Robert Sams writes me about Ethereum

…wanted to draw your attention to http://ethereum.org/. Their testnet has just been released tonight. This is NOT another alt-coin, but something much more interesting.

It’s a blockchain with hash-based proof-of-work, similar to Bitcoin, and it has a currency at its core called “ether”. But what makes this interesting is that it includes a Turing-complete scripting language that implements a new entity, a programmable *contract* which, like addresses, can generate and receive transactions.

From their whitepaper (http://ethereum.org/ethereum.html): “A contract is essentially an automated agent that lives on the Ethereum network, has an Ethereum address and balance, and can send and receive transactions. A contract is “activated” every time someone sends a transaction to it, at which point it runs its code, perhaps modifying its internal state or even sending some transactions, and then shuts down.” So the network doesn’t just compute meaningless hashes, it is a distributed computer automating any type of financial exchange expressible in its scripting language.

In theory, all manner of things can be implemented on the network: sophisticated escrow arrangements, securities, CFD’s, order books, games of chance. And being Turing-complete, there will be many things possible that are not currently anticipated or even conceived.

The creators use an internet analogy. As a protocol, Bitcoin is like SMTP, good for doing one thing well (transferring Bitcoin from A to B). Ethereum is like TCP/IP, a generic, low-level platform on top of which other high-level protocols can be built. The internet of finance, as it were.

Haven’t had a chance to look into the code yet. It will be awhile before we know whether the thing is robust. I predict lots of teething problems. I’m just guessing here, but the biggest question mark is whether the security of the network can withstand malicious or buggy code (Bitcoin’s simple scripting language is deliberately not Turing-complete for this reason). Creators of contracts must fund them with tx fees which, as far as I can tell, are proportional to the complexity of the program. So they’re taking an economic approach to solving that problem.

You can read about Ethereum on Twitter here.  Here is Wired on Ethereum.  By the way, it seems Goldman Sachs may be involved.  By the way, here is Sams on cryptonomics.