Here are eighteen myths about CounterpartyXCP that we’ve encountered, and our responses to them. We hope this will clear up any confusion in the community.
Myth 1: Counterparty is just Bitcoin 2.0 marketing hype
Actually, the exact opposite is true. Counterparty started with a fully working reference client (counterpartyd) on Github before any marketing efforts were made whatsoever. The Counterparty team has many years of combined experience, and firmly believes in demonstrating functionality first.
Myth 2: Counterparty’s internal currency, XCP, is just another alt-coin
XCP is not an “alternative” to Bitcoin. It is intended to enhance the feature-set of Bitcoin, not replace it. In fact, all Bitcoin addresses are XCP addresses and vice-versa. Another mutual benefit is that many features of Counterparty can be used with Bitcoin directly. The reason for creating XCP is simple, some additional functionality is not possible without the use of an escrow-enabled currency such as XCP.
Myth 3: Counterparty is just another project where the developers want to get rich quick. They will just run away with the money
The Counterparty developers never had a fundraiser, and did not sell XCP directly. Counterparty has relied on its community from the beginning. Even the launch of XCP reflects this. Everyone had an equal opportunity to invest their Bitcoins into the protocol during the proof-of-burn process. During the launch, users were able to send BTC to a provably unspendable address in exchange for XCP. These BTC are not owned by anyone and can never be spent.
Myth 4: Counterparty development is dead and nothing works yet
Counterparty has a fully developed decentralized asset and exchange system, with feed-based betting and fully trustless betting functionality. All of this works today. There are several other features, so we suggest you take a look yourself: http://counterwallet.co.
Also, development is very much alive and progressing steadily: https://github.com/CounterpartyXCP
To ensure the safety and integrity of our platform, Counterparty has already had two comprehensive formal audits by security researchers Sergio Lerner and Peter Todd.
Myth 5: Counterwallet stores your passphrase and private keys on their servers!
Having to trust a centralized website with your login information is strictly against the Counterparty philosophy. This is why Counterwallet is designed to use client-side encryption in your browser. This means that your passphrase is never sent to any external servers. All addresses are generated directly from the passphrases themselves, without the need for any centralized entity.
Myth 6: A Counterparty developer, or a hacker could delete my asset from the Counterparty exchange
Assets and addresses are eternalized in the Bitcoin Blockchain, and cannot be frozen or otherwise changed by anyone except their owner. Due to the decentralized nature of the protocol, they cannot be deleted.
It is impossible to retrieve lost assets, so please keep your Counterwallet passphrase and address private keys safe.
Myth 7: If Bitcoin can be used in Counterparty, then XCP doesn’t have value
There are significant reasons why XCP has value aside from speculative investment:
- Trading with XCP on the distributed exchange is (and always will be) cheaper and faster than with BTC.
- XCP is the native (fixed-supply and slightly deflationary) currency of Counterparty and its sole first-class citizen. If the Counterparty protocol has great value, then so does XCP.
- You can only use XCP for making bets, CFDs and asset callbacks. Upcoming complex features and other financial instruments will also likely only be possible with XCP.
- All future proof-of-stake voting, e.g. for protocol changes, voting functionality, DACs, etc. will be determined by XCP holdings.
Myth 8: I want to create a poll on the Blockchain, but Counterparty doesn’t have a voting feature.
Counterparty supports voting through user-created assets. If you create an asset (‘EXAMPLE’), you can create any other asset (such as EXAMPLEVOTE) and pay distributions of EXAMPLEVOTE to all holders of EXAMPLE automatically.
To send available votes to the holders of your asset, go to Counterwallet and click on your asset EXAMPLE, and then click pay distribution. Choose EXAMPLEVOTE as the currency to distribute. This way, all holders of EXAMPLE will receive EXAMPLEVOTE in the amount you specify.
Now all you need are as many different XCP addresses as there are choices in your poll. To cast their votes, holders of EXAMPLE can then send the EXAMPLEVOTE they have received to whichever choice(s) they agree with. The results of the poll will be public and verifiable thanks to the Bitcoin blockchain.
Myth 9: You can’t store XCP or assets in cold storage. There is no 2FA!
You can create any cold storage BTC address and send XCP and user-created assets to it. Then you can redeem them by using the sweep address feature in Counterwallet. Your XCP will be secure as long your BTC private key is safe. Multi-sig has been implemented on test-net, and will soon reach the mainnet. Please see Myth #11.
Myth 10: Counterparty is polluting the Bitcoin blockchain with useless data and weighing down the network. This is a “free ride” on top of Satoshis hard work!
This seems to be a very persistent myth. However there is a rather simple explanation for why it is a non-issue:
- Counterparty uses Bitcoin transactions to create its features. These transactions pay miners fees like everyone else.
- The value of the added features (such as decentralized trading and betting) far exceeds the ever so negligible cost of data storage in the Blockchain. Betting and trading without a middle-man or trusting the other party is not possible with fiat currency, and we believe this provides Bitcoin with another competitive advantage.
- When XCP was launched, users made 2100 of their BTCs unspendable to establish its backing. This increased the scarcity of Bitcoin, thereby contributing to its value.
- Counterparty is as decentralized as Bitcoin, and aims to provide as many BTC-enabled features as possible.
- Counterparty has many different methods of encoding data into the blockchain, and preventing this data from being stored is close to impossible. Saying that Bitcoin developers can ‘kill’ Counterparty in this manner, is quite frankly, FUD.
