The DAO took a hit

Ethereum and TheDAO rates plunged yesterday, as an “attacker” managed to make off with 3.6m Ether, which amounts to around 47 million USD at the time of writing (quickly dropping). Coindesk writes

“News of the hack first began to circulate on Reddit and other social media sites this morning, prompting Ethereum co-founder Vitalik Buterin to call for a pause in trading in ether markets as well as those for DAO tokens”

http://www.coindesk.com/dao-attacked-code-issue-leads-60-million-ether-theft/

I don’t particularly enjoy criticizing Ethereum, or even TheDAO for that matter, but what is going on now is just wrong on so many levels. Judging by the discussion on the Ethereum reddit, there seems to be a large crowd demanding the foundation to “stop the robbery”.

https://www.reddit.com/r/ethereum/comments/4olntx/an_ethereum_hard_fork_is_not_a_bailout_its/

I also came across a post here on Steemit going even further, making a plea to the cryptocommunity to support our “brothers and sisters” in the Ethereum camp. It is a scary revelation, and I’m afraid that it represents a deep insight into how a large portion of the Ethereum hipster community actually reasons.

https://steemit.com/thecryptodrive/@thecryptodrive/dao-hack--emergency-broadcast

Basically, the argument is an emotional plea that the whole cryptocurrency-community should help out Ethereum and the DAO. The narrative is that Ethereum and DAO somehow represent us all, and we need to gather round and help them out in these tough times, lest the whole cryptocurrency space will suffer. There are so many things wrong with this narrative.

Ethereum is not the cryptocurrency locomotive, Bitcoin is!

Ethereum is the new kid on the block that everyone, including banks and big corporations took a fancy to. It has seen incredible growth for many months in a row, and has undoubtedly been in somewhat of a bubble lately. I would argue, it was just a matter of time and an excuse for the bubble to burst. The excuse seems to have arrived in the shape of a hack on the even more hyped project called The DAO.

The above figure shows the development of Ethereum's price and market cap for the past year. Within its first year, Ethereum grew to become the second largest cryptocyrrency second only to Bitcoin.

Now don't get me wrong, I absolutely love Ethereum and the grand ambition of the project. I've been a true Ethereum-believer since long before the crowdfund even started in 2014. Next to Bitcoin and the Graphene-chains (the true DAOs), Ethereum is the most exciting thing happening in the cryptocurrency space right now. That being said, the 1billion+ USD market cap has striked me as insane, considering other, vastly more mature cryptocurrencies like Dash and Bitshares , who have all most likely suffered from The Great Ethereum Hype, are hovering a couple of orders of magnitude below.

Endorsement by companies like IBM and Microsoft, has seen the market price inflate to absurd levels. It has also been partly embraced by banks, who are careful to mention that they do not believe in Bitcoin, but the technology behind, and Ethereum has become, in a way, their champion for the “blockchain, not Bitcoin” narrative. This is, of course, complete rubbish, and when you discuss the subject with bankers, it becomes clear that many of them do not even know that Ethereum, like Bitcoin, is actually an open, decentralized, permissionless cryptocurrency.

As such, this bubble is most likely not based in the cryptocommunity, and so, does not represent the general health of the cryptocurrency space.

Fork to save the speculators!

After the attack, there quickly emerged suggestions of forking the Ethereum blockchain to recover/refund the lost Ether. The fact that these terrible proposals are getting even the slightest bit of traction, must surely be explained by the crew that has gathered around Ethereum.

One of Bitcoin’s strengths is that it cannot be altered. Even after 700.000 Bitcoins went missing in the Mt.Gox scandal, such an obvious theft if there ever was one, there was never any talk of forking to recover the stolen funds. Why? Because one of the most important features of a cryptocurrency is that it is automated, beyond the control of a select few. To make sure it retains its value, it should be impossible to tamper with. Altering the past to make sure that someone who “didn’t deserve” to get value, doesn’t get value, is a very dangerous slippery slope, and could destroy the confidence in the entire platform.

