The actions of the White Hat Group (WHG) have been shrouded in mystery and it is time for this once-necessary precaution to come to an end. Transparency matters to all of us. Previously, it was deemed unwise for the WHG to elaborate on the details of the situation while the salvage operation was unfolding, to prevent new and old attackers from knowing their movements to better understand how to attack DAOs. Now that the community is questioning their actions and intentions, we, at Bity, feel it is necessary to share the details of what the WHG has been dealing and living with over the last few weeks.

It is important to note that neither Slock.it, Alex van de Sande nor anyone else affiliated with the Ethereum Foundation had anything to do with what has taken place since well before the Hard Fork.

Our intentions and the intentions of the WHG have always been to do what is best for the DAO Token Holders and the Digital Currency community at large.

We would like to remind everyone that the ether they sent to The DAO during it’s creation phase is being returned to them in full by the Hard Fork Withdraw contract and The DAO’s Curator multisig. These corrective measures have however created a byproduct in the form of Ethereum Classic (ETC). The unexpected additional value existing in the ETC chain’s attackDAOs would not have been retrievable had it not been for the actions of the WHG and other concerned community members in late-June. Regardless, the WHG has always wished to give this newly created value to the DAO Token Holders.

The Hard Fork was just the Beginning of a New Chapter

The Robin Hood Group sacrificed a lot of time and effort to fight against the other hackers in the interest of the DAO Token Holders. When the Hard Fork seemed likely to pass, there was a sense of relief within the group. Most had been working nonstop for weeks; a successful Hard Fork meant they could get back to their lives and families and refocus on ongoing projects. In a matter of days it became obvious that crypto never sleeps and the work was not yet complete. The ongoing battle to secure the ETC that was immobilised in the various attackDAOs began. They were unfortunately unable to thwart the original attacker, but they were able to secure White Hat DAO #78 which was holding ~7.2 million ETC. In the upcoming weeks they are likely to secure more funds that were locked safely in DAOs by the Robin Hood Group before the hard fork.

They started receiving legal threats from multiple parties and felt unable to perform a fair distribution while protecting themselves legally. At no point did the group intend to “go rogue.” They always strived to act in the best interest of the DAO Token Holders, but in this uncertain legal world of Digital Currencies, they did not feel they were adequately prepared to distribute these funds without taking extreme legal risks. There is always the potential for errors that could arise and judgement calls that have to be made.

Bity Enters the Scene

They reached out to us, Bity SA, because we have demonstrated our desire to help this community in the past with our involvement in DAO.link and Gian from Bity volunteered to be a Curator for The DAO Post Hard Fork. We offered the White Hats our legal advice and our assistance, helping them do what is right for the DAO Token Holders as they had already proven their good intentions with their past actions. We are providing our legal protection for free and will not accept payment from them for our exchange services either. Bity SA is registered as a professional financial intermediary in Switzerland, is audited by KPMG, and for almost 3 years has been committed to pushing forward the new digital economy and more recently has given special focus to the Ethereum space. Our legal structure enables us to take on the legal responsibility much better than a decentralized group of community members, most of whom had never met each other outside of cyberspace.

Why the choice to sell ETC for ETH was made

Originally the WHG began to develop a way to distribute the funds in a fair manner on the ETC chain, but as they were developing this solution, many problems arose that were challenging due to conflicting realities:

Threat of a replay on the Ethereum chain : Most DAO Token Holders are likely to have received ether from the Hard Fork withdraw contract in the same address that they would receive ETC from the WHG. This creates a technical issue for almost all DAO Token Holders, as there is a large percentage of people that are likely to have their ETC transactions replayed on the Ethereum Blockchain, potentially sending ether to a contract that does not exist or to an untrusted third party not likely to return the ether.

DAO-Classic’s ownership was corrupted : After testing several exchanges, we found that some allowed people to withdraw DAO-C, and others were using a replay contract preventing the withdrawal of DAO-C. Because there is no market for these tokens, the ownership of DAO tokens on the ETC chain has not been respected and is not useful for the distribution of ETC on the chain.

A fair distribution of value is very difficult to achieve : Some DAO Token Holders with large holdings contacted the WHG wanting to know when the distribution would happen so that they could be prepared to sell their ETC for ETH before the rest of the smaller DAO Token Holders would get their ETC. This will give an unfair distribution of value to DAO Token Holders with smaller holdings. If a DAO Token Holder was in the right time zone when the withdraw contract became available then they could sell while others might be asleep or on vacation. Whereas if the ETC was exchanged for ETH then we could have averaged out the value using the currency DAO Token Holders sent to the DAO in the first place, ether. We felt it was less likely the DAO Token Holders would liquidate their extra ether and this would be less of an issue.

