The DAO Attack & Rebirth of Ethereum

Sayak Dutta
3 min readFeb 1, 2024

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In the world of Blockchain & Cryptocurrency, the word “DAO” is very infamous. So let’s dig deeper into the history book of Ethereum.

The DAO Attack & Rebirth of Ethereum

What is DAO ?

DAO(Decentralised Autonomous Organisation) is a concept or System which substitutes the director or higher authority. DAO is made with some smart contracts to solve some repetitive task.

The DAO concept has some advantages over a traditional organization. which as follows.

  • DAO embraces Full Democratization, whereas traditional organization works hierarchically.
  • For every decision, DAO requires Voting, but traditional organisations doesn’t always have voting.
  • In DAO counts is trusted, as services handled automatically. but in traditional organisations, the counting can be tampered as it’s operated by human or centrally controlled automation.
  • With DAO, activities are transparent & open to public. Traditional organisation activities are mostly private or very limited.

“The DAO” organization

“The DAO” is an organization established in April 2016 by a German startup founder Christoph Jentzsoh(co-founder of slock.it). This organisation works as a Investor-based Venture Capitalist Firm, based on DAO Concept.

how the dao works
how The DAO works

The DAO Attack

This decentralised venture capitalist firm had 100 million dollar for investing in various startups, which was raised from investors. Those Investors simply gave Ether as investment to The DAO firm, and in return they got DAO Tokens from the firm. DAO token was ICO( Initial Coin Offering) by the DAO firm.

The person, who have DAO Token, can vote for any Investment Proposal.

But there was some mistake in DAO’s smart contract, and hackers utilised the flaw and looted almost whooping 66 million dollar.

Rebirth of Ethereum

After that hack, the crypto world shocked. In order to recover the stolen funds Ethereum founder Vitalik Buterin & Ethereum Community propoused a soft-fork, but this was still vulnerable. So they forcefully took a bold decision, they executed a hard-fork on 20th July 2016 at block no. 192000, that rolled back the ethereum network to the state before DAO attack.

It gave Investors relief as all ethers have been assigned to another smart contract, opening the lock for withdrawal. But this was a very controversial issue as this action questioned many qualities of blockchain like Immutability & Censorship. Many people didn’t choose the upcoming Ethereum protocol changes, so they created a new branch, “Ethereum Classic”(ETC), and they discarded any further transactions of Ethereum as it’s protocol differs from Ethereum Classic.

the-dao-hard-fork-ethereum
hard fork of ethereum for dao

What is Hard Fork ?

Hard-fork is a process where a blockchain gets divided into two branch. During a hard-fork, the protocol & mining procedure gets updated.

Once an user(node) upgrades their protocol through hard-fork, it rejects all transactions from older software, effectively creating a new brach of that blockchain. However, not all user(node) do accept the hard-fork process, those user will use the previous protocol without updating and still be able to process the transactions.

Bitcoin Also had it’s hard-fork in july 2017 due to SEGWIT issue. two branches diverged in this process, “Bitcoin”(BTC) and “Bitcoin Cash”(BCH)

What is Soft Fork ?

Soft fork are nothing but a change in the protocol. but unlike hard fork, here the end product (blockchain protocol) remains unchanged. Soft fork is always a backward-compatible upgrade, means the upgraded nodes can still communicate with non-upgraded nodes.

Although the old, non-upgraded nodes can still be able to validate blocks & transactions, but they just wont understand them.

Disclamer

The concept of DAO and the DAO attack, along with ethereum hard-fork is a very debatable topic. In blockchain community, some says Ethereum(ETH) is right about the fork, whereas some says Ethereum Classic(ETC) was the main branch and their protocols were right. I’ve tried to explain these issues as per my knowledge and reseach. If there any reader finds something wrong, A comment with correction will be greatly appreciated.

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Sayak Dutta
Sayak Dutta

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