Ethereum’s clinical trials and tribulations

Over the last couple of weeks the entire crypto community has been more or less holding its breath whilst watching the unfolding of the Ethereum hard fork. Its main goal was to refund a group of investors at a loss due to a poorly written smart contract running the so called DAO - a decentralised investment fund set up to finance Ethereum startups. A lot has been said about this already, we’ve witnessed long fiery debates whether to fork or not to fork the blockchain. Once some sort of consensus was finally reached and the fork executed, it seemed to some that the justice has won, the thieves got deprived of what wasn't theirs, the new blockchain carried on and everybody was at ease again…

Or were they?

First of all, the essence of Ethereum, all the initial hype and excitement about it was attributed to its intended immutability. It was to become the worlds first decentralised, democratic computer. No one was to ever tinker with the outcomes of its smart contract execution, except in cases of severe code bugs that would threaten the network as a whole. Whether this assumption would hold, has always been up to the miners securing the network, and indirectly voting on strategic decisions using their hashing power.
With that in mind, viewed from a technical standpoint, the attack on the DAO was not a real hack or breach in the network. The so called “malicious” contract performed entirely legitimate Ethereum code without exploiting any security gaps in the protocol. From this perspective it could hardly be called theft, since no passwords got stolen, no hacking was performed and all smart contracts operated within Ethereum’s set of rules. Every transaction that gets processed this way is valid by definition.
In the end, the attacking smart contract sucked the funds out of the DAO by interacting with another, poorly designed smart contract, governing its existence. A one that proved to be not so smart after all. Or actually, comparable to a demented bank clerk that forgets he’s already handed the customer his money, and keeps doing it over and over until the vault is emptied. Being a program running on a decentralised network, there’s nothing anyone can do to stop “him” as there is no supervisor. “He” also cannot be fired or sued, “he” just does what “he” was erroneously coded to do. And as much as I wouldn't like to be in the position of the DAO investors at a sake of such an “employee”, it is an obvious business blunder to entrust large amounts of money to untested technology. Things often go wrong in early stages of development, regardless of how clever the people behind the tech happen to be.

Integrity stress-testing

As is broadly known by now, after the hard fork was executed, a group of developers and miners decided to stick to the original, un-forked blockchain, giving birth to Ethereum Classic. Or preventing its death more like, as the Classic chain is the old, intact one.
Since then, we’ve been witnessing what in my eyes is a stress test of the crypto world's integrity, viewed from up-close, and easily measurable by watching the market’s behaviour. Its almost like a clinical trial, taking place between two concurrent Ethereum blockchains. A one with clear measurements updated every couple of seconds, reflected in hashing power and both token’s market prices.
With one blockchain, the ETH getting forked to grant a bailout to a group of DAO investors to reverse their losses. The other, Ethereum Classic being the original, intact, without any tinkering. A one on which the alleged thief lives a happy life and gets to keep the “stolen” goodies if he so wishes.
And this is where it gets amazing, not only on a technological level, but also moral, philosophical and dangerously close to spiritual. It sort of gives me goosebumps.

Nobody expected the CryptoInquisition

Or at least I didn’t. But as many spectators pointed out, including my business partner in crime @innuendo, since the resurrection of the un-forked Ethereum Classic, there’s been an outpour of extremely aggressive and derogatory remarks towards it. It’s been called an atrocity, a scam, an outrage and so on. There have been plots to stage a 51% attack, meaning miners of the forked ETH blockchain where persuaded to gang up their hashing power on the ETC blockchain to destroy its integrity. We’ve witnessed violent and elitist ideas spring up in the forked ETH camp. Funnily enough they were the embodiment of everything the cryptocurrencies where meant to eradicate. Censorship, abuse of power, knowing better what is allowed and what not etc.

And as the forked Ethereum’s supporters raged on, the plot thickened further. Poloniex, a leading cryptocurrency exchange enabled for trading of the original un-forked ETC token, adding insult to injury to the forked ETH outraged camp. The hash rate of forked ETH began to drop, whereas the ETC started gaining the miner’s support. This was nicely reflected in the price of both tokens, as the Classic ETC surged in value, while the forked ETH started tanking. As of now this process is going through a violent series of corrections and changes, yet it left many people wondering…

Philosophy kicking in hard...

