The DAO Fail - Is the Ethereum Bubble Over?
On the 17th of June Vitalik Buterin requested exchanges to stop trading ETH. Soon after a post was published on the Ethereum blog explaining the issue. Apparently the system had been hacked and the attacker was currently maliciously getting hold of ether worth around $60 million into a child DAO. It reads:
An attack has been found and exploited in the DAO, and the attacker is currently in the process of draining the ether contained in the DAO into a child DAO. The attack is a recursive calling vulnerability,where an attacker called the “split” function, and then calls the split function recursively inside of the split, thereby collecting ether many times over in a single transaction.
Trading was resumed a few hours later and panic selling began. Confidence was lost and the price dropped 50% from $20.5 to $11.2 in just a few days.
What happens now?
He then suggested a software fork that would prevent the attacker from withdrawing the funds.
This caused a mixed bag of emotions in the crypto community. There were three suggestions made regarding how to solve the issue. A soft fork was suggested – this would blacklist the address with the stolen ether. Another option is a hard fork – this would essentially return the stolen ether. Or alternatively – do nothing.
The solutions suggesting the soft fork and hard fork have caused upset because this means that the whole essence of cryptos – decentralization is being violated. I do understand this however what is a better solution – let an attacker rinse the system from funds just to prove a point or to accept that there was a vulnerability in the system and try to fix it. On the other hand – the whole essence of cryptos is that no central authority controls it. If they can return the funds from this hacker’s account then who is to say they wouldn’t do it again for whatever reason.
In the trading game it is all about confidence. This issue has halved Ethereum’s value. Although the price did climb back a bit reaching just over $14, probably because people were buying due to the low price it has returned back to under $12. Just as after the British referendum where unexpectedly people voted to leave the EU the currency plummeted to a 30 year low and markets were in turmoil. Barclays stocks fell over 18% and RBS fell even lower – 23%. Why I’m mentioning this is the fact that nothing at the point of the announcement of the brexit results had actually happened. Britain will remain in the EU for at least another 2 years. Yet somehow everything was now worth 11% less.
The End or a Slight Bump in the Road?
So there we have it. The confidence has been shaken, yet this doesn’t mean the whole idea is doomed. Right now there’s a lot of discussion whether to accept the soft fork or hard fork or come up with something different altogether. They’ve decided to let the people running Ethereum to decide what the final decision should be. The vulnerabilities and issues can surely be sorted but it certainly has toned down the enthusiasm a bit.
Although there are a lot of haters now suggesting that it’s a lost cause, I am feeling positive. The DAO is still very much in its infancy and it would be a bit optimistic to think that it should be a flying success straight from the start. I believe that the issues can be fixed and the DAO could potentially reach the greatness that it promised.