate! It churns it up! It pounds it and beats it! It makes it light and frothy! No other factory in the world mixes its chocolate by waterfall! But it’s the only way to do it properly! The only way!"
— – Willy Wonka

The advancement of colored coin technology has been moving forward, but not as fast as some would like. 2.0 has been put on the backburner to help push the tipping point of 1.0 use and mainstream adoption. However, services like Coinprism, COLU, ChromaWallet, and CoinSpark have been pushing this additional technology within their service environments.

Color coins require a unique wallet that can differentiate the items apart from regular bitcoins, their associations can be destroyed if sent to a wallet that doesn’t recognize the added memo. The few services above handle colored coin transactions, and there are others.

Although these ideas are not at the forefront in the community discussions, the purpose is to illustrate that the transfer of ownership can be handled easily via the bitcoin blockchain. This technology is a one of a kind "chocolate factory" filled with many "fizzy lifting" ideas of decentralization and true peer-to-peer networking.