Words from the Editor

The Ethereum Hard Fork Breaks the Immutable Nature of Its Blockchain

The Ethereum hard fork commenced last week, which was essentially the removal of the stolen ether from the wallet of The DAO hacker to be placed in a new smart contract. That smart contract would have a single job: to distribute 1 ETH for every 100 DAO tokens. On the surface, that doesn't sound so bad.

But it actually completely breaks the nature of the Ethereum blockchain and, quite frankly, ruins the entire project. Perhaps in the short-term, it won't, but let me explain what actually happened when this hard fork executed.

A transaction had been made that essentially moved funds from The DAO smart contract into a new DAO. This was a transaction executed by the code of The DAO. While it left many people without their money, it was a transaction that the code allowed for.

Essentially, this hard fork reverses that transaction even though it is technically forcing a second one. By doing that, the Ethereum core developers have basically decided that a certain transaction is unacceptable and have changed that transaction.

Part of the reason that people trust blockchains such as Bitcoin's and, previously, Ethereums is because the transactions on the chain could not be changed. Proof of work exists, in part, to ensure that previous transactions are not changed; that is the point of the blockchain. As each block goes farther back, it becomes increasingly expensive to change a transaction.

Yet, the core developers decided to change it because people lost money. And by doing that, they showed that, with enough pressure, future transactions could also be altered if enough people don't like them.

Now we see that there are two Ethereum chains: Ethereum One and Ethereum Classic. And there is a market for both of them.

One of my good friends sent out a tweet storm talking about the new market that is showing up. The market is between a mutable (changeable) versus an immutable (unchangeable) chain. Will people opt for the former or the latter?

If I were investing in Ethereum, my money would be on the immutable chain. I want to know that any transaction that takes place cannot be changed because people don't like it. That's the point of a decentralized ledger. Otherwise, why are we even doing this?

I know there are many people who will disagree, but the reality is that people need to trust that the blockchain will be secure. And if they can't, they'll find a new chain that they do trust.

Thanks for reading this week's issue of Crypto Brief. For those that are interested, I also run FinTech Brief, which is about general fintech news. Also, check out the sponsored ad below. This is a new company that I've launched. And as always, if you have a question, please don't hesitate to hit reply.

Jacob Cohen Donnelly


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