- There is another reason why this issue cannot reach a critical stage. This process of ‘bloat’ is self-regulating. If everyone uses Counterparty, then it embodies the value of its features. If nobody uses it, the data storage requirement will be non-existent.
Myth 11: Counterparty is missing multi-sig support
Multi-sig has been implemented on test-net, and will soon be added to the main net. This will allow people to split up access to an address through several private keys. This means that 2-of-3, or 3-of-3 keys will have to be used in order to process an action on that address. This way, several users will have to agree on any actions to be taken.
Myth 12: Broadcast feed betting is centralized
Although it is true that broadcast betting relies on the feed operator to resolve the bet, your XCP funds are escrowed on the Blockchain and never directly in the control of the feed operator. This already provides a great advantage over existing systems, which cannot provide verifiable transparency or built-in automatic escrow. Additionally, it will soon be possible to create broadcast addresses which will require the agreement of several users to be published (multi-sig).
Proof-of-stake voting and other solutions are being considered for future development.
Thanks for reading! If you found this article helpful, you can contribute by registering on the forums: http://forums.counterparty.co or creating your own project on top of the XCP protocol.
Myth 13: We need a review process for assets!
On the protocol itself, this is impossible. Anyone has free and open access to the Counterparty financial toolkit, and its features cannot be restricted whatsoever.
(On a higher level, you can look at SWARM, Koinify, and Overstock’s upcoming “Medici” project, which aims to provide Counterparty asset due-diligence services. But keep in mind they are not physically changing anything on the Blockchain or Counterparty network, and are simply offering front-end functionality.)
The purpose of Counterparty is that access cannot be restricted for anyone. In such a free market, there is no governing body and it would be quite futile to try to become one. Just as Bitcoin addresses cannot be frozen, neither can Counterparty assets. Assets cannot be deleted, and cannot be manipulated by anyone except their owner.
Trying to enforce something like this on a peer-to-peer network would have several severe disadvantages and little to offer:
- It could be perceived as censorship and centralization.
- Each asset would require hours and hours of research.
- As an open-source project, such resources expenses are literally unmanagable. And even as a company, which XCP is definitely not, it still would generate zero benefit.
- It would scale out of control in case of mass adoption. Can you imagine manually vetting every single Bitcoin address ever created to ensure whether its legitimate?
- Once other Counterparty wallets are developed, all the work will have been for nothing.
- Counterpartyd users would not be affected.
Myth 14: If you pay dividends to 10,000 users, you will bankrupt yourself on BTC fees
Dividends are handled in a single send operation, and therefore only require one transaction fee for Bitcoin miners. This remains the same regardless of how many people are holders of an asset.
Myth 15: Bitcoin and Counterparty confirmation speeds are too slow
To begin: The faster the confirmation speed, the more confirmations will be required to approach the same level of security. This actually results in a loss of security with little if any benefit in return.
Saying that BTC is too slow completely and entirely misses the point and magnitude of its innovative properties. It’s like being suddenly confronted with a flat screen HD TV when the pinnacle of technology you’ve encountered was a radio, and the only thing you have to say is “ah but you can’t smell the contents”.
This is a matter of perspective, and really not one or practicality of realism. Consider the alternatives:
- Bank to bank transfers across countries take days if not weeks.
- Bank to bank transfers in the same bank take like 10 minutes.
- Credit card transactions take months to confirm.
- Funds on centralized web services are never really ‘confirmed’, and can be reversed on a whim of the server operators.
If you feel like you require HFT functionality, entrepreneurs are free to create a very low latency Counterparty asset exchange(s) (off-chain). And in such an innovative market, this seems like an inevitability.
Myth 16: The Overstock Project Medici, does not use XCP and is a fork of Counterparty
It has been confirmed by the devs and many independent sources, that codename Medici will indeed use the existing Counterparty network and XCP as its main currency. It will serve as a front-end and due-diligence service for the purpose of decentralized stock exchange.
Myth 17: The founding developers left Counterparty to work for Overstock
They are only working on this ‘extension’ to Counterparty temporarily, and will return full-time to the core XCP protocol. Furthermore, founder PhantomPhreak will continue to work on the core protocol and has hired several developers to assist.
Overstock and two founding Counterparty developers are cooperating on improving the existing platform, and making it more accessible through the new front-end. In the light of new regulation, such steps towards legitimacy in the eyes of the law are critical to ensure mainstream acceptance of cryptosecurities. This is the case whether one agrees with it or not.
(NOTE: Decentralized finance is by definition a truly free market. Any new developments will not directly limit Bitcoin or Counterparty functionality whatsoever.)
While peer-to-peer networks are clearly not susceptible to any form of direct regulation, creating a legitimized gateway for such services makes it possible for companies to do business with the comfort of ‘having done all the paperwork’ so to speak. There will be many other advantages, but currently more cannot be disclosed.
However, because the Overstock project relies 100% on the Counterparty protocol, it would be downright ludicrous to reduce or limit its development in any shape or form. Everything is continuing as usual, and rest assured, the source is in good hands.
Myth 18: The 0.5 XCP fee is unnecessary. If money is burned then the XCP supply will run out!
The 0.5 XCP issuance anti-spam fee is entirely temporary. Moreover, in the near-term, the fee will be proportional to the total money supply, so that it will be impossible for the XCP to run out.