How I Lost 260+ Ether (5 BTC) The Hard Way

It's not easy to lose 260 ETH, but I figured out a way to accomplish it.

Here is the sad sad story.

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I have posted previously about my adventures being an early investor in Bitcoin here. I purchased 500 BTC in 2011 when the Bitcoin price was at $3 per Bitcoin, only to sell nearly all of it in 2012 when the price was at just $6 so I could buy a motorcycle... but it made for a good story.

An incredibly good decision, quickly followed by an incredibly bad decision that cancels it out.

Well here the theme continues it seems...

Here's my story:

I was kicking myself for not being aware enough to have been a part of Ethereum ICO just about the time that the DAO was beginning to get some hype.

The idea of the DAO was something I had been following for quite some time. I have been working on a book about Bitcoin and decentralized blockchain innovations for a long time, and parts of that book are devoted to the idea of Decentralized Autonomous Organizations. That Ethereum was now making it possible for the first DAO ever to go live was extremely exciting to me, so I was all in.

I wanted to be a part of the first DAO ever so badly I really didn't take the time to look into the details. I knew that the DAO would work like a Venture Capital Investment Firm of sorts, but with decentralized ownership and decision making. The DAO would be a program running on the Ethereum Computer that would hold all of the funds that all of the investors sent to it, and would give out DAO tokens in return to represent shares and "say" in the organization. DAO Token holders would then vote on who the DAO would give the money to.

The idea was that the DAO would release funds to contractors and companies that would work for the DAO, and thus the DAO token holders, which would provide products and services of all sorts, and the DAO would get a percentage of returns on the profits those contractors and companies made, which would be paid back to the DAO token holders in dividends, value of their DAO Tokens, and even salaries and wages if it wanted.

I knew that the first company or "contractor" the DAO was likely to support would be Slock.it who was going to make smart locks and other "internet of things" devices, and who were also the same team that built the DAO in the first place. All of this sounded just fine to me.

Then They Unexpectedly Launched The DAO ICO Sale

While I was still sinking my teeth into how this would all work, suddenly I heard the big news: The DAO Initial Coin Offering was under way and we had just 30 days participate.

The beautiful thing about ICO's in comparison to IPO's is that the government doesn't get involved. For some reason, the general public is not allowed by the government to participate in Initial Public Offerings by companies on the stock market exchanges unless they have a specified amount of money in the bank.

The government says that if you don't have millions of dollars in your bank account, you can't have bought Tesla stock, or Google stock, or Apple stock during their Initial Public Offering. Only the rich can. And the government says it's to protect you from making an investment mistake. Which I find ridiculous.

None of that is the case with ICO's like Ethereum and The DAO, anybody can participate and it doesn't matter how much money you have in your bank account. As it should be. If you're 15 years old and you have $20, you can buy Ether during Ethereum's Initial Offering, and you can make a vast return or lose it all. That's called Freedom.

Anyway, I knew I wanted to participate, but the problem is I didn't have any funds. I was dead broke. I literally had maybe $100 I could invest at the time, which was sad because I really invest in this idea.

Invest In The DAO With My Bitcoin Savings? Yes please!

My options were as follows:

I could put in my measly $100 which all I really had to invest, I could put a couple thousand dollars on a credit card to invest with, I could borrow money from family and friends to invest with, or I could dip into my savings, which is all in Bitcoin.

Can you guess which option I chose?

I debated it for a while. Bitcoin in my view is a solid investment. It didn't really make sense to take from my solid investment, and put it into a riskier investment. But then suddenly, as if from the heavens, I heard the sage words of investors that have made it big ringing in my ears. They said, "It's not about how smart you are, it's about how much you risk."

I did a few calculations based on my predictions for how high Bitcoin could go vs how high The DAO could go, and I decided it was worth the risk. I'd take some Bitcoin out of my Bitcoin Savings and throw the dice with The DAO. I really believed in the idea.

So, I Took Out 10 Bitcoins And Got An Ether Wallet

At first I was only going to put in 2 Bitcoins, but after a conversation with my brother during a mountain hike, I changed my mind.

(bonus points if you know where this is)

I convinced myself I would go big or go home. I decided on 10 Bitcoins.

