This brief article expands on a previous post about Bitcoin and discusses coloured coins. Coloured coins are a way of representing real-world assets (e.g. shares, gold, fiat money) on the Bitcoin blockchain.
There are 4 main implementations of coloured coins at the moment:
- ChromaWallet (formerly known as NGCCC)
- OpenAssets - implemented by CoinPrism and also used by Lykke
- ColouredCoins used by Colu
These implementations are all incompatible with each other.
Bitcoin transactions are made of inputs and outputs. The inputs indicate where the money is taken from, and the outputs indicate when it’s going to. Both utilize a Bitcoin language called Script. OP_RETURN is a script operator which makes it possible to have a special output that doesn’t actually send money to anyone, but lets the creator of the transaction embed some data in it. Each OP_RETURN output is currently limited to 80 bytes.
For example proofofexistence.com uses OP_RETURN to create a service that allows users to embed the unique hash of any document on the blockchain.
Once a coloured coin is created (for example read about the process on coinprism), the tokens can be traded on an exchange.
The following documents provide information on the legal aspects of coloured coins: