How to use coloed coins in a real life situation

[martijn]

Hi. I own a lot of square miles of amazon forest. I had scientists count/calculate the number of trees, their health, type, their size etc. Now I want to sell the trees (or parts of trees). Can I use colored coins for this and how can i ensure that a colored coin is a (part of a) tree? How does this work and what paperwork do i need for the physical part?

thanks in advance

[Kawal Grover]

Think of it this way. You issue some certificates out of your house stating that this particular tree is represented with this particular certificate. You are the one who has decided that a particular tree is represented by a particular certificate.

Now, when you give out these certificates into the real world, what are the chances that they :

1. Could be counterfieted -- i.e, someone creates an exact copy of your certificate..is able to forge your signature if there is one and then bring you a forge to redeem the tree. :)

2. That they give or sell that certificate to their neighbor, but a few days later sell that same certificate to another person down the street.

To avoid these situations, you have in the past needed another middle man. A bank, a government insitution, etc, etc.

Now, you don't need anyone. You can rely on the Blockchain.

Start understanding how private keys and public keys work. When you give out a certificate, it is identified by nothing more than a public key (or an address that is generated out of that public key), that certificate you were given is just a value (say 1 or 10 or 100) that is 'assigned' to that public key. And who can move, sell that value out to that address. The one who has the 'private key'. 

Colored coins is just giving you a way to uniquely identify/mark your asset that you can then assign to public-key addresses. 

Once you understand the relationship between the private keys and public keys... you'll start realizing that the physical part is nothing more than any physical object (perhaps a piece of paper) that contains enough information to identify that address (public-key), and also the private key to control that address.

Hope this makes sense.

[jor...@gmail.com]

thank you for the explanation. I understand public and private keys. Everywhere seems to be many explanations on that, good! However, the part that needs to be better explained and reinforced is the new part, this is, the PHYSICAL!

If I get a colored coin that is a token of a Tree, how do I claim it? I have the private key of that tree certificate... but how do I claim that tree? how do I execute the ownership?

thanks

[Moran Shaked]

You need to have a digital asset wallet where you have your ownership tokens of one property or another... does that make more sense now? 

[Alex Mizrahi]

 

If I get a colored coin that is a token of a Tree, how do I claim it? I have the private key of that tree certificate... but how do I claim that tree? how do I execute the ownership?

Colored coins can be understood as tokens which can be used to claim something from the issue. Here's a complete example of the interaction:

1. Issue needs to create a contract, e.g.:

http://killerstorm.xen.prgmr.com/alex/twitter-tickets.contract.asc

-----BEGIN PGP SIGNED MESSAGE-----

Hash: SHA1

Each unit of the following colored coin asset:

{"color_set": 

              ["epobc:9325e320e7097084b515740b2aa7804706fba501a44723a801addc5694ae6711:0:265387"],

 "monikers": ["twitter_tickets"], "unit": 1}

is a ticket which can be redeemed for 1 mention by a twitter account twitter.com/killerstorm.

To redeem a ticket, you need to write an email to alex.m...@gmail.com with subject 'twitter_tickets redeem'

and the body a twitter name you want to be mentioned.

In response you will get a message signed with PGP key (with keyid 05CF2312) with a name requested to be mentioned and redemption address.

Sending ticket to that address completes redemption procedure, your name will be mentioned in 24h after transaction is confirmed.

-----BEGIN PGP SIGNATURE-----

...

-----END PGP SIGNATURE-----

2. To make a claim, owner of the token needs to perform the procedure mentioned in the contract, i.e. send an email.

3. He will then receive a signed message with an unique address and redemption details:

http://killerstorm.xen.prgmr.com/alex/redeem.txt.asc

-----BEGIN PGP SIGNED MESSAGE-----

Hash: SHA1

By sending your twitter_tickets (*) colored coin to address:

Dvxv8m98uzCqxM@mueRx1yC9b3jQPTjnWXMbv6TMzt36pDKNj

you will redeem the ticket for username "bolkin".

*:

{"color_set": ["epobc:9325e320e7097084b515740b2aa7804706fba501a44723a801addc5694ae6711:0:265387"], "monikers": ["twitter_tickets"], "unit": 1}

-----BEGIN PGP SIGNATURE-----

...

-----END PGP SIGNATURE-----

4. Owner of the token completes the procedure and waits for issuer to execute the request.

Now if the issuer have executed it, it's all well.

If he didn't, the claimant has a cryptographically-signed evidence which can be used to demand compensation through legal system.

