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Tim Swanson of R3 CEV highlighted the main pain points of using colored coins.
The colored coins space is certainly heating up with leading start-up Colu raising $2.5 million from large investors such as Aleph, Spark Capital and BoxGroup.
The growth in the space has not been lacking in innovation. Start-ups such as Shocard, which aim to replace cumbersome bank processes to GetGems – a blockchain based social media platform are proof that new, out-of-the-box uses for the blockchain are yet being discovered by the day.
In a recent paper titled, “Watermarked tokens and pseudonymity on public blockchains”, Tim Swanson of R3 CEV highlighted the main pain points of using colored coins. According to the research, colored coins users will inevitably face immense scalability issues, the likes of which could be solved by constructing one’s own private blockchain.
However, for several bitcoin 2.0 start-ups hoping to push out an MVP and lacking the capital to build their own private blockchain, colored coins might be just a great first step to on-chain asset issuance.
To make more sense of the movement, here’s a quick explainer on “Colored Coins”:
The layers of the bitcoin blockchain are:
1st Layer: Network
2nd Layer: Consensus
3rd Layer: Transaction
4th Layer: Watermark (Color)
The 3 main contenders are:
The main alternatives to colored coins as a method to on-chain asset issuance are:
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