Ethereum, you need to let TheDAO sink.
The DAO took a hit
Ethereum and TheDAO rates plunged yesterday, as an “attacker” managed to make off with 3.6m Ether, which amounts to around 47 million USD at the time of writing (quickly dropping). Coindesk writes
“News of the hack first began to circulate on Reddit and other social media sites this morning, prompting Ethereum co-founder Vitalik Buterin to call for a pause in trading in ether markets as well as those for DAO tokens”
http://www.coindesk.com/dao-attacked-code-issue-leads-60-million-ether-theft/
I don’t particularly enjoy criticizing Ethereum, or even TheDAO for that matter, but what is going on now is just wrong on so many levels. Judging by the discussion on the Ethereum reddit, there seems to be a large crowd demanding the foundation to “stop the robbery”.
https://www.reddit.com/r/ethereum/comments/4olntx/an_ethereum_hard_fork_is_not_a_bailout_its/
I also came across a post here on Steemit going even further, making a plea to the cryptocommunity to support our “brothers and sisters” in the Ethereum camp. It is a scary revelation, and I’m afraid that it represents a deep insight into how a large portion of the Ethereum hipster community actually reasons.
https://steemit.com/thecryptodrive/@thecryptodrive/dao-hack--emergency-broadcast
Basically, the argument is an emotional plea that the whole cryptocurrency-community should help out Ethereum and the DAO. The narrative is that Ethereum and DAO somehow represent us all, and we need to gather round and help them out in these tough times, lest the whole cryptocurrency space will suffer. There are so many things wrong with this narrative.
Ethereum is not the cryptocurrency locomotive, Bitcoin is!
Ethereum is the new kid on the block that everyone, including banks and big corporations took a fancy to. It has seen incredible growth for many months in a row, and has undoubtedly been in somewhat of a bubble lately. I would argue, it was just a matter of time and an excuse for the bubble to burst. The excuse seems to have arrived in the shape of a hack on the even more hyped project called The DAO.
The above figure shows the development of Ethereum's price and market cap for the past year. Within its first year, Ethereum grew to become the second largest cryptocyrrency second only to Bitcoin.
Now don't get me wrong, I absolutely love Ethereum and the grand ambition of the project. I've been a true Ethereum-believer since long before the crowdfund even started in 2014. Next to Bitcoin and the Graphene-chains (the true DAOs), Ethereum is the most exciting thing happening in the cryptocurrency space right now. That being said, the 1billion+ USD market cap has striked me as insane, considering other, vastly more mature cryptocurrencies like Dash and Bitshares , who have all most likely suffered from The Great Ethereum Hype, are hovering a couple of orders of magnitude below.
Endorsement by companies like IBM and Microsoft, has seen the market price inflate to absurd levels. It has also been partly embraced by banks, who are careful to mention that they do not believe in Bitcoin, but the technology behind, and Ethereum has become, in a way, their champion for the “blockchain, not Bitcoin” narrative. This is, of course, complete rubbish, and when you discuss the subject with bankers, it becomes clear that many of them do not even know that Ethereum, like Bitcoin, is actually an open, decentralized, permissionless cryptocurrency.
As such, this bubble is most likely not based in the cryptocommunity, and so, does not represent the general health of the cryptocurrency space.
Fork to save the speculators!
After the attack, there quickly emerged suggestions of forking the Ethereum blockchain to recover/refund the lost Ether. The fact that these terrible proposals are getting even the slightest bit of traction, must surely be explained by the crew that has gathered around Ethereum.
One of Bitcoin’s strengths is that it cannot be altered. Even after 700.000 Bitcoins went missing in the Mt.Gox scandal, such an obvious theft if there ever was one, there was never any talk of forking to recover the stolen funds. Why? Because one of the most important features of a cryptocurrency is that it is automated, beyond the control of a select few. To make sure it retains its value, it should be impossible to tamper with. Altering the past to make sure that someone who “didn’t deserve” to get value, doesn’t get value, is a very dangerous slippery slope, and could destroy the confidence in the entire platform.
Ethereum has an important choice to make. Will it cater to the newbie whiners who have lost vast amounts of money placing a risky bet on an unproven, alpha-stage decentralized application, and in the process destroy its own credibility? Or will it holds its head high and be true to the cryptocurrency "codex", which is that there is no such thing as risk-free investment? The risk of bugs and other problems should be baked into the market price of any given project, and the fact that it wasn't is witness of irrationality, a.k.a a bubble. Why should TheDAO, the fastest growing and richest cryptocurrency project the world has ever seen, be given such a huge break and be bailed out?
This is the big test. If Ethereum shows weakness and bails out TheDAO, it might lead to a long-term depression and stagnate the growth of the platform. I cannot fathom how it could benefit anyone in the community, except the suckers who lost their life savings in TheDAO hack.
