Counterparty (founded 2013) is a suite of financial tools in a protocol built on top of the Bitcoin blockchain. The platform offers blockchain-as-a-service for the reliable publication and timestamping of its messages^[1][2].

Overview

The Counterparty protocol is open-source and extensively tested. Besides allowing users to create and trade any kind of digital token, Counterparty enables anyone to write specific digital agreements, or programs known as Smart Contracts, and execute them on the Bitcoin blockchain. Smart contracts are a revolutionary technology which opens the door to endless possibilities. By using the Bitcoin’s decentralized ledger network and Counterparty’s built-in scripting language, real-world scenarios can now be transformed into code and executed automatically with no need for an intermediary.

Counterparty data may be stored in three different types of outputs, or in some combinations of those formats. All of the data is obfuscated by ARC4 encryption using the transaction identifier (TXID) of the first unspent transaction output (UTXO) as the encryption key.

Multi signature data outputs are one‐of‐three outputs where the first public key is that of the sender, so that the value of the output is redeemable, and the second two public keys encode the data, zero‐padded and prefixed with a length byte.

By harnessing the power of the Bitcoin network, Counterparty creates a robust and secure marketplace directly on the Bitcoin blockchain, extending Bitcoin's functionality from a peer-to-peer payment network into a full fledged Peer-to-peer financial platform.

In addition to sending money without third-party intermediation users can trade, do business, and engage in advanced financial contracts without having to trust anyone else to hold funds or do the accounting. Along with the Counterparty protocol, the platform consists of the native XCP token to perform advanced operations, and the secure, browser-based Counterwallet to provide the functionality.

Token Economics

XCP is the native token of Counterparty.

XCP is used to provide functionality where it isn’t technically possible to use BTC. For instance, XCP is the currency used to pay for the execution of all smart contract code. More generally, XCP represents stake in the Counterparty protocol, and is the voting currency for changes to be decided on by the community.

XCP was created by “burning” bitcoins, which involved sending coins to an unspendable address in exchange for XCP, ensuring an even and fair distribution of the currency. In January 2014, over 2,100 bitcoins were burned, creating about 2.6 million XCP^[3].

Custom Counterparty tokens can be used for a wide range of purposes and act as their own cryptocurrency, while still running on the Bitcoin blockchain. Unlike ordinary bitcoin, custom tokens can be used to represent any kind of value.

Tokens are being used to:

• conduct successful crowdfunding and voting,
• monetize access to Decentralized application (DApp) (“DApp”) software features,
• represent a product or personal brand,
• act as a sort of “blockchain domain name”,
• as an authentication token,
• to represent digital goods, such as in-game cards,
• as a proxy for a real-world good or service (i.e. tokens exchangeable for paper, biofuel, etc),
• act as a reward for providing valuable time or resources,
• as an educational service to explore the functioning of a blockchain ^[4].

Wallet

Counterparty currently has four different types of wallets: a desktop wallet, a web wallet, a mobile wallet, and a Chrome extension wallet. These wallets provide all of the functionality of the Counterparty’s reference client, while preserving the security of your funds.

When you use one of the Counterparty wallets, all transactions are signed on your device and your private keys are never stored on the servers. All information sent to the servers is first encrypted by the wallet client for maximum security, and every trace of your session is erased when you log out. All a user needs is a unique passphrase for easy and secure access^[5].