Through a message on its website wallet provider Coinprism has announced it would be shutting down shop. The provider is scheduled to close all operations on the March 31, 2018, and users were advised to “to “withdraw [their] funds and export [their] private keys before that date.”
Reasons for Closure
Arguably ahead of its time, the wallet provider made use of Bitcoin’s blockchain to create asset-represented tokens. This technology, now made famous by the likes of Ethereum and other network coins, was first introduced by Coinprism in May 2014. Colu introduced a new, open-source implementation in 2015, which is used for local digital currencies.
However, things haven’t gone as planned, as Coinprism C.E.O Flavien Charlon spoke of the stagnating regulatory and technological ecosystem related to the industry at large.
Bitcoin’s blockchain, in particular, is a challenging platform to work upon due to significant transaction fees, and rising confirmation times.
Charlon told CoinDesk that, “While [they] have been one of the first in the area of blockchain tokens, long before ethereum was even released, the ecosystem has since shifted towards ERC-20, which is more flexible and more powerful than bitcoin-based systems.”
Coinprism Was the First Of Many
The focus and development of colored coins began back in 2014 by Coinprism and used a unique scripting language. The coins were designed as a digital representation for an actual, real-world asset. In other cases, the coins could be used instead of loyalty points.
The introduction of Ethereum changed it all and colored coins become increasingly unpopular with time. Of all the tokens present in the market, a vast majority use Buterin’s platform, and a total of 20,000 ERC20 tokens contracts are running on Ethereum’s blockchain.
Charlon acknowledged Coinprism’s business model had fundamental problems, partly due to regulatory pressures in the blockchain ecosystem. He focused on the increased regulatory attention on cryptocurrencies, especially after several fraud cases against Initial Coin Offerings (ICOs), which regularly raised hundreds of millions from investors.
“Some of these services will have to shut down or restrict their activities, some might go to prison, and only a small number of well-capitalized companies will successfully adapt to the regulator’s demands,” says Charlton.
Blockchain’s Issues Becoming Apparent
Speaking against blockchains, Charlon spoke about its disadvantages regarding speed, scalability, and costs. These limitations formed another reason that Coinprism had to be shut down:
“In 99 [percent] of use cases we’re seeing, blockchain is unfortunately a sub-optimal choice as a technology. Unless censorship resistance is a critical requirement (which it rarely is, especially in the enterprise blockchain space where participants all know each other), blockchain is rarely the right technological choice.”
The blockchain’s vaunted transparency, privacy, and cryptographic security can all be achieved “quite easily” with a traditional system, Charlon argued.
Colored Coins 101
Applications using colored coins were endless, as they allow the user to store assets on the Bitcoin blockchain.
A compelling use case meant that a company could introduce an IPO on the blockchain by issuing shares as colored coins, and send them to your shareholders.
The shares could then be traded almost instantaneously and for free through the blockchain. Other smart applications include storing a property, automobile, or service which are tokenized in the form of colored coins, making ownership transfer possible with a single bitcoin transaction.