How smart are smart contracts?
The “attacker” posted an open letter to the Ethereum Community, where he argues that what he did was not actually exploiting a bug, but rather taking advantage of an intended feature in the code.
“I am disappointed by those who are characterizing the use of this intentional feature as "theft". I am making use of this explicitly coded feature as per the smart contract terms and my law firm has advised me that my action is fully compliant with United States criminal and tort law. For reference please review the terms of the DAO”
The attacker has a valid point. The Ethereum platform is a smart contracts platform with the grand ambition to obsolete orthodox law and lawyers. That is its main function and its main strength. Does it not then follow that a smart contract needs to be written extremely carefully to avoid being exploited? It seems to me that this whole issue stems from a poorly written Smart Contract, which must surely mean that the value of that contract should have been much lower than what it was valued at in the market. Taking a risk and buying into a hyped project that may have much lower intrinsic value than what the hype tells you, should have consequences. Otherwise the investment would be risk-free. This is what the cryptocurrency space is all about. REAL value.
“The DAO is code”. That was the narrative in the marketing campaign, right?
Plea to action
Lastly I want to comment on the plea to the rest of the cryptocurrency community to buy into Ethereum and DAO to save the platform, stabilize the price, and show how the cryptocurrencies help eachother out. Thank God, or maybe I should say Satoshi, that we have the power to give such a plea the middle finger. That they don’t have the power to simply print money to bail out everyone who took a big risk, and now expect not to have to deal with the consequences.
I didn’t see TheDAO sharing its wealth by investing into BitShares and Steem during its golden age. I didn’t see Ethereum set up a cryptocurrency social funding App to help out smaller altcoins. Sorry guys, you’re on your own. And you can afford it.
What Ethereum could and should do, that they’re free to do under the laws of the Cryptoeconomy, is to set up a charity DApp that people can buy into, funding the poor people who lost Ether in the grand scandal of The DAO. That is the only fair way to do it, without destroying the Ethereum platform while you’re at it. Let the community put their money where their mouth is, and see how it plays out.
Conclusion
It might seem that I hold a grudge against Ethereum and TheDAO and to a certain extent that might just be true, considering how TheDAO took a 3 year old idea coined by our own @dantheman and making shitloads of cash on it. And considering how all the banks think that Ethereum is the shit because “it’s all about the blockchain, not Bitcoin”. I can tell you from personal experience that I actually met a banker who literally hissed at me when I spoke the word Bitcoin.
But I do love all innovative cryptocurrency projects, and I do believe that Ethereum truly is a revolutionary platform. However, letting The DAO crash will serve as a lesson to crypto-newbies that we don’t play around in the cryptoeconomy. There is no such thing as a free lunch for hyped speculator newbies, a lesson that many of us have learned the hard way. And for Ethereum to grow to its full potential, it needs to let its hypemaster flagship sink, at least for awhile. There are so many other exciting projects being developed on this platform, including, for example, Augur, and I believe that after some time in deep waters, Ethereum will recover its strength and become greater than ever before, with true, robust, tried and tested, trusted DApps to serve the cryptocommunity for real.
The future is decentralized and autonomous. The future is Real. Think ahead.
I really hope they don't decide to fork. This will make ethereum look very bad as it is basically a bail out for a huge project that used ethereum without making sure their contracts were written well for the intended purpose. The fact that The DAO had this huge bug and failed could be a great lesson for smart contract writers in the future.
I agree. As co-founder Anthony Di Iorio recently stated at The Crypto Show (LTB), Ethereum has no business interfering in the way DApps work. There is nothing wrong with the underlying protocol. Ethereum shouldn't be modified on the basis of buggy DApps.
Thanks for writing this. On reflection I think the position you've articulated is very fair and rational. The ethereum community would be foolish to try to have their cake and eat it. Though the reality of the individual losses will be very hard to bear. The charity option is a good one to attempt to mitigate some of the losses and strengthen the prospects of recovery for the platform.
Thank you for the positive feedback!
I've laid out the counter-arguments to your post in comments here and here.
Suffice to say, in addition to those comments that a hard fork to advert the theft of multi-millions of dollars of ETH, is warranted as (from what I understand) the hard fork will only adversely affect (in a major way) the perpetrator.
The difference between this recursive split attack and MtGox is that, in this attack the stolen funds are contained in an identifiable account and will be sitting there for a few weeks. There is time to remedy the matter without affecting the fungibility of ETH. The DAO/ Ethereum team should thank their lucky stars and fix it.
If they don't fix it, they leave themselves open to legal claims that they had a fiduciary duty to recover the stolen money, yet choose to do nothing. I think this case has more legs than any claim the so-called attacker could bring.