There are not many tools on the ETC chain : This means that one of the first ETC Dapps would have to be created. The ETC chain does not have as many advanced tools and block explorers like the ETH chain does, and since most DAO Token Holders do not have their blockchains synced to the Classic chain, it will be nearly impossible for them to independently verify the transactions if something goes wrong without downloading the blockchain from scratch. Etherscan.io and live.ethercamp do not exist in the ETC chain, and the explorers available do not show internal contract transactions, do not show token balances, and do not seem to be online 100% of the time.

There have been many threats to the ETC chain : Various posts have come out that have said there are plans to execute a 51% attack on the ETC chain, this chain is very young and seems to have legitimate threats, however these threats are becoming less likely as time goes on.

Most ETC is held by Ethereum supporters likely to sell their ETC : If you have been in crypto long enough, you know the term pump ‘n dump. It typically involves a malicious actor gathering a large amount of digital currency, either through a premine, or buying them cheap on the market and then pumping the price in various ways and selling their tokens after the speculation bubble. ETC is not a pump ‘n dump at all, but there is potential for it to have a similar issue because there seems to be a bit of an us vs. them attitude between the two communities and the Ethereum community still holds most of the ETC funds. Because of this, there is potential for someone who owns a large amount of ether to crash the market at any time, if coordinated with a 51% attack, this could potentially kill the value of the chain.

The DAO Attacker can dump their ETC soon: On the 2nd of September the original attacker receives ~5% of the total ETC supply. What they will do with it is unknown but it is important to deploy the withdraw contract and start the distribution before that time.

Because of these issues, the WHG researched what options they had to turn the ETC into ETH and they came to us for help. After hearing their explanations on why distributing ETC was problematic and not in the best interest of the DAO Token Holders, we were convinced that converting at least a significant portion of ETC to ETH was in the best interest of the DAO Token Holders and our lawyers confirmed it was a legally justifiable position.

Exchanging Commences

Bity had verified accounts on multiple exchanges and sent them all ETC at the same time. However the funds in Poloniex were stuck in limbo for several hours, and when they apparently became available and the trading of ETC commenced, the trades attempted on Poloniex did not go through because the accounts were frozen.

Poloniex has not responded to our requests to explain the seizure of these funds, despite that several means to contact Poloniex have been employed. If they would like to remain custodians of these funds, we hope that they can be stored separately from other user’s funds in a trusted multisig wallet contract and that they make the address known to the community, otherwise we would greatly appreciate it if they would contact us to coordinate returning the ETC to our multisig.

Kraken was initially quite happy to let us continue to trade, as we are a verified money service business working closely with them for years, however they have also blocked our withdrawals waiting for our official communique.

Bittrex and Yunbi have already released the funds that were converted on their exchanges. All of the funds currently in our control are stored in the following multisig addresses:

ETC Multisig: 0x1ac729d2db43103faf213cb9371d6b42ea7a830f

ETH Multisig: 0xd3b0b4fc31ee1f8570c75c19caa93cc1557e538f

BTC Multisig: 3Er3uMqBruv8VnhXUjyRbp2McASUE8t9HA

Change of Strategy

These developments have put us in a position where safely providing the salvaged ETC as ETH to the DAO Token Holders is becoming much more costly and complicated than distributing directly in ETC. The WHG, in conjunction with Bity, will focus all efforts on continuing to develop the smart contracts that will be used to distribute ETC to the addresses holding DAO Tokens at block 1,919,999. We hope the community can help us develop tools that will mitigate the risks that the DAO Token Holders will face. About 14% of the 7.2 million ETC was converted and it will be converted back as needed at our own expense to make sure all DAO Token Holders receive their fair distribution of ETC.

This entire situation is unprecedented in nature and we are acutely aware that we may be setting a lawful/philosophical/societal precedent. Bity is working hard to fruitfully combine ‘meatspace’ law with the decentralized nature of our community. Thus, everyone must understand that resolving the situation in the communities' best interest will take time and thought.

In the coming days, the White Hat Withdraw contract will become available in Github. The community will be invited to audit it and test it. Once the testing period is done it will be deployed on the ETC chain and a website using the Mist Browser will enable an easy user experience that will accompany the smart contract.

Thank you for your Trust and Patience