Colored coins were a hot topic in the early days of Bitcoin, prior to the rise of second layers. Now, colored coins are making a comeback with Bitcoin Cash (BCH), sparking a range of utility use cases for developers.
Colored coins is a way of customising bitcoins, making it possible to create unique tokens that can still be exchanged for value. Colored coins are still recognised as Bitcoins or satoshis, but can be entirely customised into different classes, by embedding additional content within the coin. Following the May upgrade of the Bitcoin BCH network, several different proposals have emerged for colored coins, with many developers working on concepts to bring the technology to the Bitcoin BCH chain.
One potential use case is in retail rewards. For example, loyalty points could be paid out in customised colored coins, redeemable for a discount at a later stage. Or colored coins could be used as a digital representation of fiat currency, like dollars and cents, or for any type of asset which can be divided into different classes.
The technology allows each coin to develop its own distinctive characteristics, while still being a standard coin operable within the Bitcoin BCH ecosystem.
Colored coins will require custom wallets, specifically designed to be able to interpret different colors. However, some analysts have suggested this could lead to further product innovations in future, allowing customers to ‘find’ rewards, for example, or other additional features that are only detectable to users with certain types of wallet.
In a Yours.org article, Ari at Cryptonize.it said there were a range of practical use cases for colored coins, which could improve the utility of Bitcoin BCH.
“Colored coins creates a framework for digital tokens on [Bitcoin]. It’s 100% open source, on-chain and ready to be used right now permissionless,” according to the article. “One of the most important questions to answer when proposing adoption of a certain framework is what are the use-cases? Luckily with colored coins, the answer is endless. Colored coins can represent vouchers, coupons, tokens, altcoins or other assets. You can tokenize whatever you want.”
Colored coins is one of a number of new features being developed for Bitcoin BCH, as developers continue to take advantage of the latest technical upgrades to the Bitcoin BCH ecosystem.
Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.
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