Very promising work. What about banks issuing physical notes backed by ColoredCoins? In some ways it might actually greatly simplify the process, because there is specific issuance date of the ColoredCoin and a known issuer. It looks like the cost of verification is also related to the human understanding of it (education is needed). Could there a physical verification device, similar to a bank-note checking device? It seems also that if issuers are known this solves the legal problem, since they are allowed to "print" bank-notes (although they effectively get them from the central bank).

You might want have a look at our whitepaper for ColoredCoin architecture: https://lykke.com/Whitepaper_LykkeExchange.pdf