How do Bitcoin and Colored Coin react to malformed transactions?

Question

I need some help to clarify Bitcoin and colored coin mechanics.

Are the assumptions below correct (and complete)?

1. If an error (maybe a fraud) is presented in a Bitcoin transaction, nodes (including the miner) reject this transaction and do not forward it to other nodes. This transaction will never be included in a valid block.
2. If an error (maybe a fraud) is presented in the "color code" (included after OP_RETURN) of a colored Bitcoin transaction, this is a legal Bitcoin transaction accepted by (non-colored) nodes and mined by a miner. But these colored transactions are verified, rejected and ignored by colored nodes and therefore they are forgotten by the colored coin network.

Thank you!

Answer 1

I think you are correct. It is perfectly reasonable that a colored-coins transaction is malformed while its bitcoin-level data is correct.

Indeed, most colored-coins transactions are legal bitcoin transaction in any case. Think of wallets like Colu, which cover every transaction for you. It's very unlikely that something done automatically comes out malformed.

Anyway, I wouldn't say that colored-coin nodes "forget" this transaction. They will just consider it as a non-colored transaction or an invalid colored-transaction, depending on the error. However, since it is a valid bitcoin transaction, it will be included in the blockchain (which is the same for both colored and non-colored nodes); and then "visible" to all nodes.

Generally speaking, I would say it will be simply considered as the other (non-colored) bitcoin transactions.

Answer 2

Yes. That is exactly correct. A valid CC tx is a valid Bitcoin tx with extra structure that only CC nodes see. Bitcoin nodes do not validate the color aspect.

Answer 3

I'm not sure what you mean by a "colored coin", so I'll just answer question 1.

Usually the wallet software would reject the transaction. If it got past the wallet software, it's likely someone will be doing something malicious. This is where the network comes in. No matter how many malicious nodes the attacker has, there will be much much more clean nodes. They will reject the transaction.

However if the attacker somehow managed to get a majority of nodes, the miner's node will still have to be tricked. The miner will reject it unless they are in on it.