So I broke out my Trezor Wallet, pulled it out of the safe, dusted it off, and transferred 10 Bitcoins into a hot wallet. Then I downloaded an Ether wallet and let it start syncing with the network, which took forever.

Once synced, I used the handy built-in ShapeShift.io feature to convert 10 Bitcoins into Ethereum. My brand new wallet was looking quite nice with 503 ETH sitting in it. I distinctly remember wondering if it wouldn't be a better idea to just keep the ETH and forget the DAO...

The objective was to be A DAO holder, so I marched forward with the plan. Once I had my ETH, I went over to that fancy website and I sent my ETH to the DAO. At 100 DAO tokens per ETH, I ended up with a hefty 49,600 DAO Tokens. I nice purse.

If The DAO reached just $1, I'd have $50,000 worth of DAO Tokens

I was proud of myself. I was all set to be a rich venture capitalist. All I had to do now was sit back and watch the price of the DAO go up and up and up. And it did! At first...

I purchased by DAO Tokens for around $.12, and I watched anxiously as the price steadily rose day after day until finally it was up to $.18. I remember bragging on that day to a friend of mine that my investment had already returned over $1000 in just a few days.

I fell asleep peacefully that night knowing that it was only a matter of time until I was another crypto-currency success story. Soon my 49,000 DAO Tokens would be worth hundreds of thousands if not millions of dollars.

I Awoke The Next Day To The DAO Being Hacked

Yes, apparently the small slock.it team who wrote the DAO code had not been able to anticipate all possible attack vectors and a bug was found which allowed someone to drain all of the funds out of the DAO and the price of the DAO was collapsing and I felt completely numb.

I don't know why, but it wasn't nearly as painful as watching Bitcoin skyrocket after selling out for $6 per coin had been. It was sickening yes, but I watched as a detached observer as the developers and fellow DAO holders frantically debated and moved to fix the problem.

Quickly it became a discussion about whether or not to fork the Ethereum blockchain to return everyone's funds. My initial reaction to this idea was repulsion. I didn't like it. I like immutability in blockchains. I felt like we who didn't do our due diligence had knowingly placed our trust in the code of the DAO and we were just going to have to take the hit for it.

Soon the hacker announced that if the Ethereum chain were forked he would be pressing charges for theft, claiming he had "read the fine print" of the DAO contract and executed it as it was written, and thus was entitled to the funds he took. I saw some logic in his argument sadly.

Then Andreas Antonopolous had a podcast about the hack with a few Lawyers, and they all seemed to be suggesting a Hard Fork was a very sticky situation and probably a very bad idea.

I was convinced the hard fork wasn't going to happen, and even if it did happen I didn't want to be part of it, and philosophically I was against the hard fork anyway.

So, I Sold All Of My DAO Tokens

On July 6th, I went on Poloniex and traded all of the 49,000 DAO tokens I had for a little less than 5 BTC. The exchange rate was about $.08 for the DAO Tokens I had purchased for about $.12.

I had convinced myself I better just take my losses rather than watch the DAO price drop steadily towards $0, but over the next few days the price actually began to rise. The Hard Fork looked more and more like it was actually going to go through, and the price was reflecting this fact.

And as we know, the Hard Fork did eventually go through, and everyone who had DAO Tokens was able to get all of their Ether back safe and sound, except me. (and presumable a few others that did what I did.)

Instead Of Getting My 503 Ether Back, I Lost Half

So here I have yet another hard lesson learned.

I think what I learned from all of this is not to give in to greed and try to force things and investments when the time is not right. I had only $100 to spend on investing in the DAO at the time, $100 is what I should have invested. I should NOT have dipped into my Bitcoin Savings, a sound investment in itself, to bet on another much riskier investment.

You either win or you learn, and it looks like I'm on a learning streak so far during my Bitcoin adventures, but maybe one day all this experience will turn into some wins for the home team.

And you know what? Hopefully you gain something from my experience as well, if nothing more than entertainment. And if you do, I guess I consider that a win too. :)

• KG

P.S. Don't forget to check out my story of buying 500 Bitcoins for $1500 here.