Hacking The DAO - multi-million robbery and the appearance of Ethereum Classic

The DAO is one of the most dramatic pages in the history of the Ethereum platform and the entire crypto currency industry. The developer's mistake, which resulted in the loss of 50 $ million, caused the community to step back from decentralization, the main principle of crypto-currency. What consequences did this have and why did Etheria become two?

What is The DAO and how it was hacked?

It's no secret that Ethereum is not just a payment tool, but also a platform for creating decentralized applications. On the basis of the blockade of the air, everyone can develop their own application, which will be serviced by smart contracts. One of the first on the basis of the Etherium was The DAO - a real digital company without executives, employees and offices. The project was a venture fund and was created by developers independent of Ethereum, but from the side of the team Bouteria was strongly encouraged. Obviously, a successful project was supposed to show all the power of the Etherium, but in practice this did not happen.

The idea of ​​The DAO was extremely simple, but in its own way original. The developers have set a goal to create a venture fund that will invest these or other projects without the intervention of the human factor. In essence, only the most interesting and popular projects would receive funding, which would exclude any corruption schemes that thrive in real life. 

Each willing sponsor could invest in The DAO their funds and in the future would be able to make money on successful projects. It should be noted that the popularity of the venture fund grew very rapidly - for a short period of its existence for a couple of months it was invested about 165 $ million in airs (12 million ETH at that time, which is about 15% of the entire etherium). It seemed that the prospects for a decentralized application based on Ethereum are the most rosy, but suddenly something went wrong.

And was there a breakdown in DAO?

The DAO began its work on April 30, 2016, and already in May there was information that the project was vulnerable. The organizers were very skeptical about this and answered any questions from users only that they were the largest crowdfunding project, which means that they had absolutely nothing to fear. But after a while, the creators of the decentralized application also panicked - they found vulnerabilities and even figured out how to solve them. But a user appeared who got ahead of them and used The DAO's mistakes to his advantage - very soon investors were able to watch how millions of ethers began to flow into someone else's wallet. Nobody could stop it.

The main drawback of The DAO was called "recursive challenge". Many people say that the project was hacked or there was an error in its code - it is not so. In fact, nothing of the kind happened and the code worked the way it was written. Another thing is that the developers turned out to be good programmers, but bad businessmen, because in fact, a certain user took over millions simply by using the functions offered by The DAO. We will not delve into the technical complexity of the whole process, in general terms it can be said that the The DAO system was charged with the dividend. The user has only to learn about this moment and start creating affiliated companies on the block, infinitely receiving a reward. In general, through The DAO was lost 50 $ million on the air.

The most epic thing was that during the general excitement, when everything was mixed - investors panicked, Ethereum was losing course, the project itself and the entire network were predicted a quick death - suddenly the very anonymous author appeared and said that everything was completely legal. According to him, he did not hack anything, but only used the opportunity that everyone could use. In the end, the newly-made millionaire thanked everyone and noted that he would sue if someone tried to take his reward.

On the one hand, the person who used the miscalculation of the project's creators cannot be called a robber - he really did not hack anything and, even if he is not a model of decency, according to the law, there is nothing to complain about. On the other hand, a huge number of investors were left without their own funds, and therefore the developers faced a very difficult question of their return.

The consequences of hacking for Ethereum

The situation with The DAO caused a real panic in the market and became a serious lesson for the entire crypto community. Against the backdrop of the depreciation of the aether and outflow of investors, there were much more global problems that caused the "legal robbery" of the TAO. The community has spread a lot of talk about the expectation that not only the collapse of The DAO, but also the end of Ethereum itself.

Looking at the situation from the side, Ethereum had practically no direct connection with The DAO. The platform worked, as before, no problems in the stand-alone application for the whole of this global ecosystem did not affect. And then Vitalik Buterin could safely step aside and leave the developers of the DAO to solve their problems independently. But since a large amount of money was lost on the air, and even all this happened in a project created on the Ethereum blockhouse, staying away would mean casting a shadow on its platform.

Under the terms of the The DAO's smart contract, the so-called kidnapper had to access the money in 27 days. During this period, the ethers were frozen and the developers had time to find a solution, but they could not find a painless exit.

Ethereum Classic - true Ethereum

On the initiative of Vitalik Buterin, it was decided to carry out a hard fork on the Ethereum network. His goal was to make a kind of rollback and return the system before the loss of funds in the DAO. In this case, the new branch would work according to somewhat different rules than the old one, which should have simply died out without support. The decision to hard fork was very difficult, because it trampled on the main cryptocurrency principle - the decentralization of the network. In fact, this was an act of influence on the network of individuals, albeit developers, whereas initially the network was intended to be equal. This has become a major stumbling block in the community.

Vitalik Buterin managed to convince the community of the need for a tough influence on the Ethereum blockhouse and most of the miners supported this venture. But Buterin did not take into account that the dissenting minority of the community would not go on about the majority, and still remain in the old network. Those miners and users who did not update their software simply continued to work in the old branch. Thus, Ethereum Classic was born, gathered around itself the ardent supporters of decentralization, who considered the actions of Buterin a crime. The first time around the classical etherium was a wild hayp, but it did not last long and now the enthusiasm of its supporters is beginning to subside.

Did you need Ethereum hardfire?

Hacking The DAO had big consequences for the world of crypto currency. This was a vivid example of how the inadequate elaboration of the system can lead to a catastrophe, which will have to be cleared up by many. At the same time, the collapse of The DAO revealed a number of problems of crypto community:

• The issue of decentralization. As it turned out, not so much the community is independent and yet the control center of any of the crypto-currencies can suddenly arise, although without the support of the community, it can not do anything.
• Equity of network members. The problem of suppressing the minority by the majority exists not only in the crypto-currency plane, but also rooted deep into the history of mankind. Crypto community, which was proud of the equality of all its participants, did not simply recognize that the interests of a part of the community can not be taken into account. With this, the initiators of the emergence of the Efirium classics could not reconcile, which remained in the old branch and are there to this day, considering their network to be true.
• The problem of poor preparation of ICO projects. Although The DAO appeared almost at the beginning of the HYIP around the ICO, nevertheless, for many developers it did not become a lesson - the creators of new projects are actively continuing to rush to raise funds without paying enough attention to technical studies. As a result, various burglaries and bugs occur everywhere and suffer mainly from investors.

Unequivocally, that there was no obvious need for hardcore and it was made only for the reason that too many interests came together. Investors wanted to return their money, the developers to correct their own fault, and Buterin was eager to defend the honor of the Etherium. At the same time, we can not fail to note the positive results of the division of the blocking Ethereum, because it showed that the crypto-currencies are not at all helpless and, with the consent of the community, various manipulative manipulations are possible in this environment. For example, if a bank was robbed, no one would be able to rewind the time back until the moment of theft and start all the events again - digital money in this regard is a more progressive phenomenon and all of their extra possibilities we still have to learn.

Fortunately, as a result of hacking, The DAO did not lead to global cataclysms and the project itself, which ceased to exist, suffered most of all. For the rest, it was a good lesson, which only raised prestige and popularity ICO-projects, because if someone on The DAO and left a negative trail, it is definitely not on their depositors.