I think the issue is the money wasn't stolen, the attacker saw a loophole and used it, it's shitty but it's like if a store was giving coupons giving you a free orange and then you get lots of coupons and clean the store out of oranges.
The store owner might say, I meant to write "one per customer", then you say "should've, but didn't".
In your comments you mostly focus on courts. A perspective which in my view is not relevant. I believe the whole point of Ethereum is to osbolete courts by having code excecute law. Whatever happens in a court has no bearing on what Ethereum should or should not be.
Keep in mind that TheDAO, even though it raised fantastic amounts of money, is just an app on Ethereum. Ethereum (the platform) shouldn't be responsible for bugs in every app running on the platform.
If Ethereum shows that it can make arbitrary changes to history, initiated by consideration of special interests, that will undermine the neutrality and immutability of the platform. It would basically make Ethereum untrusted and less valuable.
There is a big difference between what "should be" and what "is".
Code does not execute 'law', it executes the whatever the coder coded. Hopefully if they are a good coder it executes what they intended to code. Wishing the courts were obsolete does not make them disappear.
You're right, on one level The DAO is just an app on Ethereum. However the same people play a prominent role in both entities. Which is why it is Vitalik and co trying to convince everyone to fork. No fork = potential massive law suit. This is what 'is'.
I hear a lot of talk about blockchains being "neutral" and "immutable". I don't see it. They can be (and are) forked based on consensus. They are not 'trustless' because users 'trust' that the majority of miners will act only in the interest of the protocol. Even deciding what is in the 'interest of the protocol' is subjective, see for example the Bitcoin block-size debate. This is an inherent 'weakness' (or strength depending on your view point) of ALL blockchains.
"except the suckers who lost their life savings in TheDAO hack." That is what you call people who decided to participate in an Experiment that was brought together so many developers, open source programmers etc?
You just call us all Suckers?
Suckers is the term for people that are sucked into pump and dump scams, bubbles and other miscellaneous market manipulations. Etherium skyrocketing growth this year was very suspect (aka well marketed) and The DAO crowdfund was, to an outsider, clearly manipulated. The Ether pumps were perfectly timed to maximize headlines and coverage to refuel the HYPE whenever necessary.
I agree with everything you said, except the spelling of Ethereum. :) I'm very fortunate that I picked the right time to sell all of my ETH holdings. I only wish some of my friends were as well. :/ I watched the price closely all day, every day, expecting a huge dump, but not for this reason. I chose to bail around $19.90 and when it hit $21 I was afraid I pulled the trigger way too early. Hours later my decision looked far better.
The advise since day 0 was "Do not invest more than you can afford to lose". I think it is clear that he refers to that part.
You're absolutely correct. And people who invested huge amounts in TheDAO were most probably driven by greed.
I enjoyed reading your essay, especially the "middle finger" part regarding bail outs. I also like the solution you suggest. Let's see how indeed that plays out.
There is though a time reference which is wrong. All details about sidechains, interface-implementation, etc. were talked about on that very same kitchen table that the whole idea about bitcoin was entirely spelled out for the first time. Some of them, were described even earlier by others, like smart contracts, years or decades ago as I am informed.
Anyway, I am in sync with the spirit and the letter of your essay and very happy that I am not alone.
Regards.
The real lesson is that there is a need for better safety mechanisms. I'm sure there were engineers back in the day who opposed seat belts because it encouraged reckless driving, and amateurs should learn from their disabling injuries how stupid they were. Or maybe just unlucky?
The claim that the lesson is "we have to be perfect, and only support prefect people who design perfect smart contracts" borders on lunacy. There is no such thing as perfection. The U.S. political system was designed with the recognition that men are not angels (Federalist number 5? 10? anyone?). Every engineering project considers what could go wrong. And the more significant the consequences are, the greater attention to anticipating and preparing for what can go wrong.
Want to punish yourselves for what went wrong? Propose a mandatory tax on the millions you claw back to devote to research of cry to safety. 10% for safety will teach a better lesson, and be productive rather than enrich a crook.
Why assume an emotional response is necessarily wrong or bad? Lots of crazy ideologies depend on people suppressing their immediate revulsion to killing or harming people, in the name of some supposed future good.
How do we know that anything useful will come out of throwing away $50 million? Maybe it will undermine mainstream interest seeing not just the risks, but an unwillingness for a community to help itself.
Feel free to avoid medical help if you shot yourself in the foot. Don't try to persuade others that it is virtuous or wise.
Thanks so much for this, I now think I understand what a hard fork is. I must say, I completely agree with you, bailing them out by creating more coin, is just the sort of things governments do with fiat and aren't we meant to be different from that?
CG