@ -11,23 +11,69 @@ With new coins introduced every day, it would be impossible not to miss some imp
=== A taxonomy of alternative currencies and chains
Bitcoin is an open source project {where is the project found?} and its code has been used as the basis for many other software projects. The most common form of software spawned from bitcoin's source code are alternative de-centralized currencies, or _alt-coins_, which use the same basic building blocks to implement digital currencies.
Bitcoin is an open source project and its code has been used as the basis for many other software projects. The most common form of software spawned from bitcoin's source code are alternative de-centralized currencies, or _alt-coins_, which use the same basic building blocks to implement digital currencies.
There are a number of protocol layers implemented on top of bitcoin's blockchain. These _meta-coins_, _meta-chains_, or _blockchain apps_ use the blockchain as an application platform or extend the bitcoin protocol by adding protocol layers. Examples include Colored Coins, Mastercoin and Counterparty.
In the next section we will examine a few notable alt-coins, such as Litecoin, Dogecoin, Freicoin, Primecoin, Peercoin, Darkcoin and Zerocoin. These alt-coins are notable for historical reasons or because they are good examples a specific type of alt-coin innovation, not because they are the most valuable or "best" alt-coins.
In addition to the alt-coins, there are also a number of alternative blockchain implementations that are not really "coins", which I call _alt-chains_. These alt-chains implement a consensus algorithm and distributed ledger as a platform for contracts, name registration or other applications. Alt-chains use the same basic building blocks and sometimes also use a currency or token as a payment mechanism, but their primary purpose is not currency. We will look at Namecoin, Ethereum and NXT as examples of alt-chains.
There are also a number of protocol layers implemented on top of bitcoin's blockchain. These _meta-coins_, _meta-chains_, or _blockchain apps_ use the blockchain as an application platform or extend the bitcoin protocol by adding protocol layers. Examples include Colored Coins, Proofofexistence, Zerocash, Mastercoin and Counterparty.
In addition to the Proof-of-Work consensus mechanism used in bitcoin, alternatives include experimental protocols based on Proof-of-Resource and Proof-of-Publishing. We will examine Maidsafe and Twister as examples of these consensus mechanisms.
Finally, there are a number of bitcoin contenders that offer digital currency or digital payment networks, but without using a de-centralized ledger or consensus mechanism based on Proof-of-Work, such as Ripple and others. These non-blockchain technologies are outside of the scope of this book and will not be covered in this chapter.
Finally, there are a number of bitcoin contenders that offer digital currency or digital payment networks, but without using a de-centralized ledger or consensus mechanism based on Proof-of-Work, such as Ripple and others. These non-blockchain technologies are outside of the scope of this book and will not be covered in this chapter.
=== Meta-Coin Platforms
Meta-coins and meta-chains are software layers implemented on top of bitcoin, either implementing a currency-inside-a-currency, or a platform/protocol overlay inside the bitcoin system. These function layers extend the core bitcoin protocol and add features and capabilities by encoding additional data inside bitcoin transactions and bitcoin addresses. The first implementations of meta-coins used various "hacks" to add meta-data to the bitcoin blockchain, such as using bitcoin addresses to encode data or using unused transaction fields (eg. the transaction sequence field) to encode meta-data about the added protocol layer. Since the introduction of the OP_RETURN transaction scripting opcode, the meta-coins have been able to record meta-data more directly in the blockchain and most are migrating to using that instead.
==== Colored Coins
Colored Coins is a meta-protocol that overlays information on small amounts of bitcoin. A "colored" coin is an amount of bitcoin repurposed to express another asset. Imagine for example taking a $1 USD note and putting a stamp on it that said "This is a 1 share certificate of Acme Inc.". Now the $1 serves two purposes: it is a currency note and also a share certificate. Because it is more valuable as a share, you would not want to use it to buy candy, so effectively it is no longer useful as currency. Colored coins work in a same way by converting a specific, very small, amount of bitcoin into a traded certificate that represents another asset. The term "color" refers to the idea of giving special meaning through the addition of an attribute such as a color - it is a metaphor not an actual color association. There are no colors in colored coins.
Colored coins are managed by specialized "wallets" that record and interpret the metadata attached to the "colored" bitcoins. Using such a wallet, the user will convert an amount of bitcoins from uncolored currency, into colored coins, by adding a label that has a special meaning. For example, a label could represent stock certificates, coupons, real property, commodities, collectible tokens etc. It is entirely up to the users of colored coins to assign and interpret the meaning of the "color" associated with specific coins. To color the coins, the user defines the associated metadata, such as the type of issuance, whether it can be subdivided into smaller units, a symbol and description and other related information. Once colored, these coins can be bought and sold, subdivided, aggregated and receive dividend payments. The colored coins can also be "uncolored" to remove the special association and redeem them for their face-value in bitcoin.
To demonstrate the use of colored coins, we have created a set of 20 colored coins with symbol "MasterBTC" that represent coupons for a free copy of this book. Each unit of MasterBTC is represented by these colored coins can now be sold or given to any bitcoin user with a colored-coin-capable wallet, who can then transfer them to others or redeem them with the issuer for a free copy of the book. This example of colored coins can be seen here: https://cpr.sm/FoykwrH6UY
.The metadata profile of the colored coins recorded as a coupon for a free copy of the book
Mastercoin is a protocol layer on top of bitcoin that supports a platform for various applications extending the bitcoin system. Mastercoin uses the currency MST as a token for conducting Mastercoin transactions but it not primarily a currency. Rather it is a platform for building other things, such as user currencies, smart property tokens, de-centralized asset exchanges, contracts etc. Think of Mastercoin as an application-layer protocol on top of bitcoin's financial transaction transport-layer, just like HTTP runs on top of TCP.
