Ethereum’s DAO Gets Hacked for $60M, Hardfork to Come?

Memeinator Coin
Memeinator Coin

Ethereum’s DAO Gets Hacked for $60M, Hardfork to Come?

By Ian Demartino - min read
Updated 22 May 2020

The cryptocurrency community’s first attempt at a Decentralized Autonomous Organization has hit a major road block: Theft. The DAO is under attack and had over three million worth of Ether in the form of DAO tokens put into a “Child DAO” under the hacker’s control. This is according to posts put on the DAOHub and Ethereum’s official blogs. On the Ethereum blog, Ethereum founder Vitalik Buterin has proposed a combination of a softfork and a hardfork in order to return the stolen tokens. The current estimated value of the tokens stolen sit just above $60 Million, though that number my decrease as Ether’s price falls as news of the hack is spread.

Unlike other high profile hacks that were reversed in a hardfork, it appears the Ethereum community and DAO holders will have some time to consider their options. Due to the rules of the original DAO, the Child DAO created by the hacker will be unable to sell its Ether for another 27 days.

The DAO, which stands for “decentralized autonomous organization” is a smart contract built on Ethereum that is often over simplified as a decentralized venture capital fund. The holders of DAO get a vote in where the general fund is spent.

A Child DAO is an individual or group of people who decide to split off and create their own voting structure for the funds they take with them. The hacker (or hackers) utilized a recently discovered exploit in the DAO code that appears to have given the hacker control over other user’s DAO tokens and was able to move them to a Child DAO he or she will gain control of when it opens, assuming the proposal from Vitalik or another solution doesn’t reverse it first.

The Exploit Was Known, And Should Have Been Fixed

Five days ago, the DAOHub blog posted that the exploit reportedly used by the hacker had been fixed. In a blog post titled “No DAO funds at risk following the Ethereum smart contract ‘recursive call’ bug discovery” former Ethereum CCO and founder Stephan Tual indicated the problem had been taken care of, stating:

“We issued a fix immediately as part of the DAO Framework 1.1 milestone. The important takeaway from this is: as there is no ether whatsoever in the DAO’s rewards account — this is NOT an issue that is putting any DAO funds at risk today.”

However, the “fix” issued to the DAO Github did not match up with the recommended fix mentioned in the blog post exposing the bug, choosing instead to use the non-recommended approach in order to address the problem. It is not immediately clear why this other (apparently ineffective) solution was implemented instead.

A hardfork is an extremely controversial move in the cryptocurrency world, although it is not without precedent. Vericoin, a Proof-of-stake coin that had a significant minority of its coins stolen when the now infamous and since-closed MintPal exchange was hacked. In that instance, the community rolled back the blockchain because the stolen coins amounted to 30% of the coin’s total supply, enough to overwhelm the network in a Proof-of-stake (PoS) coin.

In PoS coins, the blockchain is secured by users who lock-up their coins, making them unusable for a short time. The network gives weight based on how many coins each account holds. Since most coins aren’t staked at any one time, the hacker in the Vericoin case would have been able to adjust the blockchain as he saw fit.

In that case, a hardfork was a necessity, because the hacker could have controlled the entire coin’s network if he staked all or most of his stolen coins at once. Ethereum isn’t in that situation, it is currently in its proof-of-work phase and while it plans to eventually switch to PoS, the number of coins isn’t significant enough to affect the consensus. Still, it is a lot of money lost to the hacker unless a solution is implemented.

Felix Albert, a well known DAO developer, has come up with a temporary solution for preventing more tokens being moved into the hacker’s account: spamming the Ethereum network to prevent the hacker’s transactions from going through.

Presumably, that is helping because at the time of this writing, the hacker’s address has not received any DAO in the past two and a half hours, but it is unclear how long the spam strategy can be kept up.

Since the news broke, Ether’s price has dropped 14%. The DAO had collected over $150 million worth of Ether. Some sites have reportedly locked Ether trading.

We have reached out to Vitalik Buterin and members of the Slock.It development team and will update this space if we hear more.