A Beginner’s Guide to Counterparty

While many cryptocurrencies exist as competitors to or as evolutions of the Bitcoin protocol, there are other initiatives that instead seek to cooperate and bolster the pioneer blockchain. Perhaps the oldest and most profound of these projects is Counterparty, an asset layer created directly on the Bitcoin blockchain.

What is Counterparty?

Counterparty (XCP) is a peer-to-peer financial system built directly upon Bitcoin’s blockchain protocol. The coin positions itself as an asset layer on top of Bitcoin and a system that allows for the creation, transfer, and communication of tokens, artwork, and digital assets. Additionally, XCP features its own decentralized exchange for safely and trustlessly exchanging said tokens.

The distribution of Counterparty is unique. Just over 2.6 million XCP were distributed following a Proof-of-Burn event, when BTC addresses received an amount of XCP proportional to the amount of BTC sent to the burn address. XCP was distributed in January of 2014 following the burn of more than 2,000 BTC.

Token Creation

Creating a Counterparty token offers similar functionalities to Ethereum’s token function, and is very simple to do with XCP. In the native Counterparty wallet, there is a button to create a custom asset. From there, users specify the divisibility of the token, the supply, and the name. All that is then needed is for the creation to be broadcast to the network, and depending on the type of token it is, a fee of up to 0.5 XCP.

While XCP tokens appear simple, the ability to tokenize and publish information on top of the Bitcoin blockchain has massive implications. There are dozens of projects that have been using the XCP protocol for years. These projects range from online games (RBITS, BCY, DTB) to verified ownership of digital artwork (PEPECASH), to domain registry (CoinDaddy), and more. The Stanford distributed computing project even rewards donors via a Counterparty token, FoldingCoin (FLDC).

History

Counterparty launched in January 2014 as a revolutionary cryptocurrency. The Proof-of-Burn distribution approach represented a seamless method of fairly distributing the coin, and the project provided new technology through the utilization of blockchain-based transactions for the transfer and storage of information. XCP offered tokenization prior to Ethereum or any other cryptocurrency, and the symbiotic nature of the coin with Bitcoin proved that the power of the network expanded far beyond digital, decentralized value transfer.

Due to the principles and potential of the coin, Counterparty saw significant valuations relative to the overall cryptocurrency market in the months following its launch. Throughout the majority of 2014, XCP maintained a position as one of the top 10 cryptocurrencies. Its market cap reached a local high of US$25 million on November 12, 2014, the fifth highest market cap behind Bitcoin, Ripple, Litecoin, and BitShares.

However, largely due to the nature of the Counterparty team as a purely donation-based group, development of XCP progressed at a relatively slow pace in the following years. Coupled with the emergence of new platforms such as Ethereum, XCP has gradually fallen relative to other cryptocurrencies in the past three years.

Fortunately, with the explosion of cryptocurrencies, the Counterparty Foundation has seen more donations from the now-wealthier community to fund initiatives and improvements in the past several months. The BTC value of the coin has more than tripled from the October 2017 low of .0012 BTC, and existing communities behind Counterparty are continuing to grow.

Price Analysis

The price of Counterparty is currently around US$36, or roughly .0033 BTC. Its market cap is just under US$95 million, ranking at #165. Up until very recently, the value of XCP had slowly bled, falling more than 90% against Bitcoin from the 2014 high to recent lows. However, XCP still represents the most equipped and widely-used Bitcoin asset layer, and growth since the start of the year suggests more and more investors are becoming aware of the capabilities of this coin.

For Bitcoin bulls, it may appear insulting that over 160 coins are valued higher than the leading Bitcoin-symbiotic currency, and sustained growth for XCP is nothing short of inevitable. As XCP has a history and proven track record as a widely-used, secure, and working platform with a lot of utility, supporters of the coin agree that the true value of the coin is much greater in comparison to the many, often higher-valued alternatives to XCP.

The Future of XCP

Much of Counterparty’s further development is dependent upon improvements to the Bitcoin protocol itself. Counterparty’s developers were efficient in implementing SegWit functionalities on XCP after Bitcoin’s implementation of the feature. The biggest development in the near future will be the full release of Lightning Network, which will allow instantaneous and near-free BTC transactions. Soon after Lightning Network is adopted in large numbers by the Bitcoin network, Counterparty will follow suit.

When this takes place, activity around XCP should explode. Currently, many communities relevant to XCP have been less interactive with the platform due to significant Bitcoin fees. The Pepecash community, for example, is seeing less and less exchanges occur on the Counterparty Decentralized Exchange for this reason. When Lightning’s integration is live, this community and many others will be able to exchange and share in a capacity that has never been seen before. From a broader perspective, such an addition would expand the scope and potential of Counterparty tools exponentially.

Conclusion

Despite over a dozen active communities, services, and projects operating via Counterparty, this project has remained under the radar for quite some time. Recent price appreciation suggests that more speculators are beginning to buy positions in preparation for the bright future ahead and the upcoming Lightning Network integration. It’s difficult to justify a CoinMarketCap rank of 165 for a coin that empowers Bitcoin in such a meaningful way, and the broad and diverse communities that support the project suggest there is a real service with meaningful value behind Counterparty.

Whether in 2018 or 2020, Counterparty will successfully incorporate Lightning Network. Once that happens, it is entirely possible that Counterparty may return to its early position as one of the highest-valued coins, and could potentially reclaim its position as a top 10 market cap coin.