Colored Coins – Bitcoin Technology

Colored Coins enable real-world asset transactions with the help of the Bitcoin blockchain. Contact skalex to implement colored coins into your business case.

What Are Colored Coins

Due to the nature of the Bitcoin blockchain, every single generated coin can be uniquely identified along with its transaction history. The smallest identifiable Bitcoin unit is called “satoshi” and depicts a tiny amount of 0.00000001 Bitcoin.

The inherent embedded identifiability and traceability of Bitcoin enables the implementation of additional ledgers on top of the existing Bitcoin ledger.

If numerous parties arrange and acknowledge to attach meaning to one particular satoshi by letting it represent another asset, they can subsequently use the Bitcoin blockchain to track ownership of this asset and its associated transactions in a decentralized and secure manner.

Assuming such an agreement has been reached, these tiny, identifiable, pieces of bitcoin (satoshis) can then be employed to represent and record assets. Such coins are called “colored coins”. Below is an illustration of colored coins procedure:

Using the established Bitcoin blockchain

Building upon the established existing Bitcoin layer and utilizing colored coins makes it easy for users to implement additional asset layers on top of it. Using colored coins, therefore, saves time and ressources which would be necessary if a separate blockchain was set up.

Furthermore, colored coins benefit from the huge amount of hashing power that the Bitcoin network already possesses which in addition protects the Bitcoin blockchain against various types of attacks.