This is a general idea. But in practice:

1. You might need a lawyer to formulate contracts used on step 1 and 3. Perhaps at some point we'll have a ready templates for most jurisdictions.

2. You might want to use some form of government-recognized digital signatures instead of self-issued PGP, or maybe use a notarized paper contract.

3. There is a weakness on stage 2: it's hard to prove that you actually send a request, and the issuer might claim that he have never received it.

4. It's might also be complicated to prove that goods were delivered/weren't delivered.

Third point is a serious problem. We need some soft of a mechanism which will let token owners to prove that they 1) have sent a request; 2) request included all the information which issuer needs to proceed.

To solve this we need some sort of a 3rd party service which will witness the request, or we can use the blockchain.

In principle, token-owner could include request in the transaction which sends the token back to the issuer But the problem is that Bitcoin doesn't allow significant amounts of information to be included into the transaction... In principle, 80 bytes might be enough to include the address where goods should be shipped to, that's one way to solve it. But if your address is too long... too bad.

A good compromise would be to include a hash of the request into the transaction (via OP_RETURN) and post the message to some well-known communication channel where the issue can easily retrieve it. Ideally a decentralized one, e.g. Freenet (where you can fetch content by hash). Perhaps something like Factom. Perhaps in future we'll have a separate "data blockchain" which can include arbitrary data in appreciable quantities.

So anyway, ideally we should add this whole workflow to the wallet itself, so it can be really convenient. But we (ChromaWay) haven't got to it yet, although it's on our roadmap.

From the technical point of view, we can classify claim/redemption processes into three categories:

1. External request, invoice-like interaction. In this case redemption is indistinguishable from payment on the blockchain level. This is what I've described above.

2. Redemption request embedded into the transaction. In this case a special transaction is used to redeem tokens, which might be either sent to an issuer-defined redemption address, or be destroyed.

3. Redemption as a coin state. As far as I know, nobody have implemented this kind of colored coins yet, but it's possible to make a more elaborate system which will have a number of distinct states like:

1. transferable

2. redemption-requested

3. redemption-request-acknowledged

4. redemption-completed

This would make coin more like a smart contract.

[Alex Mizrahi]

Colored coins can be understood as tokens which can be used to claim something from the issue.

This can be described as colored-coin-as-a-voucher.

But there is another model: colored-coin-as-a-certificate. in this model tokens servers as an evidence of ownership.

That is, if a physical item is associated with a colored coin. By following the blockchain, we can find most recent scriptPubKey associated with that coin, and the owner of the corresponding private key will be able to:

1. authenticate himself, e.g. by signing a message like "I am John Smith ..."

2. authorize certain action

This is similar to a chain of title ( http://en.wikipedia.org/wiki/Chain_of_title )

"A chain of title is the sequence of historical transfers of title to a property. The "chain" runs from the present owner back to the original owner of the property. In situations where documentation of ownership is important, it is often necessary to reconstruct the chain of title. To facilitate this, a record of title documents may be maintained by a registry office or civil law notary."

So, the blockchain will record a sequence of historical transfers of title to a property, thus serving a role of a registry office/notary..

The major difference from the colored-coin-as-a-voucher model is that ownership tokens can function independently from the issuer.
The issuer is simply the first owner who wishes to start using the blockchain for record keeping.

In principle, this could work for a lot of things, from real estate to cars, but for it to work a number of issues need to be solved:

1. It works only if government will recognize that tokens can represent ownership, as the whole point is that the owner can seek action through the legal system. (Alternatively, it needs to be recognized by some kind of a 3rd party enforcement agency.)

2. Binding a specific property to a coin needs to be done in a special way. Obviously, we can't allow people to issue coins for property they don't own... One way to solve it is to let some kind of an organization to keep track of all issued coins. (E.g. this agency will check if the person who issues the coin owns the property.)

3. We need to demonstrate that every person who transfers the coin also wishes to transfer the property. If this isn't considered self-evident, we need to organize it in such a way that the receiving party signs a contract which describes the association between the coin and the property.

[armi...@gmail.com]

On Wednesday, 22 October 2014 22:26:18 UTC+2, martijn wrote:
> Hi. I own a lot of square miles of amazon forest. I had scientists count/calculate the number of trees, their health, type, their size etc. Now I want to sell the trees (or parts of trees). Can I use colored coins for this and how can i ensure that a colored coin is a (part of a) tree? How does this work and what paperwork do i need for the physical part?
>
> thanks in advance

Great post!