Ever heard of Ethereum? It's Bitcoin's experimental younger
brother, and its community has just been shaken by
a massive hack that stole more than $50 million from one of the
biggest organisations in the community, The DAO. Here's what
you need to know.
Ethereum differs from bitcoin in that it can run smart contracts — contracts that execute themselves entirely autonomously when certain conditions are met. An auction might automatically transfer deeds of ownership to the highest bidder after a certain time has elapsed, or father's contract might automatically send his son a set amount of money every year on his birthday.
Ultimately, the decision will be taken by the community. The merits of both options will be debated, and if consensus cannot be reached, then the community may take the nuclear option — and split.
It's a decentralised cryptocurrency.
Unlike some previous attacks on digital currency organisations, the attacker has been unable to make a swift getaway and launder their ill-gotten goods to evade being tracked. This is because the exploit moved the funds into a "child" DAO, where they can't be moved for 27 days, according to Ethereum founder Vitalik Buterin.
In plain English, that means it's a digital currency that doesn't have any single central bank. Instead, its users collectively contribute computing power towards maintaining the network — like Bitcoin.
Meanwhile, the developer community is looking for ways to recover the Ether. Buterin and other developers have proposed a solution that will create a "soft fork" that prevents the attacker from being able to make valid transactions with the stolen Ether, followed by a "hard fork" that recovers the Ether and returns it.
While it's not on the same scale as Bitcoin, it's still pretty huge. It has ballooned in value over the last year, with a market cap of $1.4 billion, and one Ether (or ETH, a unit of the digital currency) is currently worth $16.76.
It's all about the wisdom of the crowd. David Cannon/Getty Images
Move over Marc, there is a new generation of investors. Michael Kovac/Getty Images for Vanity Fair
Collectively, they will decide how to allocate this capital, like a next-generation Kickstarter, or a crowd-sourced venture capital firm.
An attacker — we don't yet know who — took advantage of this vulnerability to attack the DAO's holdings early Friday morning, with devastating consequences.
"The contract is law according to The DAO's terms of service, [the attacker] didn't break the rules of that, he used his prescribed access to take the funds he was allowed," argued another.
There may be a fork in the road ahead for Ethereum. i_yudai/Flickr (CC)
The total value of the Ether taken, depending on whether you value it by the pre-hack highs or the mid-hack lows, varies between $50 million and $79 million.
There is actually significant opposition to the proposal to fork Ethereum to tackle the issue. It's DAO's fault, dissidents argue, and adjusting the code in response to this incident betrays the sanctity of the blockchain. "The attacker just used the code as it is written," said one community members of DAO's chat channel on Slack. "The people who wrote/audited the code need to be held accountable."
DAO stands for Decentralised Autonomous Organisation, something anyone can build on top of Ethereum's platforms. They're organisations that operate according to predefined rules, and don't have a board of directors or leadership in the traditional sense.
In such an occasion, only one version would ultimately survive — but it could damage the digital currency's credibility in the process.
They managed to drain 3.6 million ether from the organisation, while the community went into meltdown. The price of the digital currency plummeted, from record highs of $21.50 to just $14, before recovering somewhat.
Because Ethereum is decentralised, these changes can't be pushed through voluntarily: They have to be accepted by the network of users running Ethereum's software to take effect. In a soft fork, users running different versions are able to communicate and transact — but following a hard fork, the two versions are total incompatible. This means any decision to hard fork is a serious matter, and is debated heavily.
A $50-million-plus digital heist. Sion Touhig/Getty Images
A vulnerability was discovered earlier this month that lets an attacker, in some circumstances, drain the contents of smart contract wallets storing Ether.
In this context, we're talking about The DAO — a hugely successful organisation that manages its investors' capital. It has had huge amounts of money pumped into it by 11,000 people in the Ethereum community — more than $150 million. (Its funding was arguably the largest crowdfunding campaign ever.)
Petro Debut: What We Learned About Venezuela's Cryptocurrency Today
The government of Venezuela published several guides Tuesday in support of the presale for its "petro" cryptocurrency.
Announcing the oil-backed token as a form of legal tender that can be used to
US Securities Regulator Rejects BitConnect Records Request
The U.S. Securities and Exchange Commission (SEC) has denied a Freedom of Information Request (FOIA) regarding the BitConnect cryptocurrency investment scheme, citing an exemption usually applied to r
Dutch Bank ING Says Crypto Exchange Bitfinex Is An Account Holder
ING Groep NV confirmed Tuesday that cryptocurrency exchange Bitfinex has an account with the Dutch bank.
According to Bloomberg News and Reuters, a spokesperson for the financial services company a
Report: Japanese Crypto Exchanges Unite to Form Self-Regulatory Group
A group of Japanese cryptocurrency exchanges is reportedly uniting to form a new self-regulatory body in the wake of the recent Coincheck hack.
According to Reuters, which cites unnamed sources clo
Bitcoin’s bouncing back, here are the next big catalysts for the cryptocurrency
Bitcoin is back. The cryptocurrency surged Tuesday, closing in on the $12,000 level. One bitcoin bull says progress on the regulatory front could send it even higher. According to CNBC "Fast
EU Regulators to Discuss Crypto Regulation Next Week
A group of European Union regulators will meet next week to discuss the regulation of cryptocurrencies.
Speaking to reporters on Tuesday, European Commission vice president Valdis Dombrovskis said
Lisk Relaunches Blockchain Project With 'Accessibility' in Mind
The team behind the Lisk blockchain network is hosting a relaunch event in Berlin today, boasting a new look and long-term plan for the project.
"Rebranding normally only involves a change of desig
Finland Mandates Cold Storage, Public Auctions for Seized Bitcoins
Finland's government released new guidelines today that set out how law enforcement officials must handle cryptocurrencies they confiscate.
The official agencies in charge of storing the cryptocurr