Ethereum has an important choice to make. Will it cater to the newbie whiners who have lost vast amounts of money placing a risky bet on an unproven, alpha-stage decentralized application, and in the process destroy its own credibility? Or will it holds its head high and be true to the cryptocurrency "codex", which is that there is no such thing as risk-free investment? The risk of bugs and other problems should be baked into the market price of any given project, and the fact that it wasn't is witness of irrationality, a.k.a a bubble. Why should TheDAO, the fastest growing and richest cryptocurrency project the world has ever seen, be given such a huge break and be bailed out?

This is the big test. If Ethereum shows weakness and bails out TheDAO, it might lead to a long-term depression and stagnate the growth of the platform. I cannot fathom how it could benefit anyone in the community, except the suckers who lost their life savings in TheDAO hack.

How smart are smart contracts?

The “attacker” posted an open letter to the Ethereum Community, where he argues that what he did was not actually exploiting a bug, but rather taking advantage of an intended feature in the code.

http://pastebin.com/CcGUBgDG

“I am disappointed by those who are characterizing the use of this intentional feature as "theft". I am making use of this explicitly coded feature as per the smart contract terms and my law firm has advised me that my action is fully compliant with United States criminal and tort law. For reference please review the terms of the DAO”

The attacker has a valid point. The Ethereum platform is a smart contracts platform with the grand ambition to obsolete orthodox law and lawyers. That is its main function and its main strength. Does it not then follow that a smart contract needs to be written extremely carefully to avoid being exploited? It seems to me that this whole issue stems from a poorly written Smart Contract, which must surely mean that the value of that contract should have been much lower than what it was valued at in the market. Taking a risk and buying into a hyped project that may have much lower intrinsic value than what the hype tells you, should have consequences. Otherwise the investment would be risk-free. This is what the cryptocurrency space is all about. REAL value.

“The DAO is code”. That was the narrative in the marketing campaign, right?

Plea to action

Lastly I want to comment on the plea to the rest of the cryptocurrency community to buy into Ethereum and DAO to save the platform, stabilize the price, and show how the cryptocurrencies help eachother out. Thank God, or maybe I should say Satoshi, that we have the power to give such a plea the middle finger. That they don’t have the power to simply print money to bail out everyone who took a big risk, and now expect not to have to deal with the consequences.

I didn’t see TheDAO sharing its wealth by investing into BitShares and Steem during its golden age. I didn’t see Ethereum set up a cryptocurrency social funding App to help out smaller altcoins. Sorry guys, you’re on your own. And you can afford it.

What Ethereum could and should do, that they’re free to do under the laws of the Cryptoeconomy, is to set up a charity DApp that people can buy into, funding the poor people who lost Ether in the grand scandal of The DAO. That is the only fair way to do it, without destroying the Ethereum platform while you’re at it. Let the community put their money where their mouth is, and see how it plays out.

Conclusion

It might seem that I hold a grudge against Ethereum and TheDAO and to a certain extent that might just be true, considering how TheDAO took a 3 year old idea coined by our own @dantheman and making shitloads of cash on it. And considering how all the banks think that Ethereum is the shit because “it’s all about the blockchain, not Bitcoin”. I can tell you from personal experience that I actually met a banker who literally hissed at me when I spoke the word Bitcoin.

But I do love all innovative cryptocurrency projects, and I do believe that Ethereum truly is a revolutionary platform. However, letting The DAO crash will serve as a lesson to crypto-newbies that we don’t play around in the cryptoeconomy. There is no such thing as a free lunch for hyped speculator newbies, a lesson that many of us have learned the hard way. And for Ethereum to grow to its full potential, it needs to let its hypemaster flagship sink, at least for awhile. There are so many other exciting projects being developed on this platform, including, for example, Augur, and I believe that after some time in deep waters, Ethereum will recover its strength and become greater than ever before, with true, robust, tried and tested, trusted DApps to serve the cryptocommunity for real.

The future is decentralized and autonomous. The future is Real. Think ahead.