To understand what Confidence Chains means you have to revisit some of the initial design goals of Bitcoin. Bitcoin was meant to be a currency without backing and without ownership. Color Coins and other related technologies have a different purpose: digital vouchers(although Confidence Chains does much more than that). Thus, you've removed ZERO TRUST. You must trust the backer. The idea of leaving in Proof Of Work anyway is just meaningless really and reflects a lack of vision as to why it was there in the first place. The core oversight is that the block chain is a free database that anyone can insert information for any purpose. You'll find this assumption is a standard amongst the Color Coin people. It is here that Color Coins breaks down. We saw this unfold with the COIN_DUST issue.
Trusting the issuer is a plausible trade off and others have worked with that assumption.
But there remain advantages for mining/blockchain validation based security.
Consider:
- if you want the issuer to be offline (it could be dangerous to have a key online that can create value on whim if it is hacked the system may break down).
- more advanced/2nd gen types of features where the bearer shares
are the shares, not a representation for shares in some external authoritative ledger or issuer escrow broker account: there may be a digital prospectus where the issuer is issuing 10,000 shares for their A-round of financing. The prospectus says they need approval from 25% of share holders to issue a second round or to do a share buy-back. So the network validates shares, and all peers reject any shares created in violation of the company prospectus apriori.
- mostly when one is talking about shares, there is no redemption (outside of a company voted share buy-back) - there are just buys and sells on a market setting the price. If you want to redeem the value of your share you sell it.
- smart contracts depend on final settlement. If the settlement is not final, then undo requests will be made by users in dispute. If your system is based on consensus the court will hit your transaction server/issuer with a demand to undo consensus. Once this happens people will realize the contracts are not smart, and incur the same posthoc dispute costs at the transaction layer as credit cards etc.
- I am not saying disputes cant or shouldnt be resolved: the point is the parties go to an arbitrator or court and allocation of blame is made, and the parties settle financially. Not by undoing a transaction.. You no more want transactoins to be undone than a $100 us bill in your pocket fail one day because 20 transactions ago someone stole it from a convenience store. Bearer assets based on smart contracts flow onwards into dependent transactions eg as part of a structured product, a swap etc. They must not be undoable or the utility of smart-contracts is damaged.
Adam