What is XCP?

XCP is the native token of Counterparty. It is used in all cases where the Bitcoin token is not capable of acting as the working currency, either as a denominational unit or for paying network fees.

Because Bitcoin is not “aware” of the Counterparty protocol, BTC cannot be used except as a minimal anti-SPAM mechanism based on the overall size of the Bitcoin transactions that contain Counterparty data.

Do all Counterparty transactions require the use of XCP?

There are a few Counterparty transactions that do not require the use of the XCP token due to their simplicity, most notably straightforward asset transfers and issuances of numeric assets (Counterparty assets without a human-readable identifier), which create a low computational burden for Counterparty nodes.

How was XCP created?

The total supply of XCP was created in a process called 'proof-of-burn' that was active between January 2nd and February 3rd of 2014 (5,000 Bitcoin blocks). During this period, anyone was able to destroy bitcoins by sending them an unspendable Bitcoin address (1CounterpartyXXXXXXXXXXXXXXXUWLpVr), and this destruction triggered the creation of a corresponding quantity of XCP automatically. Burning each 1 BTC triggered the creation of between 1,000 and 1,500 XCP, with more being rewarded the earlier the burn took place (the ratio decreasing linearly), with each address being limited to 1 BTC burned in total.

The proof-of-burn process created an equal opportunity for all potential Counterparty users to acquire XCP, with no centralization or trust at all. This method is relatively rare in the crypto space because it does not provide the founders with starting capital (as with a “pre-mine”). Proof-of-burn has the following advantages, however:

• It avoids issues with regulatory uncertainty and legal liability
• It incentivises developers and users equally
• Funds are never in the control of any third party
• There is full transparency into the process