The Ethereum's DAO Hack....Explained

Introduction

After the Ethereum's birth as a Smart contract-based Blockchain platform, a team called Slock.it took the initiative to build a DApp. This would function as an autonomous organisation built over Ethereum blockchain to allocate the funds as per new ideas. Investors would take a share of a startup and all project development status shall be transparent. Even, all the investors' contribution will also be transparent in a decentralised manner.

Crowdfunding

In order to build such an amazing platform, developers needed to outsource for funding. There began the crowdfunding on Ethereum with a total collection of $150 million, the largest fund ever collected on a project.

All the fund were safely kept into a contract built over Ethereum.

Rule #1 - Anyone taking its money out of the contract will have to wait for 28 days.

The Hack

Everything was functioning normal. Suddenly, one day few developers highlighted that there is a bug in the contract code.
While they were trying to figure out the bug, the hack occured i.e. balance of the contract started reducing and getting transferred to some other contract.

There entered the founders - Vitalik, Gavin, etc. who had to stop the hack and protect the money.

They had to mine at a higher speed than the hackers. Eventually, they succeeded.

By that time, already $50 million went to a different contract. Remember the Rule #1?....
So, the money got locked into other contract.

Then, they had only 28 days to make a decision -

1. Forget the hacked amount and let the hackers take away the same or,
2. Bring it back into the existing contract, which will violate the law of Blockchain (an immutable distributed ledger).

option #1 would lead to walking-off of the investors not only from this project, but also on future projects as well.
option #2 would lead to a Hard Fork i.e. everyone has to agree on the decision which is never going to happen as it is violating the preliminary rule of Blockchain i.e. immutability.

After few weeks, they came out voting decision on the agreement of option #2.

All agreed except for 20% of community members who then remained on the old blockchain and didn't switch to the new one.

This led to the Ethereum Split- Ethereum (ETH) and Ethereum Classic (ETC).