Can Ethereum kill Bitcoin with self-executing contracts?
Toronto programmer Vitalik Buterin was just a kid and 17 when he started getting involved with Bitcoin. Now 20, he’s created a Bitcoin competing cryptocurrency called Ethereum. Bitcoin (and other cryptocurrencies) make it possible to send and receive money outside of the traditional banking system. Well Ethereum wants to take it a step further by making it possible to set up binding contracts outside of the legal system. In addition to its virtual currency called Ether, Ehtereum includes a programming language that makes it possible to encode binding agreements embedded in the same transaction on the ledger.
Sometime in the next few weeks Ethereum will reveal this version of its software that includes 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. Essentially creating a data-driven computer language that sends money by commands when milestones in contracts (conditions) are met.
“This is pretty interesting. It uses a part of the Blockchain (a bit that Bitcoin can use as well) for scriptability. Except it also includes some more inherent interesting cryptographic key exchange,” said SiliconANGLE Assistant Editor Kyt Dotson.
From a Fast Company interview, Buterin explains how it works:
“The contract itself would actually create the HTTP packet that would initiate the session with some bank. 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.”
Like Bitcoin, Buterin remindes those worried about criminals using Ethereum that it is unlikely.
Much like Bitcoin, DAOs are likely far too transparent to be practical for much of the underworld; as FINCEN director Jennifer Shasky Calvery has recently said, “cash is probably still the best medium for laundering money”.
With heavyweights like Marc Andreessen already Bullish on Bitcoin, calling it the first thing like the Internet since the Internet, cryptocurrency is going to be a central theme in tech conversations everyday moving forward.
Ethereum is the first cryptocurrency to add a contract-level to the currency. In a recent Bitcoin Crowd Chat, the question of what could disrupt Bitcoin was asked and there was a good conversation, which you can read in the screen capture below.
Legally binding contracts are what facilitate commerce. What Ethereum is proposing it created, is a algorithm that can automatically move money in the Blockchain for the parties. Buterin discusses an example of a scenario of that working:
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.
So can Ethereum kill Bitcoin with self-executing contracts? In short, the answer is no. The scripting language that will allow Ethereum users to encode automated contracts is a functionality Bitcoin could duplicate if it so chooses. Buterin is a mind worth keeping tabs on in the cryptocurrency space. The more cryptocurrencies bake-in real-world applications of transactional business use, the more the business world will notice. That is of course, as long as DDoS attacks that take advantage of transaction ID malleability don’t kill progress in this emerging market.
Watch Buterin reveal Ethereum at Bitcoin Miami 2014.
feature image via Ethereum demo video
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