What Is Counterparty? Historical NFTs Built on Bitcoin

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Lengthy earlier than collections like CryptoPunks and CryptoKitties and the OpenSea market helped popularize non-fungible tokens on Ethereum—even earlier than the time period “NFT” ever existed—an ecosystem for verifiably distinctive digital property was already thriving on Bitcoin, circa 2014.

Counterparty is the platform that helped catalyze this innovation for the world and spark a multibillion-dollar trade. The platform makes use of Bitcoin’s know-how to energy extra than simply digital cash, enabling verifiable possession of digital property like art work and collectibles.

Right here’s a take a look at how Counterparty works and the way it differs from more moderen NFT-centric platforms, plus a take a look at how these property are being bridged to a bigger viewers through Ethereum.

What’s Counterparty?

In conventional finance lexicon, a counterparty is the opposite individual or get together collaborating in a transaction. However within the Web3 world, Counterparty refers to a “metacoin-type protocol” based in 2014 by Robert Dermody, Adam Krellenstein, and Evan Wagner.

With a local decentralized exchange (DEX) and token, Counterparty was constructed atop the open and decentralized Bitcoin community to let customers mint, purchase, and promote distinctive digital property. 

Whereas this can be widespread in the present day on platforms like Ethereum and Solana, on the time, Counterparty’s launch marked a big turning level in digital historical past. It helped folks notice that Bitcoin’s design can apply to any asset or transaction that requires a level of verification—not simply another type of cash, or a retailer of worth. 

Counterparty additionally set the stage for the worldwide crypto artwork and collectibles motion, as seen with native tasks like Spells of Genesis in 2015 and Rare Pepes in 2016—each thought-about seminal precursors to the fashionable NFT growth.

How does Counterparty work?

Much like how Ethereum token requirements outline how sure property work on its protocol, Counterparty supplies the infrastructure that outlines how folks can create distinctive tokens on the Bitcoin blockchain. These property aren’t restricted to digital collectibles or tokens, however something with confirmed rarity—even bodily objects.

Counterparty is akin to a layer-2 resolution for Bitcoin: a platform constructed on high of Bitcoin that inherits the safety of the unique blockchain, however supplies extra performance. In that sense, it’s just like Stacks, one other platform that’s constructed on high of Bitcoin to offer smart contract performance to energy NFTs and decentralized finance (DeFi) purposes.

As Counterparty is Bitcoin-native and might embed and use knowledge from the Bitcoin protocol when executing contracts, transacting on the platform seems simply as it might when utilizing BTC. Counterparty nodes merely interpret the information in these transactions based mostly on particular guidelines. From there, the protocol creates its personal ledger of associated transactions that it has seen on the underlying Bitcoin community.

One other approach to consider how transactions on Counterparty work is through the idea of nesting or Russian dolls, whereby the Bitcoin transaction would comprise a smaller Counterparty transaction within it. Added complexities apart, the transactions on Counterparty are the identical as Bitcoin, and subsequently simply as safe. 

That stated, a notable distinction between Bitcoin and Counterparty is within the relationship between nodes. In contrast to Bitcoin nodes, Counterparty nodes do not talk with one another and do not supply a “peer-to-peer community.” Whereas all of them share the identical code and obtain the identical transaction knowledge, the first position of Counterparty nodes is to hook up with the Bitcoin software program.

As soon as related, the nodes then obtain and decode knowledge from every transaction all whereas benefiting from Bitcoin’s safety and computing energy. As well as, as with gasoline on Ethereum, customers nonetheless have to pay mining charges when transacting on Counterparty. 

What else does Counterparty do?

