[Note: below are several questions and answers from core developers with the Colored Coins team. I previously posted answers from Meni Rosefeld several days ago and last week CoinDesk published an article of mine that quotes both Amos and Alex as well.]
Q: What advantages does CC provide to the current global asset management industry?
Amos Meiri: It is going to be very easy for the asset management industry as a whole to use Colored Coins. For example, some of the first places we are going to have adoption will likely be real-estate and portfolio management. In fact, for any type of asset management it’s going to be simple to issue his own color that represents his goods. In the real estate industry, someone can issue their apartments using colored coins and have them float on the block chain, or manage time-sharing based on color such as Bitcoin Resort.
Alex Mizrahi: I think just like in case with Bitcoin, it will first be used in some niches, perhaps something obscure. And we’ll see what can grow from it.
Q: What businesses do you think can readily adopt CC once it is released?
Amos Meiri: I’ll say it’s endless but will give you few examples of the first and most simple. One of the biggest demand today for CC would be the second markets of stocks. Company’s who want to issue their own stocks and use the decentralized exchange, many approach us and waiting for the first release. Examples are: The tickets and coupon market; FX and derivatives market.
Alex Mizrahi: I see a lot of interest in capital market applications, i.e. companies which were previously listed on so-called “Bitcoin stock exchanges” (btct.co, bitfunder.com) have problems finding a reputable exchange and have distrust towards centralized ones. Particularly, ActiveMining announced that they will issue their shares in form of colored coins when tech is ready (as one of options), and a lot of users support this.
Q: Would it not be easier to simply do all trade privately at the centralized exchange where it will be more scalable and private?
Amos Meiri: Centralized exchanges definitely have their advantages, but colored coins can be useful for following reasons. First, users do not need to trust their bitcoins to a centralized exchange. Companies cannot manipulate ownership records (to commit fraud, for example). So basically, if somebody gives you an IOU, it isn’t a good idea to leave it with the person who issued it or to affiliated parties. Another reason is that companies cannot control how its shares are being traded, thus it cannot block trade. And lastly, there is no need to maintain servers or manage security due to its integration with the blockchain.
Q: What are the legal ramifications for creating this approach to asset exchange, in particular securities (e.g., stocks, bonds)?
Amos Meiri: I believe that at first stage we are going to see small and online companies using CC might be on the unregulated zone working as second market. Same as Bitcoins, when the volumes will grow and we will have mass adoption we might have some regulation. We are trying to understand all of the legal aspects using CODA.
Alex Mizrahi: 1) Trade of colored coins for bitcoins can be fast as safe: bitcoins are represented with bitcoins, there are no counter-party risk, they don’t need to leave user’s wallets. 2) Colored coin security is very similar to Bitcoin security, and people trust it. 3) Open-Transactions is a centralized solution, and Ripple is often perceived as centralized solution too.