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All centralized financial institutions like those found on Wall Street rely on a trusted third party or middleman. The advent of blockchain technology, however, has brought about several projects that seek to disrupt this tradition. After the financial crisis of 2008, some of the dangers of centralized systems were exposed.
The crisis demands action which have not been forthcoming in the face of excess centralization of power. Counterparty seeks to provide a solution with its smart contract protocol. It wants to provide a peer-to-peer platform for markets and financial instruments. This will enable open and secure financial tools in markets without needing third parties. The idea is to decentralize and democratize the financial sector.
Despite being promising, not much has been heard of this platform which is built on top of the Bitcoin network. However, that is likely to change soon as the platform seeks to extend the functionality of the Bitcoin network in new ways. The end goal is to make financial instruments easily accessible to all.
The native currency of the Counterparty platform is Counterparty (XCP). It is used for advanced features and representing stake in the protocol. This is particularly for functions that Bitcoin cannot be used for e.g. the execution of all smart contract code.
Launched in January 2014, XCP is unlike typical ICOs that transfer funds to their founders.
XCP cannot exist without BTC. The platform depends on Bitcoin's basic features of decentralization and security. XCP and other custom tokens use exactly the same Bitcoin addresses and Bitcoin blockchain for transactions
Though XCP transactions happen on the Bitcoin blockchain, they can’t be seen directly on the Bitcoin explorer. There is a special block explorer called Counterparty Chain for viewing such transactions.
XCP represents stake in the Counterparty protocol which serves several purposes. They include helping to create digital tokens in the marketplace for organizations and products. When created, crowdfunding could be conducted through token sales for Bitcoin or XCP.
The platform enables payment of dividends to investors in crowdfunding. It enables cheap and quick trading of tokens with Counterparty being the middleman. Proxy tokens that could be linked to real world assets like commodities and fiats (e.g. USD) can also be created on the platform. Its financial instruments e.g. binary options and contracts for difference work without a third party.
XCP is critical to the community-driven, open-source project. The platform enables bonds and commodities trading with no exchange or broker fees. It operates with neither bank accounts that can be seized nor a company server that can be hacked. These features make XCP extremely useful on gaming applications for its built-in escrow service that eliminates trusted third parties.
Counterparty uses the Bitcoin blockchain to exchange and create custom tokens and execute smart contracts. XCP serves to make these custom tokens and run smart contracts. XCP serves as fuel for running smart contracts. XCP is also the voting currency for changes to be decided on by the community.
To buy XCP, fiat currency like USD or EUR will have to be converted to cryptocurrencies like BTC, ETH or LTC. This could be done on any of the major exchanges that accept buying Bitcoins with debit/credit card or through Coinbase which allows bank transfers. The converted BTC/ETC/LTC could be exchanged for XCP on three major exchanges: Bter, Poloniex and Bittrex.
The bought XCP can be moved from the exchange to Counterparty wallets. They include Counterwallet, the official web-based free, open-source wallet for storing XCP. It can also store BTC. The other open-source and free web wallet for XCP is CoinDaddy. Other means is to keep the bought XCP in a cold storage such as an Armory Offline Wallet. Users can also make a regular BTC paper wallet to store XCP.
XCP can be traded mainly for BTC on major cryptocurrency exchanges like Bittrex, Poloniex, Counterparty DEX, Zaif and Tux. The traded BTC can be converted to cash or to other cryptocurrencies.
For users who require cash, the converted BTC can be liquidated and withdrawn through the banks. It is also possible to cash out through banks' automated teller machines. Alternatively, there are Bitcoin-backed debit cards like BTCC’s Mobi Card. They enable quicker and direct access to cash.
XCP cannot be mined and was not sold in an ICO. Rather, it came into existence by using a ‘Proof-of-Burn’ method. This involved sending over 2,100 bitcoins to an ‘unspendable’ address in exchange for creating about 2.6 million XCP. No one has the private key.
This was done to avoid pre-mining or ICOs. The burnt Bitcoins cannot be spent again. This is to ensure fair and equal opportunity to everyone including the project's team members. The burning process is expected to reduce the token's total supply over time.
XCP's supply is permanently fixed. No additional supply will be created in the future. The total supply of XCP is 2.62 million and the current price for each is $2.33 (as of January 18th) to give it a market cap of $6.094 million. This is a drop from its launch price of $7 in 2014.
XCP is tied to Bitcoin as Counterparty doesn’t have its own blockchain. It uses Bitcoin’s blockchain for its transactions though with some more data embedded onto them. As an on-chain protocol tied to Bitcoin transactions, its team is working to improve some of the issues affecting Bitcoin.
One of the steps taken is the draft of Counterparty Improvement Proposal (CIP) 9 enhanced send. This aims to reduce fees for sending most types of asset by 40-45%. The CIP9 will have multi-destination support (and possibly even multiple assets). Thus, a single Bitcoin send transaction can send to tens, hundreds or thousands of destinations at once.
Counterparty also plans to introduce picopayments, a full-fledged multi-asset payment channels solution. Picopayments allow for fast, cheap off-chain send transactions of any asset. Picopayments solutions will later be enhanced with Lightning Network functionality for cross payments.
Segwit support in Counterwallet is in the works. A possible move of Counterparty to a sidechain for quicker block times, cheaper fees and peg to the Bitcoin blockchain is also being considered. XCP is expected to grow with Bitcoin's blockchain technology.