The DAO Hack — Stolen $50M & The Hard Fork.
The last article explained the idea of DAOs, but I think we can’t talk about DAOs without mentioning “The DAO”.
The DAO was the first DAO to run on the Ethereum blockchain, it was built by the Ethereum community to be a decentralized venture capital. The DAO was launched on April 30, 2016. It was controlled and operated by its token holders. For funding, the project raised around 150M$.
In June 2016, a user exploited vulnerability in the code of the smart contract of the DAO and successfully stole 3.6 million Ether, which at the time was worth around 50M$.
In response to the attack, the Ethereum community has decided to do a hard fork (a rule violating change in the blockchain) which reverted the attack and returned the funds. The fork took place on block number 192,000 and led to one of the biggest continuous debates in the blockchain space.
One thing to note is that the funds were subjected to a 28 holding period which means the funds didn’t actually arrive at the attacker, this made the hard fork a lot easier since the attacker was yet unable to spend the funds.
The proposal of doing a ‘hard fork’ led to great controversy in the Ethereum community. The supporting side claimed that the attack was not only unfair but it was also a great threat for the future of the Ethereum project as such a great loss of money for such a large part from the community could make lots of people lose faith in the system. Also, it is ethereally wrong to allow a malicious actor to profit from the hack and it can be very dangerous for the network to leave such an amount in the hands of a malicious actor which in turn can use it to further manipulate the network.
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On the other hand, the opposing side claimed that the blockchain should be immutable and the ‘hard fork’ would not just violate it but may also serve as a precedent in future cases. Furthermore, the entire agenda of the DAO is it should be based on code and changing the code breaks the idea of DAO.
The controversy over the ‘hard fork’ led the Ethereum network to split into 2 chains. The unforked version where the attacker received the funds which called Ethereum Classic, and the forked modified version which kept the original name Ethereum.
The controversy over whether the blockchain should be modified in this type of cases started catching fire again lately when an anonymous developer accidentally exploited a vulnerability in Parity contract and destroyed it. The contract was some kind of a library used by lots of multi-signature wallets for managing their funds. The destruction of the contract left the contracts relying on it futile and the funds in them froze (meaning there is no way to move them). The entire amount lost because of this incident was around 900,000 Ether which was worth 300M$ at the time.
To recover the funds, an EIP (Ethereum Improvement Proposal) was published. EIP999 is a proposal for restoring the contract code through a hard fork. This leads to a debate similar to the DAO one, only now the network is more mature and may be able to continue to operate without recovering the funds.
My personal argument is that as the chain is built and agreed upon by the community, the community should be able to revert transactions in consensus agreement. But as noted here https://ethereum-magicians.org/t/eip-999-restore-contract-code-at-0x863df6bfa4/130/21?u=maurelian a problem is that smaller cases of less influential voices may be treated differently which can make the network unfair.
As I see it, there is no clear right or wrong here as both sides have strong, justified claims and I will not take a side for now but will leave it for your discretion.
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This guest article was written by Ben Kaufman, founder of BitCampus.io
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