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 agrassroots movement to free up the markets from centralized control. How isthis grassroots and how will it free up the markets?

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

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 painfullyobvious. I’m not at all clear about how this would work, though. Iunderstand how buy and sell orders might be embedded in the blockchain andthen filled, but how do buyer send payment or that the seller sends thegoods?

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

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

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

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

First of all, it’s impossible for XCP to be a get-rich-quick schemebecause no one had early, preferential access to its creation. Secondly,XCP plays a crucial role in the functioning of the Counterpartyprotocol. Without XCP, Counterparty would not be able to have thefeature set that it does. Lastly, XCP represents stake in the Counterpartyprotocol itself, so holding XCP means having a proportional say infuture 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. Whyis 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 todiscourage frivolous squatting on asset identifiers.

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

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

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

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

Since then, two independent expert security audits of the entirecode-base have been completed, in which no vulnerabilities werediscovered. Whenever possible, users should avoid storing large amountsof digital currencies on websites with hosted wallets, and use coldstorage 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