- This story was first published in LinkedIn on June 18, 2016 https://www.linkedin.com/pulse/dao-died-3-reasons-why-boost-industry-roberto-capodieci/
The DAO, an Ethereum-powered crowdfunding initiative, succumbed yesterday to an attack that drained virtual assets with a value exceeding USD 50 million into a single account.
Started earlier this May and invested-in for a total of nearly USD 150 million, the project went from panic to failure in a few hours lapse.
That attack was apparently made possible via a logic flaw exploitable with the code provided to users wishing to create their own to-be-funded projects on the platform, and managed to lower the value of the Ethereum cryptocurrency by more than a quarter while taking the DAO by storm.
If, ultimately, The DAO is planned to shut down, the invested funds are recoverable and contributors will not see any major loss.
This incident might indeed have a negative impact on the crypto-currency sector. That said, we think that negative consequences will be short lived, and that yesterday’s events will mark the start of a new approach to crypto-platforms for the following reasons:
1) Demonstration of resilience, even through failure
Many among us remember the story of Mt. Gox, and the disappearance, in February 2013, of of $460 million worth of bitcoins. Rooted in bad governance, bad practices and social engineering, the scandal drove many to declare bitcoin dead an over with.
While I am writing these lines, a 1 BTC is worth USD 750.
What happened with The DAO is, in comparison, a mere failure to deliver. With a vulnerability originating from its implementation of Ethereum’s smart contracts as opposed to a flaw in Ethereum itself, stakeholders shouldn’t lose any money in the project’s spectacular end.
This, is a hard proof that crypto-platform developers have learned from their mistakes and added a surprising amount of resilience to their systems in just over 3 years.
2) Shift from currency to platform, from speculation to technology
Until now, cryptocurrencies have been synonymous with speculation. ‘Build a ‘coin’, on-board users, get liquid, generate profit’, was the sequence of events usually thought of by many entrepreneurs, while ‘buy and sell’ was the motto of enthusiasts.
Attracting many with the promise of easy profit either via funding or via exchange, The DAO saw a surprisingly large amount of money invested in a surprisingly short time, which served as a carburant for the most explosive stress test in the young history of cryptocurrencies.
The resiliency of Ethereum’s system and community mitigated the damages, but The DAO’s collapse rings as a stern couple of reminder: ‘understand the technology you are investing in’ and ‘there is no such thing as free lunch’.
Most fortunately, The consequences of the DAO incident are in the same time safe enough to not elicit panic, and too meaningful to ignore. They gather all the attributes needed to shift the industry’s focus from blind speculation to technological improvement. Which is the best of things, since the potential of crypto platforms goes far beyond digital currencies.
3) Opportunity for the whole crypto ecosystem
The last two years have seen drastic progress and a pronounced interest in the crypto-platform field, putting blockchain technologies to a new a varied range of tasks.
With Ethereum now under the spotlight for good and bad reasons, entrepreneurs and developers will certainly see opportunities to develop a new pool of expertise, either by developing more secure tools, auditing current products, or creating alternatives.
In conclusion, we are eager to see how the industry will react. Even if the experiment was non-conclusive, we cannot but tip our hat to those who dare to try, and those who dare to support them.
As for a deeper understanding on how smart contracts work, and what they are good for, you might want to stay tuned as we are preparing an explanatory post on this very topic.
Before parting, let us know in the comment how you see the impact of The DAO’s failure, all opinions are welcome!