Following "The DAO-way"

A friend once told me something about contracts:

“The large print bringeth, the small print taketh”

With over 150M dollars worth of ether at stake, The DAO, Ethereum's most significant experiment to date, is at a critical point, both for its shareholders and the blockchain community. The outcome, unknown today, will have a great impact on Ethereum, and will will set a strong precedent for what will come next.

Let's review a short summary of the situation:

  • published developed a smart contract for the Ethereum blockchain as a "Decentralized Anonymous Organization".
  • The contract gives shareholders the right to vote on how to spend the money raised from a direct crowdsale.
  • The contract raised $168M worth of ether in funding.
  • Shortly after the close, an attacker was able to execute logic hidden deep in the contact to extract over 50M dollars worth of ether.

To expand on the hack, the attacker was able to run the code of the contract in a way to “extend” its intended use. Essentially, the attacker read and executed the "fine print" that no one else was able to see.

There is an argument that the attacker did nothing wrong, as illustrated in this “fictional” response:

"I have carefully examined the code of The DAO and decided to participate after finding the feature where splitting is rewarded with additional ether. I have made use of this feature and have rightfully claimed 3,641,694 ether, and would like to thank the DAO for this reward."

With this crisis on hand, the Ethereum community is torn with how to best proceed. At the least, there are a couple interesting outcomes:

Undo the contract on the Ethereum blockchain

Some members of the community are suggesting that the blockchain should be forked, either hard or soft, to undo or prevent further loss. This correction can only be deployed by the miners and consensus.

However, modifying or censoring the blockchain challenges one of its core principals: immutability. If politics are able to modify history this time what could that say for future episodes, on permissioned blockchains or not?

Furthermore, how it will effect Ethereum's future? Would miners become even more careful to protect their interest by increasing protection of their network?

The attacker keeps the ether

As censoring or reversing the damage is in favor of the victims of the attack, it could lead to a systemic failure of the blockchain network. If so, would it justify the risk of massive loss?

A loss is quite impressive, approximately up to 15% of the Ethereum network. Interesting enough, the 600M dollar loss during the MtGox meltdown was reported at 6% of the Bitcoin market cap.

As difficult as it was to recover from the loss, it did establish a basis for the currency. Perhaps we could say:

There cannot be loss without value. Because there is value, there is loss.

If this loss is accepted, it will be interesting to see the recovery. Because of the high value of these contracts, we can envision in the near future “crypto-lawyers” writing crypto contracts for a new digital medium designed to protect and exchange value.