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How are colored coins enforced?

A signature can easily be rejected, and so can a block.

How does the blockchain enforce that a particular asset is tied to the colored coin or has been delivered?

I can see how another cryptosecurity could be tied to a cryptocurrency, but does the blockchain physically manifest itself, kick down the door of 31uEbMgunupShBVTewXjtqbBv5MndwfXhb, and collect the asset if 31... doesn't deliver?

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They are not enforced. Colored coins aware clients transfer them using some colored coins rules. If the rules are violated the coins get "uncolored". But if implemented properly, your client shouldn't cause your CC to get uncolored.

The main problem with colors not being enforced by miners is not this potential uncoloring though, it's scalability.

For example, a commited utxo (http://utxo.tumblr.com/) softfork could highly reduce the trust that SPV nodes require. Without enforcing colors, this won't work for CCs. There's other hardfork proposals for colored coins that don't have these problems. For example, Freimarkets (https://bitcointalk.org/index.php?topic=280292.0) uses tags in outputs to indicate the color and miners enforce the rules.

The main disadvantage of this approach? You need a hardfork. But if this hardfork doesn't happen on bitcoin, it can be deployed in a merged mined chain like namecoin. The Freicoin community is willing to accept this hardfork on Freicoin and Merged Mining with Bitcoin is also planned. But once developed, these extensions could be deployed in any bitcoin-based chain.

  • There's no other way to implement colored coins than using rules. If you don't follow those rules, there's no way you can tell which color each output is. – jtimon Mar 6 '14 at 21:50
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You could imagine that you're selling a car to someone. The key to open the car is tied to your bitcoin address. So only you, owner of the private key for that address, can open and turn on the car.

Once you sell the car you make a symbolical transaction to the buyer and you configure the car key with the buyer's address, so only s/he can open the car.

The symbolical transaction is actually a colored coin. It's proof that you've sold the car. That proof is also attached to the physical key itself. That proof will forever exist (or at least until bitcoin exists) in the blockchain.

If then they decide to sell the car once more, they can use that same colored coin and make another symbolical transaction. Now the third owner of the car can see the proof of ownership of his car just by looking at the blockchain.

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    it's just a way to legally prove, to a judge for example, that you've owned something at a specific time (if you have the key) – Luca Matteis Jan 24 '14 at 9:54

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