Ethereum Co-Founder and longtime contributor to the blockchain ecosystem Charles Hoskinson recently appeared on an episode of Coinscrum’s Members Club series, where he shared his thoughts on Ethereum’s potential hard fork for bailing out those who were negatively affected by The DAO. Hoskinson pointed out a variety of issues The DAO had from the beginning, and he also shared his thoughts on why the upcoming hard fork would be a mistake.

Although Hoskinson was one of the original eight founders of Ethereum, he left the project in June 2014. He is now the CEO of Input Output, a Hong Kong-based financial technology company that builds cryptocurrencies and blockchains for their clients.

The Problem with DAOs and Smart Contracts

Before getting into the issues with The DAO, Hoskinson discussed smart contracts more generally. He pointed out that decentralized autonomous organizations (DAOs) can be useful, and he even talked about a possible DAO for Bitcoin development that would allow the community to directly pay for new changes to the protocol.

After discussing the positive aspects of smart contracts, Hoskinson described one of the key issues with these new financial instruments. “Unfortunately, these ideas are encapsulated with thousands of booby traps, cobras, and other terrible things,” he stated. “Why? Because they involve people. Algorithms are really dumb, and people are really smart. If a human designs an algorithm, then there’s going to be a human that’s really good at designing a way out of that algorithm to steal funds. That’s exactly what happened with [The DAO].”

The key issue is that smart contracts are extremely difficult to secure in these early days. For this reason, security experts believe there could be more financial disasters built on Ethereum in the future. Rootstock, an Ethereum-esque sidechain of Bitcoin, has discussed the need for “progressive decentralization” as a way to guard against these issues.

The Many Problems with The DAO

After making that general point about smart contracts, Hoskinson turned his attention to The DAO. “Some guys from some company, which shall remain nameless, made a decision to maximize decentralization without any safeguards and accepting any personal liability,” he noted. “They wrote a bunch of code, and they thought it worked. And they wrote it in a language that really doesn’t give you any formal guarantees (Solidity). Then, they went ahead and released it uncapped, and let $150 million of value pool — assuming that, somehow, random people on the Internet would be better at investing that money than professionals.”

“Okay, it’s a wisdom of the crowds argument. Everybody has a right to do that and participate,” Hoskinson added.

One of the issues with cryptocurrencies and smart contracts is that not as many people will review code if there isn’t much money at stake. This means many more smart people were taking their first look at The DAO only after it was able to raise a large sum of money. All of the ether held in The DAO (over $150 million worth) essentially became a bug bounty on the smart contract. Bitcoin’s market cap has played a similar role for its own security ever since people started to place real value of bitcoin tokens.

“The problem is that code didn’t behave the way they intended,” Hoskinson continued. “The philosophical question, and this is the fundamental of a DAO, is when you turn the driver’s keys over from a Ferrari to a machine, you have to sometimes accept that the Ferrari is going to kill people. And you have to accept those consequences.”

Whether the Ethereum community wants to accept the consequences of a bad smart contract has created a secondary issue with The DAO, which is the push to hard fork the Ethereum blockchain in order to bail out DAO token holders.

Why Ethereum Should Not Hard Fork

Hoskinson was very clear on how he feels about the idea of reversing Ethereum transactions made possible by bad smart contract code. “When you start intervening, it kind of diminishes the entire purpose of these types of systems in general,” he stated.

“The other thing is it creates a moral hazard of when and how do you intervene?” Hoskinson added.

The Ethereum co-founder went on to talk about the hack of cryptocurrency exchange Gatecoin and asked why a hard fork was not implemented then to reverse that theft. Hoskinson also pointed to all of the ether buyers who have lost their wallets up to this point. “Should we intervene to go ahead and reimburse those people?” he asked.

Hoskinson then pointed to an aspect of The DAO hard fork that has been uncomfortable for many in the Ethereum community. “Why do they get screwed and people who put money in The DAO [don’t]?” he wondered aloud. “Is it because the [Ethereum] Foundation has a very close relationship to The DAO? Okay. Maybe; maybe not.”

The Bitcoin community (in general) thinks Ethereum’s bailing out of DAO token holders goes against the point of a blockchain, but Hoskinson sees a new opportunity for a third generation of blockchains, which implicitly include a model for governance. Tezos was one such project mentioned by Hoskinson during his presentation, although he also noted these sorts of governances models can be backported to Bitcoin, Ethereum, and other public blockchains.