This morning, users of the Ethereum cryptocurrency woke up to some very alarming news . Someone was trying out a new attack on one of the currency’s biggest and richest institutions, the Decentralized Autonomous Organization or DAO. The DAO holds immense cash reserves, and someone had figured out a way to drain out $53 million.
Because of the nature of Ethereum, developers could still see where the money was and how much had been taken, and it would be impossible to spend for at least 27 days. But the massive and sudden theft created an unprecedented crisis for a project that was once hailed as the future of the blockchain, and a mad dash to keep tens of millions of dollars from slipping permanently out of reach.
To understand how this could have happened, it’s necessary to know a little bit about how Ethereum works. The system is built on the same blockchain that powers Bitcoin, a system for holding and spending money based on cryptography rather than traditional intermediaries like banks and credit card companies. Applying that logic to finance has made for a powerful and controversial currency system, but Ethereum pushes it even further. Instead of limiting the blockchain to transactions, Ethereum lets developers build any kind of code on top of a blockchain ledger — that could mean blockchain-based contracts, blockchain-based businesses, or even wilder systems that haven’t been created yet. Like most blockchain proposals, it’s still experimental and more than a little starry-eyed, but it’s managed to raise $15 million and catch the attention of some of the industry’s biggest investors.
The DAO is one of the most ambitious systems built on top of Ethereum. It’s designed to function as a kind of decentralized venture capital fund. Ethereum users can purchase tokens that work like stock, entitling them […]
