Words from the Editor

The Revenge of the DAO

Friday morning, I was up much earlier than usual, because I had work I needed to get done before the weekend came. I login to a few of the sites that I normally check out first thing in the morning and I see that Ethereum has lost a considerable amount of value. Lo and behold, I find out at 5:45AM that the DAO had been compromised and over $60 million in ether had been removed from the main DAO.

Now, if you want a really good analysis on what happened, how it happened, and what's going on, just check out the first link below because Michael did a great job summarizing it. However, here is a high end look.

The DAO, otherwise known as the Decentralized Autonomous Organization, was the first experiment at a self-running firm. Essentially, those that invested in the DAO with ether received DAO tokens in return. They were then shareholders and could vote on what the DAO did, such as investing that raised ether in other companies, hiring people to do tasks, and other initiatives with the goal of the DAO delivering funds back to its investors.

Here's the thing ... The selling point of the DAO was that the code dictated the rules of the contract. According to the terms and conditions, "The DAO’s smart contract code governs the Creation of DAO tokens and supercede any public statements about The DAO’s Creation made by third parties or individuals associated with The DAO, past, present and future."

That's significant because the individual who stole the ether from the DAO was a token holder; therefore, the only way that the attacker was able to achieve this theft was to have been a shareholder in the DAO. By finding a loophole in the code, the attacker essentially followed the rules of the DAO. In other words, did the attack actually steal anything or was he simply following the contract?

The DAO was a massive announcement and raised a couple hundred million dollars. And then it came crashing down. A lot of people have lost money and it's a truly unfortunate event. Many have been calling this Ethereum's MtGox. But for those that own Ethereum, remember that great things came to Bitcoin after MtGox. The future can be bright once this shadow has passed.

Ultimately, the DAO is being wound down. Yet, what will happen to Ethereum is up in the air. There has been talk about forking the code to prevent the attacker from keeping the ethereum. Many have said that this would be disastrous to Ethereum and in many ways, I agree. Blockchains should not be changed just because people lose money; if that becomes precedent, people will make even worse investments.

While the DAO came back and hurt Ethereum and shook investors confidence to the core. But once this is behind Ethereum, I expect to see security get stronger, holes get plugged, and the code become that much stronger.

Thanks for reading this week's issue. If you have any questions, please hit reply. And I encourage you to share this with your friends and colleagues. Thanks!

Jacob Cohen Donnelly

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