How to unlock colored coin?

Question

In chapter 12 in Mastering Bitcoin it is talking about bitcoin application and one of them is colored coins.

There is an example for colored coin output:

The second one is colored coin output. It is just a "OP_RETURN {some encoded value}". I understand that in the output, we can decode and get some information, but how can they transfer assets represented by the encoded value to others?

Because there is no signature or other information in the output can be used as a unlocking script, the output, whatever it is, cannot be certified as it is owned by someone.

• Why there is no signature information in output?

• Can you give an example or a real colored coin output?

Answer 1

bitcoin wiki states that OP_RETURN:

"[...]Marks transaction as invalid. A standard way of attaching extra data to transactions is to add a zero-value output with a scriptPubKey consisting of OP_RETURN followed by exactly one pushdata op. Such outputs are provably unspendable, reducing their cost to the network[...]"

There's no point in a signature of an unspendable output I guess but I might be wrong here.

I found chapter 7 of mastering bitcoin helpfull where it explains the "Data Recording Output (RETURN)."

Also check this blog post for a different spin on it.

I'm very interested in the colored coins idea but noticed that active implementations are rare from what I could find.

Coindesk reported coinprism shut down in 2018 and the underlying protocol open asset hasn't had any commits in years.

Same goes for colored coins by Colu github repo. Colu announced a colored coin lightning integration in 2016 which I'm also starting to investigate as an alternative but their demo site is also down.

Counterparty makes use of op_return so you might want to check that out.

You should also check out this post which gives a colored coin example for the Omni Layer that @Murch mentioned in his answer.

Answer 2

Colored coins are second layer networks that run another protocol on top of the Bitcoin (or another) blockchain. While they transmit the full transaction information within their network, they don't use their own blockchain. Rather, they anchor their transactions into OP_RETURNs on the carrier chain for confirmation. Instead of spending such an OP_RETURN directly, the recipient may craft another OP_RETURN that references previous payment outputs and proves authorization to spend.

Nodes of the colored coin network understand both the colored coin network's messages and consume the Bitcoin blockchain to infer the network state. When the recipient of such a colored coin transaction wants to spend their funds, they encode another message into an OP_RETURN. Colored coins can be used to represent other assets such as stocks or property.

A current example of such a network is Omni Layer which to transact with Tether. Omni Layer spans its network using Omni Core, an extended variant of Bitcoin Core.