NEW YORK (InsideBitcoins) — Although there is plenty of innovation taking place in the Bitcoin space, many of the developers behind these new projects believe that creating a new token is the best way to fund their projects and bring attention to their new apps.
The idea is that creating a token for an app will allow people to support a project early through crowdfunding and potentially even spur an increase in the value of these new tokens as the app in question becomes more popular over time. While this sounds like a good idea in theory, there are plenty of problems with taking this approach. As Chris Odom recently said at the Inside Bitcoins conference in London, “The actual additional functionality that they’re creating would be perfectly viable without the appcoin itself.”
There’s no fundamental reason to hold appcoins over the long term, so it’s likely that people will want to quickly move in and out of the appcoins when they want to take advantage of the app’s features. This is similar to when Bitcoin is simply used for payments rather than money. There’s no net increase in the token once the user is finished with the app, and the token has a variety of competitive disadvantages when matched-up against bitcoin. In other words, Mastercoin may not be the only appcoin that loses 98% of its value in a relatively short period of time.
The good news is that there are also projects out there that want to take advantage of Bitcoin and integrate bitcoin as the app’s token. Here are five of the most intriguing Bitcoin-related applications that are either currently in development or already available for download:
Open Transactions uses a system of federated servers to separate issuers of financial instruments from the transaction processors. Many people have long known about Open Transactions as a possible platform for decentralized exchanges, but this financial cryptography library can be used for much more than that.
The main benefits of Open Transactions involve the fact that the client-server model is much more preferable to a blockchain in certain financial interactions. Receipts for bitcoins can be stored on servers in a way where the server cannot run away with the actual bitcoins, which means transactions, microtransactions, buying and selling of goods and services, recurring payments, exchange trades, and other types of financial services can be completed in a low-trust, anonymous, and instant fashion.
Colored Coins and Coinprism
The idea of colored coins has been around for quite some time, and we’ve seen a few projects actually use the colored coins model to create their appcoins on top of the Bitcoin blockchain. The basic idea is that you “color” some bitcoins to indicate that those coins now represent some form of real property or asset. This could be in the form of smart property, such as the title of a house or car, or a new virtual currency backed by anything from dollars to gold.
It’s likely that Open Transactions will be used as the main exchange for these colored coins, as making trades on a blockchain is simply too slow. Coinprism is the first major Colored Coins-enabled wallet, and they’ve made their wallet similar to blockchain.info in that they don’t handle any private keys.
OpenBazaar is a decentralized, censorship-resistant marketplace for direct trading between any two parties around the world. This is basically decentralized eBay or Amazon. This could be a catalyst for the next wave of growth in the Bitcoin space due to the elimination of fees in online trade.
Not only are there no fees from a payment processor, but there isn’t a centralized owner of the marketplace who wants to take their own cut as well. This platform could be especially important for selling low-value goods that are basically impossible to sell at a fair price on traditional online marketplaces. OpenBazaar can do for online marketplaces what Bitcoin has done for online payments.
Bitcloud is a project for decentralizing storage and hosting on the Internet. One way to think about it is Bittorrent for websites and web applications. A key difference between Bitcloud and Bittorrent is that nodes are paid for hosting data. This brings Bitcoin’s main value proposition, censorship-resistance, to the entire list of web applications currently available to the general public.
Bitcloud is more of a platform for developers to build their own decentralized applications that need to have a back-end that is probably resistant to censorship from a corporation or government. The original idea for Bitcloud came out of a desire to create a decentralized YouTube, WeTube, but it could also be used to create distributed versions of Gmail, Facebook, Reddit, Evernote, Twitter, and other popular web applications.
Last on our list is BitHalo. This is a platform for smart contracts, and the main feature of the application right now is its system for two-party escrow. This eliminates the need for a third party to act as an arbitrator during business disputes. The basic premise is that the buyer and seller in a transaction would both make a deposit into a smart contract before the trade takes place.
There is also a time limit set on the deposited funds that will make them unusable for both parties if the transaction is not completed in a certain period of time. This means that, as an example, someone saying that they will sell bitcoins for cash in the mail cannot simply keep the bitcoins after receiving payment. They have an incentive to be honest because they’ll lose their initial deposit of bitcoins from the smart contract if they try to cheat.
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