The three words “colored coins” have been a long-standing wish in the currency circle for more than a decade.Originally proposed around 2012, initially, people just wanted to try to attach some information to Bitcoin only, so that it could be used to represent some virtual or real assets outside of BTC. At that time, the era of Altcoins began to emerge. We saw a large number of new coins, and in the end, most of these coins disappeared from history, which can be described as going to zero.
Coloring is a way to mark Bitcoin, to provide a value carrier for more different assets, without issuing any additional tokens, and to revolve around Bitcoin, without issuing any additional tokens. In a sense, colored coins are actually a manifestation of the “Crypto Fate Community”, where Bitcoin thrives, so do colored coins.
But for more than a decade, colored coins have not really come into existence. The biggest reason is the limitation of the Bitcoin mainnet. When people saw that Ethereum could quickly build an ecosystem and realize a closed-loop business model, colored coins were ignored after repeated setbacks. The attempt to “mark” Bitcoin for the first time made people gradually realize the huge potential of issuing assets on the blockchain. The shadow of colored coins is also present in the concept of NFTs in the future.
The construction of an ecosystem on Bitcoin is not feasible, and Ethereum itself has a way to issue tokens. Therefore, colored coins faded out of history, and more attempts to bring assets onto the chain began to sprout. It seems that everything is developing well, so do people no longer need an ecosystem on Bitcoin?
For more than a decade, the extreme conservatism of purists and core OGs has prevented Bitcoin from undergoing a transformation. Until today, many people still believe that the so-called “Bitcoin ecosystem” is just hype that makes the Bitcoin network more congested. However, the environment has been quietly changing. The concentrated outbreak of the Bitcoin ecosystem is still a thing of recent years. Bitcoin is updated every once in a while (network soft fork), and through the improvement proposals of collective will (BIPs), new functions and extensions are introduced to Bitcoin. In recent years, the collective will of Bitcoin is slowly letting go of conservative views. More and more proposals are moving towards openness, flexibility, and freedom. The Taproot upgrade at the end of 2021 made innovation possible within a certain range, so we witnessed a surge in layer 1 protocols in 2022-2023. Are these protocols really coming to congest Bitcoin? I think so. If Bitcoin has the soil to give birth to them, then their appearance is only natural.
People’s attention has once again focused on Bitcoin. Can Bitcoin have an ecosystem? Should Bitcoin have an ecosystem? What kind of ecosystem should Bitcoin have? Amidst the doubts, the top protocol Ordinals has already created a market value of tens of billions of dollars.
Now, Bitcoin is starting to have an ecosystem. With the trend and the soil, the timing is right. In the second half of 2023, an anonymous developer (referred to as: Arthur) created the open-source Atomicals protocol. The protocol defines the ARC-20 colored coin standard as follows:
“Bitcoin’s smallest currency unit, ‘Satoshi,’ as the value anchor, has given rise to a standard of homogeneous colored coins, where each token is equivalent to 1 Satoshi (i.e. one hundred millionth of a bitcoin, or 0.00000001 BTC). The Atomicals protocol provides an effective method for representing homogeneous token assets on the Bitcoin blockchain. By leveraging the ARC-20 homogeneous token standard, colored coin technology is applied to the Bitcoin ecosystem, where each token unit is represented by one Satoshi, thus establishing a unit of measure for token ownership. Therefore, the value of each token unit is at least equivalent to 1 Satoshi, providing a ‘digital gold content’ for the token value. This ensures that, by definition, the value of each token will not be less than 1 Satoshi. ARC-20 uses Bitcoin’s native Satoshi unit to represent each token, allowing these tokens to be split and combined like ordinary bitcoins. Anyone can mint ARC-20 tokens and transfer them to any Bitcoin address, applicable to wallets that support UTXO selection, such as Sparrow Wallet. Token issuance methods include direct issuance and decentralized issuance.”
The focus is back on colored coins. Can the long-standing wish of more than a decade ago be reignited? Some people ask: Since other chains don’t need colored coins, why does Bitcoin need colored coins? Bitcoin does not have any native way of issuing coins. Unlike Ethereum and Solana, where you can create token contracts with a single click, we have no contracts or tokens. The entire Bitcoin ecosystem is still a vast expanse of untapped land. And for an ecosystem to eventually become an ecosystem, it needs a large number of targets capable of carrying funds. It is clear that various “*RC-20” have sprung up in the past two years, and inscriptions and runes have also emerged. What kind of issuing method is best suited for the Bitcoin ecosystem? People are exploring. Little did they know that the OGs from over a decade ago had already given an answer. The starting point of Bitcoin has always been value storage, and the “token fate community” represented by colored coins is in full compliance with the original intention of value storage. We are not creating garbage on Bitcoin, but making every bitcoin and every Satoshi uniquely valuable. The colored coin model ultimately empowers Bitcoin. Which Satoshi is only worth 1 Satoshi (itself)? Which Satoshi can be worth 100 Satoshis? Which Satoshi can be worth 10,000 Satoshis? This is how the coin circle within Bitcoin is established. In this ecosystem of asset issuance, Bitcoin needs colored coins. But instead of calling it an issuance method, it is better to refer to “colored coins” as a marking method. The method of “coloring” provided by the Atomicals protocol has given birth to the ARC-20 standard. The bigger vision is behind, and “coloring + decoloring” is the 0 and 1 of the future development of Bitcoin layer 1 applications. Bitcoin not only needs colored coins, but also needs the “coloring” method itself.
This time, the concept of colored coins has been lucky enough to be truly realized. In addition to ARC-20, no other protocol standard currently defines the concept of colored coins in its entirety; and ARC-20 itself has been integrated by leading basic service providers such as OKX, Binance, Unisat, and has been widely adopted. Essentially, “colored coins” does not refer to a specific protocol, but today, the Atomicals protocol is the only one that fully realizes the colored coin vision and has gained a certain scale of use and recognition. Therefore, I believe that for a long time to come, ARC-20 will monopolize the concept of “colored coins”. In the past few months, I have also heard of several protocols involving the concept of “coloring”, but they are not doing “colored coins”. The Atomicals protocol is still the only one that has completely landed this concept. Atomicals has brought us colored coins, colored coins have brought the most native token play to Bitcoin, and the method of coloring has opened the door to the application layer of Bitcoin. This is the first time we can step into a flexible and practical Bitcoin era, where all possibilities are at hand. Many Bitcoin OGs have not yet paid attention to this already landed colored coin play, and idealists around the world are still looking for Atomicals. I hope we can end up with a collision.
