For now, it’s strictly a concept, a mechanism known as “coloring coins” to enable the transfer of ownership represented by bitcoins or other cryptocurrencies from one person to another.
Theoretically, you could transfer ownership of anything in the real world of any size or value, from a piece of jewelry to a house. And it would be represented by any denomination of a single bitcoin or alternative “virtual currency.”
This week, that concept riveted the attention of an inquisitive Benjamin Lawsky, New York’s Superintendent of Financial Services, the regulator who will likely implement the nation’s first rules specifically governing the movement of bitcoins and other cryptocurrencies.
Charles Lee, a principal with Coinbase, the Silicon Valley wallet services startup for bitcoiners and merchants, is also the creator behind the top altcoin, litecoin, the second most valuable cryptocurrency behind bitcoin.
Lee held the close attention of Lawsky in the first day of hearings Tuesday as the litecoin creater explained the concept of coloring coins. He first compared the notion to stock ownership. “You can have .001 btc (bitcoin) represent one Google stock for example,” Lee explained, going on to say that when that quantity of bitcoin is transferred to another person, the rightful claim to the stock moves with the .001 btc.
The explanation grew a bit more complex when the “colored coins” process delved into deeds, a concept heard for the first time by Lawsky.
Here is the exchange:
Lee: “This is something called colored coins. You can have bitcoin represent anything. It’s the fact that you can color a coin to represent something else. So you can color a set of coins to represent deeds, for example, deeds of houses or cars or anything that you can think of.
Lawsky: “But you’re actually sending the deed; you’re not just coloring…”
Lee” “No, you’re representing that deed with that one coin. So if you send that coin to someone else, you’re basically transferring that deed to that person. So if that person comes to the government and says I actually own this piece of land because this coin belongs to me…they can prove that the coin belongs to them and they own that piece of land.”
Lawsky regulates all of New York State’s mortgage brokers, mortgage bankers, check cashers, money transmitters, budget planners, and similar providers of financial services.
To view the full exchange go here, click on the image, then click on “Panel 2 Day 1- Virtual Currencies and Regulation in an Evolving Landscape” and fast forward to about 62 minutes into the webcast.
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