A Talk with Adam Krellenstein of Counterparty

Five years into its development, despite the huge strides Bitcoin has made, it is in many ways still more promise than reality. Barely realized are the promises of mass micro-transactions, cheap and easily convertible remittances, self-executing contracts, and decentralized systems of all sorts. From a historical perspective, things are progressing as breakneck speed; yet still, for those of us on the ground, it can feel like it’s taking an eternity as we wait for the promises of projects like Mastercoin, Colored Coins, Etherium, and Counterparty to reach fruition.

Of all these projects, Counterparty seems like it has the most to show for its efforts. With Counterparty, it is already possible to create tokens representing real property or contracts, to run a decentralized exchanged with automatic order matching, to create shares of a company that will pay dividends, to run p2p better, and more. The platform has been chosen to launch Swarm, a decentralized crowdfunding platform, and LTB coin, a content rewards coin for the popular Let’s Talk Bitcoin network.

The big news announced last week is that Counterparty founders, Robby Dermody and Evan Wager, have been selected by Overstock.com’s Patrick Byrne to develop Medici, a new decentralized stock exchange which will allow for the issuing and trading of ‘cryptostocks’ over the Bitcoin network. This is, of course, a huge coup for Countercoin and for the Bitcoin community in general. With the technical capabilities of Dermody and Wager and the backing of Byrne, Medici has the potential to challenge the power of Wall Street and, perhaps, help correct some of the ills of the last forty years.

We were lucky enough to be in touch with Adam Krellenstein about Counterparty.

One of the things you have written on your site is that Counterparty is a grassroots movement to free up the markets from centralized control. How is this grassroots and how will it free up the markets?

Counterparty is a pure open-source project, run by volunteers and paid for entirely by donations. It will free up markets by providing all Internet users with a low-cost, robust, and crowd-sourced financial platform that anyone at all can participate in, and in which anyone can trade with anyone else without the involvement of middlemen.

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I am really interested in the idea of a decentralized exchange. After Mt. Gox, of course, the need for at least a *better* option became painfully obvious. I’m not at all clear about how this would work, though. I understand how buy and sell orders might be embedded in the blockchain and then filled, but how do buyer send payment or that the seller sends the goods?

Counterparty implements a decentralized exchange for *digital* assets, so the exchange of value can always be atomic and trustless. With physical goods or reversible payments, you need a third-party escrow service to ensure fairness.

I’ve never really understood the concept of trustless escrow. If everyone is happy with the transaction, all is well, but if there is a dispute, how does it get resolved? Is there any legal recourse if all of this is happening digitally?

As above, the funds in open orders are unavailable for use until the orders are matched. Once they are, the funds are released for both parties simultaneously.

When people begin to research Bitcoin, they soon begin to learn about all the altcoins. Along with learning about altcoins comes the claims of copycat coins created merely to be a pump-and-dump get-rich-quick scheme for the developers. Counterparty has its own coin, XCP. How is that different and what does it do for Counterparty?

First of all, it’s impossible for XCP to be a get-rich-quick scheme because no one had early, preferential access to its creation. Secondly, XCP plays a crucial role in the functioning of the Counterparty protocol. Without XCP, Counterparty would not be able to have the feature set that it does. Lastly, XCP represents stake in the Counterparty protocol itself, so holding XCP means having a proportional say in future changes to the protocol.

If no more of them will be issued, how do people get them?

People can purchase XCP either on a centralized exchange (such as Cryptsy or Vircurex), or on the Counterparty distributed exchange, with Bitcoin. (Most people don’t get Bitcoin by mining.)

I understand that when someone issues and asset, 5 XCP are destroyed. Why is that and what happens when all the XCP run out?

It’s 0.5 XCP, and that fee is entirely temporary—it’s there just to discourage frivolous squatting on asset identifiers.

Can you elaborate on how Counterparty can be used to pay dividends on assets?

It’s a point-and-click procedure: You choose the asset you’d like to distribute, the token to which the dividends should be paid, and the total amount to be paid out. The protocol does the rest.

Have there ever been any hacks or other security concerns with Counterparty? How should a user protect themselves?

There was one successful attack on the protocol in its first month of operation due to a bug in the codebase. The actual theft was immediately reversed, but poor security practices on the part of a digital currency exchange trading in XCP made the issue worse. (The attacker returned all of the funds a few days later.)

Since then, two independent expert security audits of the entire code-base have been completed, in which no vulnerabilities were discovered. Whenever possible, users should avoid storing large amounts of digital currencies on websites with hosted wallets, and use cold storage whenever possible.

What’s next for Counterparty?

Become the first ever widely-used open, global financial platform!

Visit Counterparty.io to learn more.

By Editor @ BitcoinWarrior.net 10/15/2014