Security & Fraud

Will Ethereum Survive The $50M Hack?

The hacking of an experimental virtual currency project called the Decentralized Autonomous Organization (DAO) has sent a chill into the digital currency ecosystem. More specifically, Ether, a bitcoin-like digital currency alternative.

The hacker in question was able to steal $50 million in digital currency from the project that has otherwise been gaining some attention in the space because of its venture capital funding.

Ether, which is a relatively newer digital currency on the market that runs on the Ethereum network, has been gaining some popularity up until this hack. Following the reports of the hack, Ether took a big hit. While it was recently trading at $21 a coin recently, it fell into the $13 range following the news. It recovered a bit and was trading around the $16 mark soon after the dust settled. It was back down to $12.34 on Sunday afternoon (June 19).

From the latest speculation in the mainstream press, this attack could be the end of DAO — a project that has raised $160 million total in the form of the digital currency. What the hack brings to light is more evidence toward the volatility and vulnerability of digital currencies, like bitcoin and Ether.

When the fund was hacked on Friday (June 17), alerts were sent out saying it may halt the VC-backed fund in order to protect the project.

“The DAO is being attacked,” Griff Green, a community organizer with the company that wrote the project’s software, wrote, according to a New York Times report. “This is not a drill.”

Ether is known for being the latest up-and-coming digital currency to take on bitcoin. But according to reports about this fund intended to advance projects for the currency, there have been early warnings that this type of hack was possible due to vulnerabilities in its code.

“This is one of the nightmare scenarios everyone was worried about: Someone exploited a weakness in the code of the DAO to empty out a large sum,” Emin Gün Sirer, a computer science professor at Cornell who was cited by NYT, said.

Reports indicate that programmers have been working to alter Ether’s code in order to recover the funds that were stolen, but that decision was not viewed positively by those directly involved in the digital currency.

“The strength of blockchain tech is that it is a ledger, a statement of truth,” Bruce Fenton, a Bitcoin Foundation board member, wrote on Friday in a blog post. “That ledger is only as good as its resistance to censorship, change, demands or attack.”

But the good news — at least in terms of the funds?

The funds may be able to be retrieved. Whether or not the digital currency community allows for it is another question.

“Thanks to a process called a ‘fork,’ resulting from coordination with the Foundation, all stolen funds will be retrieved from the attacker,” Stephan Tual, an employee with Slock.it, wrote in an email. “The same ‘fork’ process will make it possible for the DAO Ether to be transferred to a smart contract, which only contains a withdraw function. Since no money in the DOA was ever spent and nothing was stolen, nothing was lost.”

But he was not optimistic about the future of DOA.

“The DAO’s journey is over,” he told NYT.

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