Together with powering verifiably distinctive property, Counterparty additionally helps a variety of added capabilities. A few of these embody: 

  • Multisignature addresses: “Multisig” refers to conditions through which two or extra people (through their personal keys) should approve and log out on transactions earlier than they’ll execute. By offering multisig help, Counterparty gives extra strong safety and a complete vary of utility for its customers, like serving to distant groups work collectively. It additionally supplies token issuers a secure approach to retailer their property, plus higher management over distribution. 
  • Governance and voting: Customers can even create and faucet Counterparty tokens to vote for a desired consequence in a DAO or on-line group (e.g. DevParty). That stated, stake voting with the native Counterparty forex, XCP, remains to be beneath growth. It’s deliberate to permit for strong, decentralized governance of the Counterparty protocol.
  • Counterparty DEX: Previous to Uniswap and SushiSwap, Counterparty launched one of many first profitable decentralized exchanges, which capabilities as a local characteristic constructed into the protocol itself. As with all DEX, the protocol takes on the position of an escrow agent and clearing home, eradicating pointless prices, time, and third-party dangers for customers when making transactions. Individuals can view open orders on the DEX by means of xchain.io (a associated block explorer), and work together with it by means of supported wallets like Freewallet or Uncommon Pepe Pockets by putting purchase and promote orders on property they’d wish to change. 

How do dispensers work?

A typical approach to purchase and promote property on Counterparty is thru automated dispensers. Much like merchandising machines, anybody can arrange a dispenser and specify an quantity of the token or asset they wish to promote by means of it, together with the value in BTC or Counterparty’s personal XCP token.

Shopping for property from dispensers isn’t all that totally different from transferring or sending tokens between wallets. All a purchaser must do is scan the dispenser QR barcode or manually copy the dispenser pockets deal with, after which ship the quantity of BTC or XCP they wish to spend to purchase a number of of the objects on supply. Upon receipt, the dispenser will then distribute the asset to the client’s pockets.

One other approach to consider dispensers is as a primary good contract with predefined guidelines that autonomously distribute and handle its property. To assist mitigate any threat or scams, an empty dispenser will show a warning signal alongside it, telling patrons to not ship any BTC because the dispenser is closed.

What’s XCP?

Shopping for property on Counterparty and its dispensers will be executed by means of the protocol’s native XCP token. As an alternative of the extra conventional fundraising strategies for altcoin launches, like crowd gross sales or preliminary coin choices (ICOs), Counterparty used the proof-of-burn (PoB) consensus protocol to challenge XCP in January 2014. 

To create a bigger dedication to safe the community, a miner will burn a portion of cash of their possession to purchase a digital mining rig, which provides them the correct and energy to mine blocks on the Counterparty community. The extra cash the miner burns, the bigger his or her digital mining “platform” will likely be. 

The Counterparty staff stated that it settled on Proof of Burn to maintain the distribution of tokens as truthful and decentralized as potential, and keep away from potential authorized points. To create XCP within the community, roughly 2,140 BTC—price upwards of $2 million on the time—was destroyed or “burned” by sending them to a provably unspendable Bitcoin address with no identified personal key. In different phrases, they’re misplaced endlessly.

The XCP token can also be utilized in numerous ways within the Counterparty protocol, like serving to customers create new property, commerce, and make bets. XCP trades on exchanges like Dex-Trade and Zaif, paired with both BTC or the Japanese yen.

Uncommon Pepe NFT playing cards on Counterparty. Picture: Uncommon Pepes

What are Counterparty’s largest tasks?

Since its launch, many notable projects have been launched and supported on Counterparty. A few of these embody:  

