The DAO Hack

In early 2016, while looking for a method to raise funds for a project, Christoph Jentzsch referenced the concept of crowdfunding and applied it to the blockchain. Hence, the idea of a decentralised autonomous organisation (DAO) was born.

The DAO, the first decentralised autonomous organisation, was created as a form of an investor-directed venture capital fund. Developed by Slock, it was built on Ethereum in order to integrate real-world transactions into the blockchain. The DAO became an unexpected success during its creation, raising around US$150 million from more than 11,000 participants. This made it the biggest crowdfund at the time.

Several onlookers and community members voiced concerns about The DAO, feeling that the code wasn’t fully secure. They believed there was a risk in the wallet because the donations received could be drained. While programmers attempted to fix the bug in the smart contract, the wallet was eventually hacked, and funds were slowly siphoned out of it.

After the hack, Vitalik Buterin, co-founder of Ethereum, initially suggested a soft fork of the network, which would refund those who lost their assets to the hack. He also suggested adding code that would blacklist the attacker and prevent them from moving any funds they had taken.

Unfortunately, the hacker, or someone posing as the hacker, issued a public letter indicating that they had claimed the Ether in a ‘legal’ manner and that if there were any attempts to seize it, they would take legal action. The hacker also stated that if any soft fork were planned, Ethereum miners would be bribed to not comply with it.

Eventually, a second solution — a hard fork, which would turn back time and run Ethereum as it was before the hack — was executed on 26 July 2016 at block 192,000. The funds on The DAO moved to a different wallet, which allowed users to withdraw their funds.