The DAO Chronology of a daring heist and its resolution The DAO | Chronology of a daring heist and its resolution
“[the] Digital currency Ethereum is cratering because of a US$50 million hack” Business Insider on 17.06.2016
2 The DAO | Chronology of a daring heist and its resolution
It has been the saga of the summer for anyone interested in digital currency and beyond. Within hours the value of the ETH plunged as a result of a hack which relieved the DAO, a massive blockchain-based crowdfunding project, of ETH worth US$50 million.
The heist was covered by a number of mainstream journals which published the Decentralized Autonomous news with a varying amount of technical Organizations detail, mostly highlighting the risks A commonly accepted definition involved in dealing in digital currencies. of DAOs some times also referred to as DACs (Decentralized What happened was – of course – a Autonomous Companies) has not severe setback for one of the best-known yet evolved. Usually the terms blockchain-based business applications. refer to a more or less complex It is therefore important to understand interacting set of smart contracts exactly what happened and draw the being able to resemble the necessary consequences in order to fundamentals of organizations, improve the technology. interacting with individuals and dealing with some sort of In order to grasp the whole story about property. the hack of the DAO, it is important to understand what a DAO is and on what Smart contracts can be platform it was deployed: the blockchain seen as the simplest form of platform Ethereum. decentralized automation, following rules triggered by predefined conditions.
3 The DAO | Chronology of a daring heist and its resolution
The Ethereum project and the DAO
Ethereum is a decentralized ledger The only prerequisite was that network like the well-known digital participants needed to buy Ether tokens currency Bitcoin. However, unlike Bitcoin, (ETH: Ethereum currency). Each token it is not only a digital currency. Ethereum’s represented the right to vote in which main purpose is to serve as a platform investment proposals the fund should for running decentralized applications by invest its money. How much weight each using what are known as smart contracts. vote depended solely on the amount Smart contracts are computer protocols of tokens owned. As in an ordinary that facilitate, verify, or enforce the investment fund, the money collected was negotiation or performance of a contract, intended to be used to invest in different or that make a contractual clause projects, except in this case the decision unnecessary. was subjected to the votes of the token holders, thereby basically democratizing The combination of several smart investment. contracts can even replicate certain functions of a company. Maintained on The idea caught on not only with a blockchain, these combinations of blockchain enthusiasts, it received a broad replicated business functions are called media echo. Gathering approximately Decentralized Autonomous Organizations US$150mn within a few weeks, “the DAO” (DAOs). created the largest crowdfunding project ever. In May 2016, the German start-up Slock.it released a white paper going public with their idea to build a Decentralized Simplified overview of the participation process in the DAO Autonomous Organization (DAO) named “the DAO”. The idea was to create a The DAO nvestors DAO that would basically work like an n est ther in investment fund in order to fund Slock. the it and other projects. Anyone interested could participate and voting rights were available on the open Ethereum platform. Voting right holders could even float their e ei e to en own funding proposals. a es in est ent ro osals