IOTA Wants To Score With “Colored Coins” In The Future

As part of the in-depth technological updates at IOTA, a feature called “colored coins” will also be introduced. Leading representatives of IOTA have now explained what they imagine these “colored tokens” to be and where their benefits could lie.

At IOTA the focus is on the launch of phase 2 of Chrysalis for the end of October. This should make IOTA 1.5 a reality and possibly already implement so-called “colored coins”. Recently, two important members of the IOTA Foundation promoted these “colored coins”, translated “colored”. Dan Simerman, responsible for financial relations at IOTA, expects companies to be creative in showing how to use colored coins. He cites examples such as the real estate market, where these colored IOTA could highlight a particular asset class as well as specific buildings. In combination with smart contracts, colored coins would create new applications for IOTA, Simerman says.

Background on “colored coins” at IOTA

In a testnet for IOTA 2.0 aka Coordicide “colored tokens” can already be tried out. Hans Moog, developer at IOTA, calls this feature on Twitter one of the “most misunderstood features for the upcoming IOTA protocol”. One should not confuse “colored coins” with ERC-20 tokens at Ethereum. A decisive advantage of “colored coins” is that the issuer has control over them, but the final validation and documentation of transactions of these tokens takes place in the actual network of IOTA.

In this respect, “colored coins” at IOTA are to be understood as a kind of sidechain in the network. They could be used in a closed private network to access the capacities of IOTA Mainnet from there. Simerman sees them as an argument for companies and projects to use IOTA technology, but to set up their own coin (also as an internal means of payment). This way IOTA avoids falling behind in competition with other block chain solutions. Moog also cites the efficiency of IOTA’s network and free transactions as a major advantage over competing offerings such as Neblio.

Conclusion: Will “colored coins” influence the price of IOTA?

Investors are puzzling whether colored coins will have a direct impact on IOTA’s price. But expert Simerman does not believe so. This is because “colored coins” initially only have the value defined by their issuer, which does not have to correspond to that of MIOTA. There will be compatibility, for example for “colored coins”, which are used as currency in video games. But if it is a freely tradable crypto currency, he sees “colored coins” more as an incentive to also rely on MIOTA in the ecosystem of IOTA. So “colored coins” will probably remain an instrument for new applications of IOTA for the time being. The future will show what resourceful developers will do with them in practice.

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