Overview of Counterparty

  • Counterparty risks are back on the agenda in the insurance and reinsurance market, as part of carriers and regulators heightened concerns over credit risks and creditworthiness, which could serve to make fully-collateralized reinsurance through insurance-linked securities (ILS) even more appealing to ceding companies.
  • Counterparty Manager is the industry standard solution for counterparties to manage the onboarding workflow by sharing client, tax, regulatory, constitutional documents and data to support account onboarding, KYC, credit, tax and legal review.
  • Counterparty exposure involves that part of the original exposure corresponding to derivative instruments, repurchase and resale transactions, securities or commodities lending or borrowing transactions and deferred settlement transactions.
  • Counterparty used proof of burn to issue XCP, instead of a more traditional fund-raising technique for altcoin launches, to keep the initial distribution of funds as fair and decentralized as possible, and to avoid potential legal issues.
  • Counterparty provides users with the world’s first functioning decentralized digital currency exchange, as well as the ability to create their own virtual assets, issue dividends, create price feeds, bets and contracts for difference.
  • The counterparty is exposed to the risk that the bank defaults and the amount the counterparty raises from the sale of the collateral that the bank posted is insufficient to cover the loss on the counterparty’s loan to the bank.
  • Counterparty nodes are not like Bitcoin nodes in that they don’t communicate with each other: they simply connect to the Bitcoin software and download transactions from it, decoding each one as they go along.
  • counterpartyd is the reference implementation of the Counterparty protocol, and Counterwallet is a deterministic web-wallet fronseem to counterpartyd, in which all cryptography is handled client-side.
  • Counterparty is a suite of financial tools in a protocol built on top of
    the Bitcoin blockchain and using the blockchain as a service for the
    reliable publication and timestamping of its messages.
  • A counterparty is usually the entity with whom one negotiates on a given agreement, and the term can refer to either party or both, depending on context.
  • Blockchain

    Book of Orbs is a mobile counterparty wallet offering client-side encryption and decentralized trading.Developed by EverdreamSoft, the app utilizes IndieSquare’s API to hold ‘ORBs’.Using the counterparty protocol, these ORBs can be held and traded between users on the bitcoin blockchain for monetary value, or be used in Book of ORBS’ supported gaming environments such as Spells of Genesis, Age of Chains and SaruTobi Island.


    The existence of the destination outputs, and the significance of the
    size of the Bitcoin fee and the Bitcoins transacted, depend on the
    Counterparty message type, which is determined by the four bytes in the
    data field that immediately follow the identification prefix.The rest
    of the data have a formatting specific to the message type, described in
    the source code.



    For more instructions on how to use Counterparty for gaming, voting and more, please see our Support section, and check out our Slack chat.These short guides above are just the tip of the iceberg in terms of the power of what Counterparty can do.


    On the other hand, transactions on Counterparty have to pay mining fees on Bitcoin for all their transactions, in much the same way that ERC-20 tokens pay ETH gas to manage their token contracts.

    What happens if and when OP_RETURN data is auto-pruned?

    Counterparty only needs some Bitcoin full nodes somewhere to have an unpruned copy of the blockchain.As every Counterparty full node is also a Bitcoin full node, this is easily done.

    A world without LIBOR: how prepared are we?

    This edition of Risk.

    2020: What Are the Takeaways for US Insurance CROs?

    This whitepaper looks at the events and market data of 2020 and discusses the possible takeaways for the risk professional in planning for future economic crises.

    Besides a 51% attack, what are the other risks to consensus?

    The Counterparty network could be effectively “forked” by a sizable number of people running different versions of the Counterparty client that had different “consensus sensitive code” (i.e.protocol code).In this case, if a transaction was read in from the Bitcoin client software, the differing code may cause two different interpretations of the data, and thus, two different ledger states.

    Conclusion: What Is Counterparty Risk?

    When we engage in any sort of trade/ transaction with a counterparty, it’s more often a means to an end.In the process of achieving that end we often forget to account for counterparty risk.

    Does the Current Economic Crisis Threaten to Strand You with Additional Environmental Liabilities?

    2020 will be remembered for a confluence of extreme events: the COVID-19 pandemic, reconfiguration of social and work spaces, supply chain disruptions, mass unemployment, rent strikes, aggressive stimulus spending, and social unrest.State and local governments are seeing their budgets curtailed, and many companies are seeing or will see their credit ratings plummet and have filed or may file for bankruptcy.Times of extreme economic uncertainty and volatility raise the risk that formal and informal business partners may not be able to pay their share of financial obligations or uphold their end of agreements.The risk of nonperformance by business partners is often referred to as counterparty risk or default risk.While counterparty risk can affect all types of liabilities, many companies in the oil and gas, chemical, metals and mining, manufacturing, utilities, and real estate sectors are particularly concerned with the risk of stranded environmental liabilities.Companies in these industries can help maintain financial health by understanding the risks that stranded environmental liabilities can pose and building strategies to proactively address them.

