Ethereum’s DAO Hacked… Here’s the How, Why, and When

If you haven’t heard already, the DAO part of the ethereum network has been hacked. Funds have been draining from the fund since the hack, totalling nearly 60$ million. This hack exploited a recursive calling vulnerability. Essentially the hacker split transactions then sent the split the split, etc. Developers are currently working on a soft-fork of the software to block the exploit. Once the network is updated, they’ll call off the rescue of stolen funds or find a way to use them. Stats on which wallets hold how much is visible here: http://etherscan.io/token/TheDAO

Is this the end of Ethereum?

Of course not, many of the bloggers around the net are arguing it. Ethereum price may have dropped a bit since the hack, but that will recover in the long run. The majority of the problem lies within the developers. Since the introduction of Ethereum, I noticed several challenges with it. Of course this is my opinion, but it’s a place to start.

Ethereum was Pre-Mined by its Creators

Ethereum was pre-mined with 12.5% of these totals going to the founders. This Ethereum forum thread discusses the innately problematic practice. No such thing happened with Bitcoin, but you can bet your bottom dollar that satoshi has a nice wallet, which may or may not be revealed. The first Bitcoin private key would be proof of the creator’s presence. Bitcoin mining was insanely easier than it currently is, but that doesn’t mean it was that easy. Although the topic of pre-mined is controversial, the founders are transparent about this.

Ethereum Claims to be Unbreakable

It’s impossible to say that anything is unbreakable. That’s not something insurance companies would back up. This is a bold claim that holds up until something goes wrong. Their website has been since edited, but previously Ethereum network was stated as “unbreakable”. That’s an impossible claim to hold, and can be misleading for investors. Then again a smart investor would stay away from such an audacious claim. Zero Hedge did a write-up here about this claim and the hack, it’s worth a read, unlike everything on their site.

Developers are Working Tirelessly to Resolve this Hack Nicely

White hat hackers are working to restore funds to the DAO. Tokens are marked, but the question remains: Why did the hackers steal these DAO tokens? It may be to prove a point, but why wasn’t it the white hat hackers? It may never be resolved as the cryptocurrency community always have new problems to attend to.

The Future of the DAO, Ethereum and Ether will not be Perfect

Bitcoin has had many pitfalls since it’s introduction in 2009. Many of these pitfalls are not due to the Bitcoin network, rather the manipulators of large transactions. The most notorious of these being MT Gox. Many exchanges have been compromised over the years, and it may never be fully resolved. It would be wrong to say that they were scams in the first place, but it would also be wrong to say whoever got away with it will be gone forever. Many lost Bitcoin can never be recovered.

That being said, the Bitcoin has had network issues, primarily the limit of block size. This topic is still being debated today, and more issues are bound to appear in the future. The DAO hack is similar to the blockchain size, except people who thought their funds were secured lost them, for the time being.

What’s Next for Ethereum, Ether and the DAO?

Decentralized networks are beautifully simple at initiation, yet grow immensely complicated over time. There are bound to be more hacks in the future. It’s impossible to say what these are, but it’d be wrong to rule out problems entirely. Decentralized networks and cryptocurrency are relatively new concepts, so it’s hard to say they will be perfect.