Colu Leverages Lightning Labs Technology to Offer Solution for Off-Chain Colored Coins Transactions

Background

Colored Coins was one of the first technologies that provided developers with tools to create blockchain based digital assets for their applications. By being simple to use and by capturing the attention of developers at an early stage, Colored Coins gathered a large community over the years who have built digital assets for a broad range of use-cases including, cryptoshares, real estate, digital cash, healthcare, copyrights, government ledgers, and many more.

Over the course of the past 2 years, since Colu introduced its latest Colored Coins protocol, we have seen an amazing group of companies build applications that use our protocol at their base level. Our platform has evolved into one of the biggest blockchain sandboxes in the world with our API being used by developers from over 100 countries. With more than 200K transactions over the last year, these projects have been responsible for significant part of the total OP_RETURN transactions volume on the Bitcoin blockchain.

The major benefit of choosing the Colored Coins protocol is it’s simplicity. By using the Bitcoin blockchain in the most basic way possible (“coloring” satoshis) developers don’t need to handle different currencies to fund transactions or deal with experimental blockchains. Developers can also benefit from the hashing power of the largest and most secure blockchain in the world while also leveraging interoperability with Bitcoin’s ecosystem. This allows the use of Bitcoin standards and tools like hardware wallets, payment API’s, security best practices, exchanges, etc.

The Problem:

While the benefits were clear from the beginning, the drawbacks started to become more apparent as the ecosystem matured. By “renting” security services from the Bitcoin blockchain to secure assets and provide immutability, those assets also inherited Bitcoin’s limitations — Colored Coins assets have the same TPS, Transaction fees, and verification times as Bitcoin.

Some of the drawbacks associated with Bitcoin have little effect on the use-cases built on top of Colored Coins. But other for specific use cases, paying miners a transaction fee to verify each transaction, result in high fees, slow verification times, and considerable blockchain bloat.

The Solution:

We recognized that this problem existed from an early stage and have been committed to providing a roadmap for reaching sustainable scale. We also realized that the key to provide a real solution for the problem, is to find consensus among the Bitcoin ecosystem and push a solution that will be widely adopted . This is why we are announcing our cooperation with Lightning Labs and leveraging Lightning as a solution for off-chain Colored coins transactions.

Colu has built a version of Lightning Labs’s code that is Colored Coins compatible. It uses Lightning technology transfer digital assets in payment channels and using the bitcoin blockchain as a settlement layer and a dispute resolution mechanism that secures the assets. This allows the P2P transfer of digital assets with effectively no verification time, high TPS, and most importantly with almost no fees (mostly for opening and closing payment channels)

We are also looking to take this technology a step forward and show the community how it will really work. To accomplish this, we will be releasing a demo for asset issuance and transfer using Colored coins + Lightning:

Click here for a demo.

What it Means for the Future of Blockchain:

The decentralized nature of the Lightning protocol is an excellent choice for scaling Colored Coins because it provides the functionality of a true P2P transaction layer that doesn’t compromise security, and gives users control of their funds. Looking forward, we are excited about the possibility of being interoperable with all of the tools and services that adopt Lightning technology, as well as compatibility with other blockchains than Bitcoin as lightning technology matures.

We greatly appreciate all of the work from the team at Lighting Labs and plan to work together closely to use our experience in building overlaying protocols to create native compatibility with the Lightning code.

Lighting Labs’ Joseph Poon commented:

“ Over the coming months, one of the greatest opportunities enabled by

Lightning is the ability to exchange assets secured on blockchains

instantly. By using cross-chain atomic swap functionality enabled by

Lightning, one can instantly trade assets in high frequency and high

volume without third party clearing custodians. This means that users

can trade without broker-dealers (e.g. one’s stock brokerage service),

bringing greater access, inclusion, and lower transaction costs to

everyone. We are looking forward to developing this core technology with

Colu (and all other stakeholders in the blockchain/colored-coins

ecosystem) in the coming months and will be putting efforts to

formalizing code/specs around this later this year, and Colu’s demo

expresses the promise of this technology and look forward to future

collaboration. The goal is to bring about a future where one does not

rely upon trusted third-party custodians for trade settlement — this

technology demonstrates that bitcoin/blockchain is not an incremental

backoffice gain, but rather is a fundamental shift in financial

infrastructure.”

In the next few months, we will be working with a group of issuers to help them test this technology and integrate it as a part of their stack. We will keep you posted!