    How do you design a counterparty risk model?

    There are a number of different ways to approach modelling counterparty risk, and the method you choose will likely depend on the type of business you’re working in and the biggest risks to your organisation.There are some important numbers that will apply to all models, such as the probability of a default and the loss likely to be incurred if there is a default.Similarly, there may be influences that go beyond the businesses involved in the transaction, such as the general economy.

    Are Counterparty transactions less secure than Bitcoin transactions?

    As Counterparty transactions are Bitcoin transactions, their data is proably just as secure as any other Bitcoin transaction.

    What is Bitcoin fails or becomes co-opted?

    In the event of a catastrophic failure of the Bitcoin network, Counterparty does have the technical capability of “freezing” balances and migrating to another blockchain, like Litecoin for instance, with relative ease.

    How can you limit counterparty risk?

    The most obvious way to limit counterparty risk is to work with stable and reliable counterparties.The more secure the counterparty to a transaction is, the less likely it is they will default on the contract.It’s important to understand the relative market positions of your organisation and those you’re dealing with in order to put the transaction into proper context.

    How are blockchain reorganizations (“reorgs”) handled by Counterparty?

    Blockchain reorganizations are essentially handled by Counterparty the same way they are handled by Bitcoin.If the Counterparty software detects that a reorganization has occurred, it will utilize an internal “undolog” to quickly undo (roll back) transactions up to the point of the chain branching, and then process new transactions on the now-longest chain.

    So can the Counterparty Team rewrite the Counterparty ledger’s history, in an emergency or by decree? How does that compare to the same risks with Bitcoin Core devs?

    It’s identical to the case with Bitcoin.The Bitcoin core devs could publish a copy of Bitcoin Core that does anything, but no one would download it.

    What is Counterparty Risk?

    In finance, counterparty risk is a measurement of the probability that another party involved in a contract will default on their obligations.There are a variety of different forms of counterparty risk involved in financial contracts.Bitcoin effectively solves counterparty risk but other parts of the cryptocurrency business, like exchanges, are exposed to counterparty risk.

    So Counterparty is not its own Blockchain, but “rides on top of” Bitcoin?

    Yes.Another way to think of it is similar to a Russian nesting doll, where the bigger doll would be the Bitcoin transaction, and the next doll (inside of it) would be a Counterparty transaction.

    Is Counterparty “polluting” the Bitcoin blockchain, then?

    No.99%+ of Counterparty transactions utilize a data encoding method called OP_RETURN, which is fully “prunable”, meaning that the data may be safely discarded by Bitcoin nodes which wish to do so.For the remaining 1% of transactions, an different encoding method is utilized that produces fully “spendable” outputs.These outputs do not stick around in the critical list of unspent outputs (the “UTXO set”).

    Can I secure my XCP and tokens in cold storage?

    Yes.You can make a regular Bitcoin paper wallet and store them there.Later, you can sweep the funds into a Counterparty wallet, like Counterwallet.

    What May Cause Financial Intermediaries to Fail?

    Understanding counterparty risk requires a sensible appreciation for the financial intermediaries’ business models, operating conditions and financial health, as well as the prevailing economic cycle, current market conditions and the regulatory environment.Confidence-sensitive funding models, high financial leverage, lack of visibility of underlying risk exposures and engagement in capital market activities all contribute to the highly unpredictable nature of financial institutions’ risk, but the problems do not stop there.

    How does Counterparty work?

    Counterparty embeds data into regular Bitcoin transactions.To a regular Bitcoin client, these transactions look like normal Bitcoin transactions, with one party sending another party a very small amount of Bitcoin.A Counterparty node (which runs the Bitcoin client along with the Counterparty client software) will recognize and interpret the data in these Bitcoin transactions based on specific rules.From this, it constructs its own ledger of Counterparty transactions that it has seen on the Bitcoin network.

    What factors influence counterparty risk?

    The specific factors that are relevant to each business in measuring counterparty risk vary.There will be both quantitative and qualitative factors to be considered, including financial strength, industry reputation, and collateral.

    What are some examples of counterparty risk?

    Counterparty risk comes in many different forms but is often referred to in relation to equity and bonds.Investors are exposed to counterparty risks when they invest in bonds – and the risk often correlates with the potential returns.

    What Is Counterparty Risk?

    Counterparty risk is the likelihood or probability that one of those involved in a transaction might default on its contractual obligation.Counterparty risk can exist in credit, investment, and trading transactions.

    How do the Counterparty nodes stay in sync? What’s to stop one node from disagreeing with another?

    As all Counterparty nodes run the same code, and all receive the same Bitcoin transaction data, the ledgers across each node match exactly.Counterparty nodes are not like Bitcoin nodes in that they don’t communicate with each other: they simply connect to the Bitcoin software and download transactions from it, decoding each one as they go along.In this way, the immense security and computing power behind Bitcoin is leveraged as the “transport network” for Counterparty data.

    What is Counterparty Risk?

