Adventure Corporation Counterparty (XCP) Position Paper

Adventure Corporation Counterparty (XCP) Position Paper
Topic: Blockchain protocols and applications

Research by: Jeremy Toscher [2018-01-27]

Contact:
Michael Hoydich: [email protected]
Daniel Fitzhugh: [email protected]

Purpose: The purpose of this document is to communicate an informed, perhaps actionable, point of view on a particular subject of the Blockchain. This will explore:

Subject: Counterparty (XCP) https://counterparty.io
Platform - Smart Contracts and Tokens - Voting - Decentralized Asset Exchange
Co-Founders: Evan Wagner, Robby Dermody, Adam Krellenstein
Location: New York City
Founding Year: 2013
Size: 10-20 Employees [1/27/2018]
Current Valuation: XCP - $56,25 | Market Cap - $134,000,000 | Circulating Coins - 2,617,347 [1/27/2018]
https://www.livecoinwatch.com/
https://counterparty.io/roadmap
Used as the platform for PepeCash, Spells of Genesis

Objective:
Counterparty is an open source protocol that increases the functionality of Bitcoin by “writing in the margins” of regular transactions. Counterparty runs on the Bitcoin blockchain. Utilizing its own scripting language, and riding atop the Bitcoin blockchain, users can write and deploy smart contracts, create and trade tokens via its decentralized exchange (DEx), and participate in governance voting. Counterparty is community funded, and relies on donations to fund operations.

Terms:
Proof of Burn - Burning a token in order create a new one
Prunable - Data that can be selectively siphoned off by a node

Goal:
To create a platform for making financial tools aka smart contracts and tokens that uses an already secure and established blockchain - Bitcoin. This would extend the functionality of the Bitcoin blockchain. They also created their own Decentralized Exchange (DEx)
Use Cases: ICOs, Anything Smart Contract related. Launching Token based assets.
Specialty: Counterparty’s main base uses it for collectible tokens (PepeCash, BitCrystals, Spells of Genesis, Age of Chains)
Disruption: Helps people launch their own tokens and sell them on its own DEx. Making the process of creating and trading tokens fairly simple.

Strategy:
Counterparty is a community funded and open source, using the Bitcoin blockchain as its backbone and relying on donations to further development. It prides itself on being open source. Besides the initial set of XCP, Counterparty does not issue any assets itself, leaving their revenue stream empty.

Measures:
The value of XCP has gone up substantially since the November 2017 boom. When XCP was first released in February, 2014 the price was around $7 each, now they sell for 10 times that, around $50 per XCP. Successful application of the Proof of Burn system stands out the most. The amount of circulating coins is 2,617,347 as of 1/27/2018 but this number is going down due to its deflationary nature.

Technology position:
Counterparty is an open source protocol which writes metadata into regular Bitcoin transactions. To a Bitcoin node, they look like regular transactions, but a node running Counterparty software can detect and decode the data with its own set of rules. Counterparty nodes then add these transactions to its own distinct ledger. This is known as Embedded Consensus. Counterparty embeds the data using a method OP_RETURN which is “Prunable” meaning Bitcoin nodes can discard the data if they choose to do so. Each Counterparty transaction requires fees (in BTC), no different than Bitcoin.
XCP is the native token of Counterparty. It is used internally to generate assets, place bets, and perform callbacks on eligible assets. It is deflationary and unmineable. Running smart contracts requires XCP as fuel. XCP was initially generated by using a “proof of burn”, sending BTC to an unusable address would return of number of XCP to the sender. They did so to prevent legal issues and keep the funding as decentralized as possible, making sure everyone got an equal share of XCP (relative to the amount of BTC spent) The limit was set to 1 BTC worth of XCP per person. A total of 2,130 BTC were burned creating 2.65 million XCP tokens.

Its biggest successes are the collectible tokens and economies that have come up around the Counterparty protocol. Spells of Genesis, PepeCash, BitCrystals etc. Since Counterparty has a built in exchange on its wallet, it makes it very easy for users to trade these digital assets. There are also a few other Counterparty compatible wallets (Book of Orbs, IndieSquare Wallet)
Other notable tokens built using Counterparty are:
Storj - Cloud Storage
GetGems - Messaging (Similar to Telegram)
Swarm - Decentralized crowdfunding
LTBCoin - Lets Talk Bitcoins reward system
Tatiana Coin - Singer Tatiana Moroz artist token
RealEst. Coin - Deposit bitcoin into real estate

The biggest weaknesses are its funding model and the current issues that arise with the Bitcoin blockchain.

Adventure Corporation POV:
Counterparty is one of the top players when it comes to collectible tokens. Having its own exchange built in makes creating and trading a token very simple. Unfortunately running on the Bitcoin blockchain does not make it the most viable option when issuing a new token. Other platforms are much more suited for such a task. The Counterparty Foundation recently voted to dissolve itself due to disagreements in the community and to settle outstanding debts. There is currently a grassroots movement called Counterfork to have a Counterparty type protocol on every major blockchain. The community is still semi-active, but the future does not look too bright for Counterparty. It was a fantastic idea, and we will probably see other types of data embedding into blockchain transactions emerge in the future. Making XCP unmineable, and essentially running as a non-profit doomed Counterparty to fail if major adoption didn’t take place.

Counterparty General Information:
https://counterparty.io/docs/protocol_specification/

Research:
https://counterpartytalk.org/t/the-state-of-the-counterparty-project/4332
https://www.crunchbase.com/organization/counterparty
https://en.bitcoin.it/wiki/Proof_of_burn
https://en.wikipedia.org/wiki/Counterparty_(technology)
https://coinsutra.com/counterparty-xcp-cryptocurrency-everything-need-know/

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