A month to save digital currency Ethereum?

$50m hack leads to reset proposal before stolen money can be cashed

Burning money, photo via Shutterstock

Digital currency Ethereum may have less than a month to live.

In just one day, the currency has plummeted in value by nearly a third after it was revealed one of its main backers had been hacked and $50m worth of "ethers" were moved to a different entity.

"An attack has been found and exploited in the DAO [decentralized autonomous organization]," warned a blog post early Friday from the founder of Ethereum, Vitalik Buterin, "and the attacker is currently in the process of draining the ether contained in The DAO into a child DAO."

That draining amounted to 3.6m of the 9.2m ethers that The DAO possessed – worth around $50m at the time and representing just under 15 per cent of all ether tokens.

The crypto-currency backers called an emergency meeting and within a few hours arrived at a proposal: update the entire system's software with a "soft fork" that would effectively prevent the stolen currency from being withdrawn, and then a hard fork that would return it to The DAO. The money currently sits in a locked fund and can't be moved for 27 days.

Burn baby burn

Not everyone is happy about the idea, however. When the currency's website fell over as a result of the traffic, discussion moved to Reddit where one poster reiterated what many had been saying: "A hardfork is a very bad idea. Let the DAO burn but save Ethereum."

Others have pointed out the irony of The DAO – which doesn't have a leader or even a list of members – relying on a centralized authority to save itself.

Still others question why The DAO should get special treatment. The only reason the proposal exists at all is because the Ethereum developers have personally invested in the DAO, multiple posters have argued.

The conflict threatens to bring down the credibility of the entire currency. Not only was it possible to hack the system and move millions of dollars worth out of one of the currency's main backers – raising questions of its technical competence – but the developers have proposed intervening potentially for their own financial gain in the inner workings of the entire system – raising political questions over how it is run.

The uncertainty is keenly reflected in the currency's price – it has dropped more than 30 per cent since the news broke and continues to drop as the community debates what to do.

With just 27 days to go before the proposed solution becomes ineffective, the digi-currency sits at an extraordinary crossroads: intervene and risk undermining the entire currency, or let the theft pass and risk undermining the entire currency. ®


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