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June 17, 2016, the day The DAO exploded in midair

The DAO: a look back at one of the most famous cryptocurrency hacks

Only old cryptocurrency veterans remember from The DAO hack. It took place in 2016, ancient times for the ecosystem. Back then, the domain was much smaller than it is today, and Ethereum (ETH) was a relatively new project: it only launched in 2015.

In 2016, the concept decentralized autonomous organization (DAO) was relatively unknown to a wide audience. When one of them, The DAO, was created on Ethereum, it caused quite a stir. The project wanted to take inspiration from venture capital funds to propose a way to bet on blockchain projects. The fundraisers were open to anyone, and highlighted the decentralized aspect.

But The DAO barely had time to shine before it fell apart. Launched in April 2016, it was attacked in June of the same year. However, the public sale launched on April 30 had been a colossal success: it had brought together nearly 15% of all ETH available on the market on The DAO… Driving up the price of ETH in the process.

πŸ‘‰ To go further – What is a DAO or decentralized autonomous organization?

A hacker finds a way to siphon off The DAO

But a hacker managed to find a loophole in the process. He realized that it was possible to ask the smart contract recover your ETH several times in a row, the fault in particular with the order of the mechanisms. The smart contract indeed first sent the tokens before updating its figures.

Result: about a third of the ETH sent to The DAO were stolen, for a sum which at the time represented 50 million dollars. Luckily, under The DAO’s Terms of Service, these funds were locked for 28 days after withdrawal, which gave the community time to decide how to address the issue.

Creation of the new version of Ethereum (ETH) from Ethereum Classic (ETC)

This has been one of the most heated debates in the crypto ecosystem. Should we go back to this hack, and erase the error? Or theimmutability of transactions should it be respected, since it supported the whole ideology behind Ethereum? In the cryptosphere, opinions are still divided.

The community then split in two. A hard fork took place on the blockchain, which made it possible to recover the stolen funds and return them to their original owners. This hard fork became the Ethereum network we know today. That is, a version of the blockchain where the theft regarding The DAO was cancelled.

On the other side, those who felt that this act was certainly malicious, but nevertheless valid, remained on the initial blockchain, without the stolen funds being touched. This blockchain then renamed itself Ethereum Classic (ETC), and it still exists today. ETC is therefore the “old school” version of ETH, i.e. the original blockchain dating from 2015.

For The DAO, however, this marked the end of a very brief career. As early as September 2016, Poloniex delisted the pairs linked to the project, followed by Kraken in December of the same year. But the case remained an often-cited example of perhaps premature enthusiasm for a project.

πŸ‘‰ Also read – Three Arrow Capital: a cryptocurrency fund soon to be insolvent?

Proof of ecosystem resilience?

In these times of uncertainty, it is good to remember the incredible resilience of the crypto ecosystem. At the time, a single project garnered a sizable share of the second largest crypto-asset, and its collapse did not put an end to cryptocurrencies. On the contrary, it has generated a substantive debateand to improve practices so that this does not happen again.

Turmoil in which the DeFi sector is currently caught can therefore be seen in a similar way. Project collapses and falling prices are catastrophic for some, but they often accompany key market phases… Especially when, as until recently, euphoria dominated for long months.

πŸ‘‰ Going Deeper – Falling Crypto Market – The Influence of Inflation, Rising Rates and the Global Crisis

About the Author : Marine Debelloir

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Deputy editor on Cryptoast, I fell into the pot of cryptocurrencies a few years ago. I am passionate about the innovative technologies that stem from the blockchain and I like to find the most crispy information to share with you.
All items from Marine Debelloir.

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