Colored Coin

A concept of adding a special meaning to certain Bitcoin transaction outputs. This could be used to create a tradeable commodity on top of Bitcoin protocol. This is a project of BitcoinX to allow for the “marking” of some bitcoins so that they can be used for specific purposes like stocks, contracts, and even physical property. The project is under development and is one of many attempts to build more practical applications on top of the Bitcoin protocol and to further increase its utility beyond currency or a store of value. A salient and very innovative feature of Bitcoin is allowing users (payers and payees) to embed scripts in their Bitcoin transactions. In theory one can realize rich transactional semantics and contracts through scripts, such as deposits, escrow and dispute mediation, insurance contracts, including the use of external states, and so on. It is conceivable that in the future, richer forms of financial contracts and mechanisms are going to be built around Bitcoin using this feature. For example, a company may create 1 million shares and declare a single transaction output containing 10 bitcoins as a source of these shares. Then, some or all of these bitcoins can be moved to other addresses, sold or exchanged. While voting or distributing dividends, share owners could then prove ownership by signing a specific message by the private key associated with the addresses holding bitcoins derived from the initial source.

Reference:

Malone, J.A (2015). Glossary of Bitcoin Terms and Definitions. United States: Lulu Press, Inc

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