Someone exploited a code loophole on the Decentralized Anonymous Organization (DAO) and hijacked close to $50 million. It took an Ethereum hard fork to claim back the funds.
It is somehow a surprise that things had to reach this point. That the Ethereum blockchain had to overhaul its core code just to bail out an independent investment entity. However, you have to note that the $160million that was locked in the DAO was about 16% of the total supply of Ether.
Thus, whatever happened to this money could impact ether’s market value. What’s more, a loss of such an amount of funds to attackers on the Ethereum blockchain could taint the credibility of the decentralized platform.
Everything possible had to be done to safeguard the funds. And a hard fork wasn’t off the table.
Before the community implemented it, however, there were concerns that something could go wrong. Maybe a different loophole could surface after the new Ethereum code went live. Or maybe some in the community would refuse to rally behind the fork.
The latter would result in a split of the Ether into two valid coins, which would cause chaos in the market since users won’t tell which the genuine one is.
So, it was a relief when everything went as planned. Miners and users adopted the newer version and the code didn’t present surprises after going live. At least, not immediately.
However, the uncertainty on the future of smart contracts only grew. This is because smart contracts had been sold as forming agreements that no one can go back and change.
This is especially critical given that the person or persons who attacked the DAO didn’t break the code. They prompted the system to work as its designers meant it to.
Using a hard fork to roll that back then raises the question as to whether smart contracts are really immutable.
Emin Gün Sirer, who is a professor of computer science at Cornell University, is one of those who have raised this question. Emin was also one of the experts who carried out an audit on the DAO, when it was crowd funding, and warned about its security.
“Rolling back the Ethereum blockchain will send terrible messages,” he has pointed out in one of his blog post, “If contracts can be reverted, then how exactly are smart contracts any better than regular old paper contracts?”
The debate on this question is still ongoing.
Meanwhile, the following are lessons that we have to learn from the Ethereum hard forking, and, by extension, the DAO fiasco:
It Is Still Too Early to Give Immense Control to Smart Contracts
In the future smart contracts are likely to guide our lives in the most profound way. Smart devices will transact with other devices as well as humans through contracts written in code.
However, what the DAO fiasco has shown us is that perhaps it is too early to trust smart contracts with major responsibilities like managing a $160 million fund.
“It’s clear that writing a robust, secure smart contract requires extreme amounts of diligence. It’s more similar to writing code for a nuclear power reactor, than to writing loose web code.” Emin Gün Sirer has opined in this regard.
We Shouldn’t Ignore Experts
Before the attack on the DAO happened, several experts did raise concerns about its security. One of these was, of course, Emin Gün Sirer. The other was Peter Vessenes, who is also a computer expert and an early investor in Bitcoin.
While we can’t they were ignored, if in future concerns are raised about similar blockchain projects, looking back will always remind us that we should give them a lot of attention.
A Blockchain Community Can Agree on a Code Upgrade
This is an important lesson especially to the bitcoin community as it haggles back and forth on how to increase Bitcoin’s block size. While everyone agrees that this is needed if Bitcoin is going to accommodate more transactions per second, agreeing on how to go about it has become a challenge.
However, the Ethereum community has shown us that consensus on a hard fork is doable. They were faced with a crisis, they debated in a very short time and pulled a solution off.
There Isn’t a Perfect Solution to a Problem
After the Ethereum forking everything seemed to have gone well. However, it is too much to expect a perfect job. While the old Ethereum blockchain was expected to die it didn’t.
Some people have christened it Ethereum Classic and decided to hold on it. Its native currency is trading in a few exchanges as Ether Classic (ETC). Some are wondering based on this outcome whether forking Ethereum was a mistake.
This says that if at all one day Bitcoin resorts to hard fork to fix the block size problem, there are those in the bitcoin community who will choose to stick with the old version. And we will have two bitcoin coins.
Rupert Hackett is the co-founder of Bitcoin Australia, and has a wealth of experience with Bitcoin and Cryptocurrencies, including the world’s first Masters in Digital Currencies. He bought his first bitcoin in 2011, and in 2014 immersed himself in the crypto world with Bitcoin Australia and angel investor fund Dominet led by Domenic Carosa.
Quote: “I really think Bitcoin could change the world.”