    Counterparty risk is referred to the risk of potential expected losses that would arise for one counterparty on account of default on or before the maturity of the derivative contract by another counterparty to such derivative contract.It is prevalent in all types of transactions when they are undertaken through a centralized counterparty or if the trades are undertaken in the over-the-counter (OTC) market; however, the quantum of risk is comparatively very high in the case of OTC derivate contracts.

    How can a thin client trustlessly lookup the Bitcoin public address associated with the OSTOCK asset name?

    You can use a local copy of the blockchain just fine.The only difference between Counterparty and Bitcoin here is that Counterparty doesn’t support SPV.We’re working on solutions to this issue.Protocols like VerSum offer excellent models for untrusted verification here.

    What’s the difference between credit risk and counterparty credit risk?

    You may have heard these terms used interchangeably, and their similarity can cause confusion.A counterparty credit risk is simply a subtype of a credit risk.The term “credit risk” covers all types of economic loss, including both counterparty and issuer credit risks.It’s a term often used when talking about banks loaning money or corporate bonds.

    What is Counterparty?

    Counterparty is a platform for user-created assets on Bitcoin.It’s a protocol, a set of specifications, and an API.Taken together, it allows users to create and trade assets on top of Bitcoin’s blockchain.

    Who holds the CCRM Certificate?

    PRMIA Certifications Public Directory – access a list of risk professionals holding the CCRM Certificate from 2016 onward.

    What is XCP?

    XCP is the native token of Counterparty.It is a technical necessity for adding advanced features to Counterparty, which by nature require a protocol aware currency.Bitcoin can only be aware of BTC, while Counterparty can be aware of both BTC and XCP itself.This makes it possible to escrow funds, trade in a decentralized manner, and harness the full potential of programmable money.

    What is Counterparty Risk Intermediation?

    Counterparty risk is the likelihood that one of the parties involved in a transaction defaults on its contractual obligation.Counterparty risk usually exists in derivative transactions and repurchase agreements.

    What are the key challenges of modeling Counterparty Credit Risk?

    Defining the motivations for measuring counterparty credit risk is an important step towards under-
    standing its complexity.However, in order to achieve a successful implementation,
    many challenges need to be addressed.

    What is a ‘Counterparty’ ?

    A counterparty is the person or organisation on the other side of a financial transaction.If you make a financial deal with someone, then the person on the other side of the deal is the counterparty.

    What is a Counterparty?

    A counterparty is the party on the opposite side of a transaction.There must be a counterparty in order to complete a transaction.


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    What about Sidechains?

    Counterparty is optimal for mainly higher value transactions and greatly benefits from the security of the main chain.However, if sidechains are ever released, there is no reason that they couldn’t be made to work with Counterparty.This is the beauty of Counterparty’s embedded consensus technology – it can work with just about any blockchain out there, including sidechain designs.

    What is a Counterparty?

    A counterparty is the other party that participates in a financial transaction, and every transaction must have a counterparty in order for the transaction to go through.More specifically, every buyer of an asset must be paired up with a seller who is willing to sell and vice versa.For example, the counterparty to an option buyer would be an option writer.For any complete trade, several counterparties may be involved (for instance a buy of 1,000 shares is filled by ten sellers of 100 shares each).

    Why measure Counterparty Credit Risk?

    Counterparty credit risk (CCR) is currently one of the most complex topics for financial institutions.This complexity comes from many different sources but is primarily related to the multiple definitions and uses of counterparty credit risk.

    Is a 51% attack against Counterparty possible?

    As every Counterparty transaction is a Bitcoin transaction, to do a “51% attack” on Counterparty you would have to do a 51% attack on Bitcoin.

    What about support for other blockchains instead of Bitcoin?

    Counterparty is built on Bitcoin.That has always been the case and we do not see it changing, ever.For other blockchains, there are “forks” of the Counterparty software.Examples would be Dogeparty for Dogecoin, and Viacoin’s ClearingHouse.We generally encourage forks on other blockchains, especially if they help contribute back bug fixes and enhancements to the main Counterparty codebase.

    What Is 'Counterparty Risk'?

    Counterparty Risk is the possibility that other people won't deliver what they have promised.

    What kind of addresses does Counterparty use?

    Exactly the same Bitcoin addresses we all know and love.As such, Counterparty tokens (such as XCP, SJCX, CAKE, and more) may be sent to any Bitcoin address.

    Why Measure Counterparty Credit Risk?

    Counterparty Credit Risk is the risk that a party, usually to an OTC derivative contract, may fail to fulfill its obligations, causing replacement losses to the other party.This is similar to the standard definition of credit risk in the sense that the economic loss is due to the default of the obligor.However, it differentiates itself because of the uncertainty around the exposure at default.More specifically, the amount of exposure is uncertain due to the random nature of the contract’s pay-offs.

    History of Counterparty

  • In 1944, the Bretton Woods Conference set the stage for the U.S.
  • In 2011, wrote about the legal considerations of pseudonymous Bitcoin/e-cash.