Crowd sales the easy way with Coinprism

by · August 27, 2014

We are happy to announce a new feature in Coinprism: Crowd Sale Management. Colored coins are the perfect way to run a crowd sale, there is no intermediate currency so you are not tying your crypto-tokens to anything else than Bitcoin.

The crowd sale where YOU are in control

The approach taken by Coinprism for crowd sales differs from alternative systems. With open assets and Coinprism, you don’t have to put your faith in a complex protocol for the crowd sale. The system is very simple and works in two phases. CrowdsaleHere is how it works:

1. You create a color address in Coinprism, and publish that address on your website or forums as the crowd sale address.

Create a new color address

2. Investors send bitcoins to that address (transactions in blue in the diagram above, this is phase 1).

3. After some time, you go to Crowd Sale Management interface in Coinprism, and enter the price at which you are selling your tokens, as well as a storage address.

Crowdsale

Each share of the lemonade stand is sold at 0.1 BTC.

4. Coinprism will look at all the transactions which have been sending bitcoins to the crowd sale address. For every single one of those transactions, it will create a new transaction that atomically sends the bitcoin proceeds to your storage address, create new crypto-tokens, and send them back to the buyer (transactions in green, this is phase 2, the “distribution”). The number of crypto-tokens issued will be automatically calculated by Coinprism, from the amount of bitcoins sent by the buyer and from the price you have set for your tokens.

Crowdsale

3 sales, for a total of 0.011182 BTC, turning into 0.1117 shares

5. The result is a batch of transactions. Coinprism will let you review all of those transaction through a downloadable spreadsheet. All you have to do is confirm the transactions if you are happy with them. They will be signed client side using your password, and broadcasted to the Bitcoin network.

Crowdsale

The downloadable summary

Some nice properties of that system:

  • If a buyer attempts a double spend, they won’t receive the tokens, since the phase 2 issuance transaction is spending the output of the initial phase 1 bitcoin transaction.
  • Every time you run a distribution batch through Coinprism, you get to set the price for your tokens, so that allows you to change the price of your tokens over time, as you like.
  • You can also stop the crowdsale at any time – you just stop doing distributions.
  • After phase 2, the crowd sale address is emptied, and the funds are moved to the storage address, so each sale can only be processed once.
  • As always, the system is completely decentralized as Coinprism doesn’t have the keys of any of your addresses.

The buyer should make sure to send the bitcoins from a color aware wallet, because the assets will be sent back to the same address. The process is very transparent and open, and the only output of that process is the batch of transactions, which you can review. There is no magic. This differs from the Counterparty and Mastercoin approach, where you have to put your faith in a black box protocol: you are subject to the fees imposed by the protocol, the matching logic, timings, rules and bugs.

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  • deinfrank

    It seems like there is an uncomfortable (and unwieldy) lag time during the issuance phase as the issuer must manually sign all issuances. Am I missing something?

    • flaviencharlon

      It’s all signed at once. From the issuer’s standpoint, it only take 30 seconds.
      There is a lag time between the payment of the buyer and the buyer receiving the colored coins. As long as the buyer is aware that the delivery of the colored coins is done on a daily or weekly basis, it shouldn’t be an issue. Coinprism doesn’t have the private keys so it’s impossible for us to deliver the colored coins automatically without the issuer signing the transaction. It’s always a tradeoff between security and convenience.

  • Def Aced

    This is actually really awesome and I think im going to use it to crowdsource developement on a game im making 😀

  • gary le
  • xcubicle

    what if it doesnt reach the funding goal how do u refund everyone back their investment?

    • flaviencharlon

      The colored coin issuer can do that if they with.

      • xcubicle

        so its not automatic to refund everyone? so what stops the issuer from keeping all the funds even if the funding goal isnt reached.

        • flaviencharlon

          If you don’t trust the issuer, you shouldn’t be sending them your money in the first place. If they’re scammers, they’ll probably leave with the funds regardless on whether the goal has been reached.

      • xcubicle

        can you elaborate on how you would refund everyone back say if 100 people sent btc your your color aware wallet. and you decide its not going to work. how do you reverse the transactions?

        also another question. what if the user sends btc from a non-color aware wallet. would coin prism still send the colored coins to the btc address? And if so doesnt that mean the color coins are lost or is it smart enough to detect this?

        thanks. i want to use coinprism for a project, but i need these questions cleared up first.

        • flaviencharlon

          You can redistribute the full amount of money collected as a dividend, which is the same as giving back the money.

          You can’t send funds from a non-color aware wallet as the wallet will not recognize the asset address as valid. The address would start with “a”, which is not valid for a non-color aware wallet.

          • xcubicle

            if you refund everyone. that means they keep the colored coin?

          • flaviencharlon

            Yes but the colored coin is worthless since the project is not happening.

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