Author’s Note: Are you the type to proclaim TL:DR to stuff? If YES, this article explains the pros of Mastercoin, the new layer on top of bitcoin that can revolutionize, speculating, merchant business, and the world of finance overall.
You can among other things, place bets, create derivatives, track real-time measured events, issue stock, pay dividends on said stock, and sell things directly using the Master-coin protocol with no other required infrastructure. Thanks for your time.
Now for those of you who are like…OOOOHHHH tell me more:
In case you haven’t heard of this new higher layer protocol let me give you a quick breakdown:
Mastercoin is NOT an ALT-COIN! (There is a mastercoin alt-coin but it has NOTHING to do with what I am writing about today)
Mastercoin is, as I stated above, a supplemental open-source layer that sits on top of the bitcoin block-chain. It utilizes the bitcoin block-chain to store transaction data and can utilize fresh bitcoin public addresses to store Mastercoins (going forward, Acronym: MSC)
Can I mine MSC? – NO. The only way to acquire MSC is to use a fresh wallet with zero inputs and to make a trade using This official Buy/Sell thread on bitcointalk. As of this writing I secured 5 MSC for just short of 1 BTC which already valuates these MSC to $140 per coin! (I recommend something like a bitaddress.org or brainwallet.org saved as an html page that is used to generate fresh wallets, while disconnected from the internet. (disable your ethernet or wireless card on PC/MAC)).
Mastercoin was originally distributed to early adopters that deposited bitcoins towards the “Exodus” address. This Exodus Address immediately returned to the issuer 1 MSC per every .01 BTC deposited – 1 BTC would render a user 100 MSC. This Exodus Address is no longer good to generate MSC – it was designed for EARLY ADOPTERS only, and was only valid between Aug 1st and the 31st 2013. Funds deposited to this Exodus address after August 31st are refunded. As mentioned earlier, the only way to get mastercoin is to utilize the official order book (for now!)
So now that you know what MSC fundamentally is and where is came from, what does it do? Why is it any better or different than Bitcoin? You do sell Bitcoin awareness materials, NOT Mastercoin Materials, you realize right???
Here is why I am excited about MSC:
Ability to create User defined Derivatives such as a derivative currency or smart property such as stock shares with a built in Risk Balanced Escrow Mechanism. Here is an example: Let’s pretend I own a new startup and I want to generate startup seed money: I could issue shares of “my instrument” as a denomination of an MSC! So, lets say that I would like to create unique ID based instrument such as a stock/bond or share issue, you could designate the value of this created article as a function of MSC. The beauty in the protocol is that the MSC creates a proportionate purchasing power parity for the coin/instrument/article such that if the price approaches or passes below parity, coins are surrendered automatically and the equivalent MSC is refunded to users, thus minimizing the losses. If the opposite happens, and an instrument value begins to far exceed its original set price, the protocol itself requires more MSC from the issuer in order to create more shares to be issued. That is, the issuer cannot dilute the existing ipo of shares without providing additional MSC collateral for the Escrow mechanism to issue more coins.
Ability to send dividend payments to all members within a given asset or smart property class, mentioned above.
Ability to mark an Address as a fraud reversal “Savings” address – MSC can have a special “savings only” address setup which have a period of reversibility. These special “savings only” addresses can only be used to send msc or MSC defined derivatives* So how would I get my MSC back if it was stolen from the Savings address if it is compromised?!
Fear not folks, for there is a “Guardian” address. This guardian address is defined when setting an address as a “savings” type and acts as the overiding mechanism that enables the holder of a compromised address to send a distress transaction from the Guardian address that immediately reverses transactions created from the savings address and forwards all funds to the guardian address.
Ability to Place Items for sale directly within the MSC protocol – A sale offer is listed on the blockchain with the currency identifier (MSC derivatives can be utilized in addition to just MSC), the cost of the item, and a link to the description page of the item being listed (item descriptions are recommended to be embedded as a URL reference to avoid clogging the underlying bitcoin blockchain)
Ability to receive the broadcast of transactions for sale and ability to purchase directly from the issuer!
Ability to accept/reject a buyer based on built in Address feedback mechanism built into the MSC protocol!
Ability to leave Feedback on transactions and purchases (this does require including an additional % onto the original purchase price where the added tip or payment included, if furnished to the seller, ranks the customer’s satisfaction)
Ability to setup data pulled requests systematically, such as a spot price ticker for an externally tracked asset, such as MSC compared to USD or MSC compared to Gold Spot price for instance. It is possible to define the currency it is derived in. The protocol 2 spec states to point your address to the exodus address when registering a data stream so that it is easy to reference ticker prices for a given “data pull”.
Ability to place wagers or bets using the protocol – This mechanism would work similar to broadcasting product for sale, but combines the data pull request to be able to determine bet “outcome” The User would offer a wager onto the protocol and other users would have the ability to see these bet listings and if desired, they could place the inverse bet for the opposite condition. The protocol then pairs both wagers together and issues a winner based on a data pulled source and matching Bet type. Beyond simple limit and exceed wager types, there are even wagers that involve receiving proceeds from speculative long gains on bullish trends above a defined threshold or conversely receiving proceeds from speculative short gains on bearish trends. To demonstrate the sheer combination of different types of wagers available, I have attached a list of these different wager types offered as per the current Mastercoin protocol specification:
Table of Bet Types
| 0 | Will equal on | 32 | Will equal on or before |
| 1 | Will not equal on | 33 | Will not equal on or before |
| 2 | Will exceed on | 34 | Will exceed on or before |
| 3 | Will not exceed on | 35 | Will not exceed on or before |
| 4 | Will be below on | 36 | Will be below on or before |
| 5 | Will not be below on | 37 | Will not be below on or before |
| 6 | Bullish Contract for Difference | ||
| 7 | Bearish Contract for Difference |
(these types, is leveraged properly, could spell a disastrous end to concurrency exchanges as it effectively eliminates fees.)
In conclusion, I hope that this serves as a great warmup primer for MasterCoin! This higher layer bitcoin infrastructure is set to be a real game changer IF infrastructure can be implemented properly AND the tools utilized for implementation are designed for a novice user in mind. This article was written using The Mastercoin Specification Document issued by Bitcointalk’s Dacoinminister.
