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The advantage of embedding assets in the Bitcoin blockchain is the high level of security. Bitcoin is considered by many to be the most secure blockchain because there is a tremendous amount of distributed mining power that secures each block with a “high difficulty hash”[6]. Because the distributed Bitcoin nodes recognize the level of effort to create a high difficulty hash, this makes it nearly impossible to re-write or modify the blockchain without prohibitively high mining investment. To tamper with the Bitcoin blockchain, to re-write or modify its ledger, would take significant efforts from an investor at the level of a nation-state.

The disadvantage of embedding assets in the Bitcoin blockchain is that the Bitcoin rules must be followed as originally written, and the Bitcoin nodes are unaware that assets are being embedded.

This means that a Bitcoin transaction must be used for every asset transaction, and it must send enough bitcoin to be considered a valid transaction, even though the primary purpose of the transaction is to send the asset. That is inconvenient, but a major disadvantage is that a Bitcoin client that spends that bitcoin without being aware of the embedded asset transaction will destroy the asset. For example, a holder of the Bitcoin private keys to Bitcoin which hold the Counterparty assets, could accidentally send that Bitcoin to an exchange or wallet and lose those assets. A partial solution to solving this issue is to create a special address format that is used for the asset, but that doesn’t prevent the mistake that may destroy the asset. It just provides more clues that there is an asset embedded in the transaction.

Other token standards like ERC20, ERC721 and ERC223 are built on Ethereum or other blockchains that support smart contracts. A different problem exists when using these smart contracts. Since the Ethereum network does not natively recognize these smart contract tokens, it is currently unable to protect against some common problems. Smart contracts can be confusing for users as there can be multiple ERC20 tokens with identical names. The only distinction between contracts with identical names is the contract hash.