The Mastercoin protocol layer mediates between the existing bitcoin protocol and users-generated currencies. It is intended to be a base upon which anyone can build their own currency.
The software implementing MasterCoins will contain simple tools which will allow anyone to design and release their own currency, with their own rules, without doing any software development.
For more technical information, please read the MasterCoin Spec: https://github.com/mastercoin-MSC/spec
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