Toronto programmer Vitalik Buterin was just 17 when he first became active in the world of Bitcoin. Now, at 20, he's one of the creators of a new currency called Ethereum, which its founders hope will be the next generation of cryptocurrency.
Just as Bitcoin made it possible to send and receive money outside of the traditional banking system, Ethereum could make it possible to set up binding contracts outside of the legal system. In addition to a virtual currency called Ether, Ethereum includes a full-fledged programming language that makes it possible to encode binding agreements embedded in the same transaction record that tracks the flow of Ether.
"I think Bitcoin really feels empowering in a sense," says Buterin, who also cofounded Bitcoin Magazine in 2011 and works as a developer on the cryptocurrency marketplace site Egora. "If you look at the way all the other different monetary technologies work, there's a lot of barriers around them—you need to have a credit card, you need to have a bank account, you need to have a merchant account and so forth."
Within the next few weeks, the Ethereum team plans to debut a version of its software including a scripting language that's Turing complete, meaning it's as expressive as languages like C, Java, and Python. Users will be able to encode automated contracts in that language, essentially represented by bots that can send and receive Ether currency when certain conditions are met.
"It'll be a client that people can use where they can actually start experimenting with some of these actual different contract types," says Buterin.
For instance, Buterin says, a banker and a customer could contract to establish a savings account that lets the customer use a cryptographic key to withdraw 1% of the balance daily and the banker withdraw 0.5% of the account every day. If both keys were used in tandem, the customer could withdraw as much as he wanted. That way, if the customer's key were stolen and he notified the banker, or the banker turned out to be insolvent or crooked, the customer's losses would be limited.
The contract establishing the account would be a piece of code executed by everyone tracking the Ethereum-shared transaction record. Other contracts could establish what Ethereum's founders call distributed autonomous corporations, where code written in Ethereum's scripting language could automatically poll company shareholders or nonprofit board members about how to spend company accounts according to predefined voting rules.
"Really any kind of organization could potentially fall under this model," Buterin said.
The scripting language would allow the contract bot to disburse Ether and could potentially even generate emails or online banking transactions, says Buterin.
"The contract itself would actually create the HTTP packet that would initiate the session with some bank," he says. "Then, that packet is already encrypted and signed, and somebody would have to take the packet and forward it to the bank, and the bank would take the packet in response and that same pass-through person would have to take the packet and send it back to the contract, and so forth."
An auction house could set up escrow accounts for its buyers and sellers, Buterin says. A two-thirds vote of the buyer, seller, and auction house would tell the contract bot to either forward the escrowed funds to the seller or return them to the buyer, letting the auction house easily function as an arbitrator for disputed purchases.
Contracts, or their human supporters, would have to pay small fees to cover the cost of their computation and data storage, Buterin says. Some of that money would go to miners of new Ether coins, and some would simply be deleted from the system, in a ratio to be determined as the currency evolves.
Buterin says that although Ethereum might seem attractive to underworld figures seeking to form anonymous binding contracts, the Bitcoin-style shared transaction record should limit many potential criminal uses. Regulators may not be able to shut down an autonomous corporation running in the Ethereum system, but they'll be able to trace where it's sending money, he says.
"The thing with the blockchain [transaction record] is that everything is still very public," he says. "The favorite currency for criminals is still cash."
[Image: Flickr user antanacoins]