  • Spells of Genesis: In March 2015, EverdreamSoft launched the first-ever blockchain buying and selling card, FDCARD, on the Counterparty platform, which was later utilized in its strategic blockchain card recreation, Spells of Genesis. Within the recreation, gamers can acquire, commerce, and mix property referred to as ORBs to construct the strongest decks on the Bitcoin blockchain, take a look at them towards opponents, and discover the fantasy realm of Askian.
  • Rare Pepes: In response to the demand for on-chain collectible property, the first Rare Pepes—meme photos based mostly on Matt Furie’s authentic Pepe the Frog character—had been minted in September 2016 and might be purchased and bought by means of Bitcoin or XCP. A thriving ecosystem nonetheless exists on Counterparty, the place collectors should buy authentic playing cards and the later faux uncommon, dank uncommon, and pretend widespread playing cards. 
  • Bassmint: Created by a gaggle of long-standing artists, musicians, and technologists within the Bitcoin group, Bassmint is a brand new cryptographic music listing and label on Counterparty designed to present extra income and energy again to creators. Via Counterparty, artists can mint their music and have it curated on Bassmint, and receives a commission in Bitcoin straight by followers.
  • HODLpet: Generally known as the primary “dwelling creature” hosted on the Bitcoin blockchain, HODLpet is akin to a web-based Tamagotchi, collectively nurtured by a group of HODLers, or as a community-led choose-your-own-adventure story. Added options embody NFT art work drops by notable artists, plus a playable NFT card recreation.
  • Phockheads: As one of many first-ever digital collectibles, Phockheads have been rescued from their inactive and considerably forgotten dwelling on Namecoin—an early blockchain platform forked from Bitcoin—to dwell once more by means of Counterparty.

How is it related to Ethereum?

Nevertheless, these tasks do not simply dwell in isolation on Counterparty, because of the Ethereum Emblem Vault. Launched in September 2020, the Emblem Vault is a tokenized multi-asset pockets designed to help NFTs and fungible tokens alike on numerous blockchains.

Collectors can wrap their Bitcoin-based property like Uncommon Pepes and Spells of Genesis Playing cards to carry them onto the Ethereum blockchain—as a local ERC-721 token—by means of the vault. That permits these tasks to be traded through the main NFT platform and thru main marketplaces like OpenSea.

Doing so not solely helps carry publicity to Counterparty tasks, but additionally simplifies the trading experience for customers that discover Counterparty complicated or intimidating.

Which wallets are on Counterparty?

Counterparty gives a local pockets referred to as Counterwallet. Nevertheless, storing property like Uncommon Pepes or XCP tokens will be executed with a range of alternatives together with:  

  • FreeWallet: a free, open-source pockets that helps Bitcoin and Counterparty. Via FreeWallet, customers can ship and obtain BTC and tokens, create and challenge tokens, signal and broadcast messages, and help a number of addresses. The app is accessible for each iOS and Android units, and runs in internet browsers as properly.
  • Rare Pepe Wallet: Created by famous developer Joe Looney, Uncommon Pepe Pockets is without doubt one of the best-known and most generally used Counterparty wallets for merchants to gather and retailer Uncommon Pepe playing cards. Individuals can even purchase and search Uncommon Pepes by means of the pockets utilizing BTC, PepeCash, or XCP.
  • Freeport: As a Google Chrome extension, Freeport helps Bitcoin and Counterparty tokens. It additionally permits customers to gather, commerce, and create distinctive property on Bitcoin.  

The way forward for Counterparty

The NFT market exploded in reputation and consciousness over the past couple years, pushed by thriving platforms like Ethereum, Solana, and Flow. Counterparty would not have anyplace close to the identical stage of hype or demand in the present day, however its position in serving to to pioneer the idea of distinctive, tokenized property stays clear.

Even so, Counterparty has a devoted group that has continued to work on the platform since its launch. The developer scene welcomes builders and supplies security-related bounties, and new contributors can run a node in the event that they please.

As Counterparty is constructed on the again of Bitcoin’s safety—which itself is enforced by means of the resource-intensive proof-of-work mining mannequin—its native property aren’t at important threat of being misplaced, nor do they depend on exterior storage servers like IPFS. The worldwide community of miners and node operators helps safe the platform.

Just as Bitcoin serves as a cornerstone to your complete crypto economic system, Counterparty has sustained its relevance by means of the collective array of memes, tasks, and initiatives which have endured on the long-running protocol. It’s an essential piece of the historical past of NFTs, now extra accessible than ever because of the Ethereum Emblem Vault.

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