Mastercoin operates primarily through transactions sent to and from a special bitcoin address called the "exodus" address (+1EXoDusjGwvnjZUyKkxZ4UHEf77z6A5S4P+), just like HTTP uses a specific TCP port (port 80) to differentiate its traffic from the rest of the TCP traffic. The Mastercoin protocol is gradually transitioning from using the specialized exodus address and multi-signatures to using the OP_RETURN bitcoin operator to encode transaction metadata.
==== Counterparty
Counterparty is another protocol layer implemented on top of bitcoin. Counterparty enables user currencies, tradable tokens, financial instruments, de-centralized asset exchanges and other features. Counterparty is implemented primarily using the OP_RETURN operator in bitcoin's scripting language to record metadata enhancing bitcoin transactions with additional meaning. Counterparty uses the currency XCP as a token for conducting Counterparty transactions.
=== Alt-coins
{define alt-coin}
Alt-coins are digital currencies implemented using the same design pattern as bitcoin, with a completely separate blockchain and network. The vast majority of alt-coins are derived from bitcoin's source code, also known as "forks". Some are implemented "from scratch" based on the blockchain model but without using any of bitcoin's source code. Alt-coins and alt-chains (in the next section) are both separate implementations of blockchain technology and both forms use their own blockchain. The difference in the terms is to indicate that alt-coins are primarily used as currency, whereas alt-chains are used for other purposes, not primarily currency.
The first alt-coins appeared in August of 2011 as "forks" of the bitcoin source code. Strictly speaking, the first major fork of bitcoin's code was not an alt-coin but the alt-chain _Namecoin_, which will be discussed in the next section.
The first alt-coins appeared in August of 2011 as forks of the bitcoin source code. Strictly speaking, the first major fork of bitcoin's code was not an alt-coin but the alt-chain _Namecoin_, which will be discussed in the next section.
Based on the date of announcement, the first alt-coin appears to be _IXCoin_, launched in August of 2011. IXCoin modified a few of the bitcoin parameters, specifically accelerating the creation of currency by increasing the reward to 96 coins per block.
The example above will map the domain name +www.mastering-bitcoin.bit+ to IP address 1.2.3.4. The hash returned is the transaction id that can be used to track this registration.
The example above will map the domain name +www.mastering-bitcoin.bit+ to IP address 1.2.3.4. The hash returned is the transaction id that can be used to track this registration. You can see what names are registered to you by running the +name_list+ command:
Namecoin registrations need to be updated every 36,000 blocks (approximately 200 to 250 days), though the +name_update+ has no fee and therefore renewing domains in Namecoin is free. Third party providers can handle registration, automatic renewal and updating via a web interface, for a small fee. With a third-party provider you avoid the need to run a namecoin client, but you lose the independent control of a de-centralized name registry offered by Namecoin.
----
$ namecoind name_list
----
====
[source,json]
----
[
{
"name" : "d/mastering-bitcoin",
"value" : "{map: {www: {ip:1.2.3.4}}}}",
"address" : "NCccBXrRUahAGrisBA1BLPWQfSrups8Geh",
"expires_in" : 35929
}
]
----
====
Namecoin registrations need to be updated every 36,000 blocks (approximately 200 to 250 days). The +name_update+ command has no fee and therefore renewing domains in Namecoin is free. Third party providers can handle registration, automatic renewal and updating via a web interface, for a small fee. With a third-party provider you avoid the need to run a namecoin client, but you lose the independent control of a de-centralized name registry offered by Namecoin.
==== Bitmessage
@ -287,33 +350,9 @@ else:
return(0) // Otherwise do nothing
----
=== Meta-Coin Platforms
{move this up}
Meta-coins and meta-chains are software layers implemented on top of bitcoin, either implementing a currency-inside-a-currency, or a platform/protocol overlay inside the bitcoin system. These function layers extend the core bitcoin protocol and add features and capabilities by encoding additional data inside bitcoin transactions and bitcoin addresses. The first implementations of meta-coins used various "hacks" to add meta-data to the bitcoin blockchain, such as using bitcoin addresses to encode data or using unused transaction fields (eg. the transaction sequence field) to encode meta-data about the added protocol layer. Since the introduction of the OP_RETURN transaction scripting opcode, the meta-coins have been able to record meta-data more directly in the blockchain and most are migrating to using that instead.
==== Colored Coins
Colored Coins are
==== Mastercoin
==== Counterparty
=== Sharing Currencies
==== Proof-of-Resource (Maidsafe)
==== Proof-of-Publishing (Twister, LTBCoin)
=== Future of Currencies
==== Currency as Language
==== Tokens and Resource Allocation
==== Evolutionary Effects
The future of cryptographic currencies overall is even brighter than the future of bitcoin. Bitcoin introduced a completely new form of de-centralized organization and consensus that has spawned hundreds of incredible innovations. These inventions will likely affect broad sectors of the economy, from distributed systems science, to finance, economics, currencies, central banking and corporate governance. Many human activities that previously required centralized institutions or organizations to function as authoritative or trusted points of control can now be de-centralized. The invention of the blockchain and consensus system will significantly reduce the cost of organization and coordination on large scale systems, while removing opportunities for concentration of power, corruption and regulatory capture.
Andreas M. Antonopoulos
10 years ago