In my eyes, this is a triumph of the real hardcore crypto mindset, at least temporarily. A process that’s available for all to see, under a fine-tuned microscope. In this bake-off, there’s even a control group for measuring results, since we can compare the original ETC vs the forked ETH with all the stats we could possibly think of… What a rare spectacle with an almost Shakespearean entanglement of darkness and light, especially given the underlying narratives of both camps.

The ruthless mr. Market

Also, as usual, the markets have spoken. Although as a trader, I was taught that the market can remain irrational much longer than I can remain solvent, I strongly feel that something very meaningful is going here. In the eyes of general crypto-public (if there is such a thing) the ETC holds the moral high ground over the forked ETH. Truthfully or not, the ETC is being thought of as the clean, innocent, almost virgin like entity, that a group of ETH crypto-thugs were plotting to destroy for their personal benefit. This narrative goes down extremely badly in the crypto community and it is equally amazing and ironic that those who insisted on the hard fork didn't see this coming. Or maybe they did, but had little choice, probably being hackled by the DAO investors. And having pissed off investors is never comfortable, as any startup CEO will tell you.
Still the message seems loud and clear. Bailing out a group of particular investors heavily damages the reputation of anything declared immutable or decentralized. And thanks to Ethereum’s open source nature, it allowed a clever takeover by another custodian, a one that claims to value the immutability more than anything else. At least that’s the official narrative as of now.

No one cares about the DAO

Except the DAO investors of course. Yet, markets have a very short memory and very little sympathy for people’s losses. One day’s winners are next day’s losers, and no one cares in the long run. Our brains seem hardwired to carry on, and not dwell on petty little things. Crypto markets are no different here - the DAO investors are just some dudes and chicks who got smoked by a super risky, untested investment vehicle.
But since most of the perceived value in crypto is bound to the promise of a more democratic, incorruptible and level playing field (that, plus buying guns and drugs with BTC), f-ing around with this essence is like walking on the thinest of ice. No one wants a replica of the old system created with these new awesome tools.
I can’t stress that enough - no one cares for market losses in the long run, it’s a part of life. On the other hand, ideals, purity and integrity is what propels this still underdeveloped market. There is no real mass adoption for this technology yet, and since it’s market valuation is minute compared to old-school tech companies, there’s a lot to be won here. Hence moral integrity and poise combined with the technical proficiency of the creators is the main product being traded.

Current sentiments

My intuitive trading prediction tells me Ethereum Classic is here to stay, and will fight hard with the forked ETH. The idea of immutability was and still is the very essence of Ethereum's valuation, old or new. When compromised, it gets stripped of its core identity. Of course if we read all the interviews, the podcasts and all, there is a lot of explaining being done by the forked ETH team, stating that this was a one-off affair. Still the market doesn’t care for words if the actions contradict them. It never did.

So as of now, the winner is….

Hard to judge, but with its moral high ground, even if acquired slightly accidentally, Ethereum Classic quickly grew much stronger than anyone had anticipated. Charles Hoskinson, one of the original Ethereum’s developers, has recently joined the ETC team, further adding to its credibility. They’ve also learned a huge lesson from the forked Ethereum’s mistake. Never bail anyone out if you’re claiming to be a decentralised, immutable network. If you do, some other crew might step in and carry on with your original blockchain, get a lot of credit and instantly become the “good guys”, regardless of the reality. If things go really wrong, your own miners might even vote you out of business. Especially before the mass adoption that is still to come. Ideals and integrity are a key asset at this point in time.

On the other hand, Ethereum’s original team is certainly a group of very clever people. Vitalik, being a living crypto legend probably has all the brains to figure out how to repair some or most of the tarnished reputation. There’s a lot at stake and the forked Ethereum’s market cap is still rather high. There are many apps and projects running or being developed on the forked blockchain. This might provide the needed cushion and time to figure out a survival PR strategy. Also there’s no real reason why two concurrent blockchains can’t coexist. Perhaps even merge in the future, although I don’t see how that could technically be possible. Price fluctuations and hash rate are available for all to see (blockchain transparency is working wonders here), so its rather easy to view the current market sentiment and a possible sea change. And then again, competition is always beneficial to the end user. I myself will be watching this closely, with my popcorn and my crypto geek hat on.