On June 17th, it was reported that The DAO was hacked and had $50 million stolen from its funds. The initial reaction was dramatic as both the DAO token (DAO) and Ethereum (ETH) lost a large percentage of their values within hours.
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ETH, DAO Values Plummet
The event has spurred a discourse on how successful both could ultimately become, with some still optimistic about their respective futures, while others are a little bit more pessimistic.
In the hours after the DAO hack became known, both the DAO token and Ether began to dramatically dip in price. ETH and DAO bottomed out after losing 20% and 55% of their respective values before the hack. The two cryptocurrencies initially recovered with ETH rebounding back and settling at $18 USD, but this still ultimately represented a loss of 9% over a 24 hour period.
Just as recently as January, 2016, ETH was only trading at about $0.70 before beginning its upward trajectory to $21 before the exploit was discovered.
This success had been seen as largely the result of the experimental DAO, which started as decentralized investment vehicle for ethereum-based startups. In many ways, it began with the DAOs record breaking ICO, which raked in over $150 million — the largest crowdfunding campaign ever. The excitement over the DAO boosted the value of ETH to
nearly triple its price of $8 in April, when DAO tokens first became available, to its all-time high of $21 in mid-June.
Thus, it is not surprising that when the DAO token’s price began to plummet it dragged Ether down with it. A larger volume of people were buying Ether simply as a way to buy DAO shares, which subsequently attracted speculators to the currency — this, of course, brought up the price of ETH even more. In essence, Ether’s price was being boosted by the DAO’s hype and it all came crashing down when everyone started moving their money out of the DAO token.
However, some of the downward price pressure was at least partially related to a concern that the Ethereum protocol itself had been exposed along with the DAO’s. Ethereum founder, Vitalik Buterin, quickly responded to the incident to ensure people that all was well with the platform.
In a statement, Buterin attempted to put people’s minds at ease, saying:
This is an issue that affects the DAO specifically; Ethereum itself is perfectly safe.
Is Ethereum Doomed?
However, not everyone thinks all is well with Ethereum. In fact, some people, like Daniel Krawisz, think that Ethereum is basically screwed in the long-term. On Monday, June 20, Krawisz wrote an op-ed on the Nakamoto Institute website bluntly titled “Ethereum is Doomed.”
With a title like that it is pretty clear Krawisz doesn’t have much confidence in the long-term future of the Ethereum platform. Essentially, he believes that the Ethereum developers built the platform in such a way that it allows hackers a legal way to exploit bugs in a situation where bugs should be expected to arise.
Krawisz made his opinion known that he believes this fundamental problem is, at bottom, the fault of the developers, who he deems to be incompetent:
If I had looked into Ethereum more carefully, I might have noticed that economics was not the only subject that the Ethereum devs did not understand. They also don’t understand law and software engineering. They created a situation in which bugs would be expected to arise in an environment in which bugs are legally exploitable. That is hacker heaven.
He follows this scathing critique of the Ethereum developers with a mechanical explanation for why one should expect bugs to arise with ethereum-based smart contracts, and how hackers will exploit them. He also says that a problem with the Ethereum developers is they believe the DAO hack is a problem unique to the DAO itself, but in reality it is a problem with the whole smart-contract system they created. According to Krawisz, It is a problem with the scripting language, Solidity, used to build the Ethereum protocol.
In closing, Krawisz provides a grim outlook for Ethereum and even praise for the hackers who stole the $50 million:
If you want a smart contract that you can actually use, you have to be certain that it is bug-free before it is deployed. there are no known tools or methods available to Solidity developers which could provide an appropriate level of certainty. Such tools will take years to be developed and until they are in common use, no Ethereum smart contract should be trusted. Ethereum is doomed.
Whether or not Ethereum and The DAO will ultimately be successful or a failed project is still up in the air, as only time will tell.
Although pessimism initially followed the DAO attack, ETH has rebounded in price, and despite wild fluctuations, is currently trading around $15 at press time.
What do you think will ultimately happen with ETH and DAO? Let us know in the comments below!
Source: Nakamoto Institute
Images Courtesy of QZ.com, Ethereum