Normal pencils use graphite for their core. Graphite is quite brittle so that it is possible to break it apart and rubb it off a surface with the right tools. However graphite is very dark and does not really bond to much else which can be used as coloring pigments. So color pencils do not use graphite at all but rather wax. The wax can be mixed with pigments to make out the different colors. However unlike graphite the wax is very maluable and will just smear out if you try to erase it. The wax also have other properties you might want in a pencil such as being easier to write with on wet surfaces, does not produce dust and is non-conductive.
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