What is ««colored coins»?

«Colored Coins» is a term which loosely describes a class of methods for representing and managing real world assets on top of the Bitcoin Blockchain . While originally designed to be a currency, Bitcoin's scripting language allows to store small amounts of metadata on the blockchain, which can be used to represent asset manipulation instructions.

What are bitcoin colored coins?

The term "Colored Coins" loosely describes a class of methods for representing and managing real world assets on top of the Bitcoin Blockchain. While originally designed to be a currency, Bitcoin's scripting language allows to store small amounts of metadata on the blockchain, which can be used to represent asset manipulation instructions.

What is a colored coin wallet?

A colored coins wallet can create a Bitcoin transaction that encodes sending 50 units of an asset from one address to a new address, and so on. Real world Value is attached to those units (or "digital tokens") by the asset issuer's promise to redeem them for some goods or services.

How do blockchain colored coins work?

Once blockchain colored coins have been created, they need to be sent. This is where a transfer transaction comes in. Basically, you need the ability to send a colored coin from one colored coin wallet to another. Both addresses must recognise the coin, so the input and output data need to sync up. This is where coloring algorithms come into play.