The DAO Conspiracy Part 1: The Ether Theft

One fine morning, the secure and cozy world of Ethereum was shaken to its roots, with news of an attack on its vast cash reserves. The thief managed to empty a whopping $55 million from the vault. This is a story of the biggest digital theft in history, which led to some intense DAO wars between the good hackers versus the bad hackers.

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This is one of the most interesting stories, filled with numerous controversies. To make sure we bring you all the angles/details related to the DAO, we’re dividing the DAO Conspiracy: The Ether Theft series into 3 parts. The first part is an introduction to what exactly happened.

On June 17, 2016, Ethereum Founder, Vitalik Buterin made the following announcement on the Ethereum blog:

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The DAO was attacked and the value of Ethereum spiraled to below $15. That there was an attack and millions of dollars worth of Ether was stolen, and that Ethereum crashed, is all very clear. But what is the DAO?

The DAO

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Ethereum is a decentralized currency, similar to Bitcoin. But it is built very different. It is decentralized and allows other decentralized organizations to be built on top of its blockchain, with smart contracts that are activated automatically, when a certain criteria is fulfilled.

DAO (Decentralized Autonomous Organization) is one such organization that is built on top of the Ethereum blockchain. It is a distributed organization, launched to support projects related to Ethereum. The DAO controls a staggering amount of digital currency. It managed to collect more than $50m worth of ETH (ethers), which is the digital token of the Ethereum network, from thousands of young dreamers and developers who believed in the DAO concept.

What Exactly Does The DAO Do?

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The idea was based on the concept of crowd-funding, and the DAO raises ETH to help other startups and projects. The people who invest in the DAO are offered digital tokens that can be used to vote, in order to determine the projects that should be helped with funding. This funding system is based on the number of votes received, within a fixed time period.

The man behind the DAO is Jentzsch, a 32-year old theoretical physicist, who started Slock.it in 2015. He didn’t know what he was getting into when he began to seek funding. He spent six months creating the DAO and expected to raise around $5m. Between April 30 to May 28, in under a month, the DAO raised a whopping $150m.

This was when the price of ether was below $12. As the price of ether went up to $20, a day before the attack, the value of the DAO also increased to $250m.

The Theft and a Child DAO

With that as the background, let’s get back to the theft on that Friday morning. It had all the ingredients of a suspense thriller: a devastating exploit, unidentified attackers, loss of millions of ether that amounted to tens of millions of dollars.

As people woke up to the terrible news of lost ether; experts were already hard at work, trying to see if they can salvage the situation by recovering the ether, at least some of it.

According to Griff Green, who was involved in the creation of DAO tokens:

“The person has their ETH locked in a Child DAO, so they will not be able to get the ETH out for a long time. The entire Ethereum Ecosystem is collaborating on a solution.”

The child DAO is an address where the sole curator is the attacker. The ether drained from the DAO was found trapped in the child DAO. Without getting technical about it, let us understand that no withdrawals are allowed from a child, for a total of 27 days after its creation.

The thief drained out 30% of the ether in the DAO, equaling to about $55m into the child DAO. After that the thief stopped. The fact that the thief stopped with just 30%, surprised the entire DAO team. They knew they had to do something immediately to protect the remaining 70%, in case the thief decides to come back for the rest.

Their frantic discussions led to a solution they all agreed upon.

The Robin Hood Group! This group comprised of whitehat hackers, who would slowly drain the remaining DAO, to keep it away from the prying hands of the thieves and return the ether to its rightful owners.

That’s just the beginning.

Coming Up…

Was it line 666 of the smart contracts that caused the problem? Was it intentional? Was the Robin Hood Group all it said it was? Was Jentzsch the conspirator?

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Author: @knowledge1