DAO: The Dapp That Nearly Broke Ethereum! | Blockchain Central

DAO: The Dapp That Nearly Broke Ethereum! | Blockchain Central


What’s is up guys?
My name is Blu and you are watching Blockchain
Central.
In today’s episode we’ll look into one
of the most dramatic events in the relatively
short history of BlockChain: The DAO Event!
As always, please note that this content neither
represents financial, legal, or tax advice,
nor is it supposed to be understood or interpreted
as solicitation to buy or sell any securities,
coins or tokens.
Let’s start by explaining a key distinction:
A DAO, a Decentralized Autonomous Organization
is an organization that runs on a blockchain
using smart contracts and all the records
and program rules of this organizations are
kept there.
If you want to know more about Ethereum smart
contracts you can check this video right here.
THE DAO, on the other hand was a Blockchain-based,
decentralized type of a Venture-Capital Fund
allowing both commercial and non-profit organizations
to secure funding within the Ethereum ecosystem.
Keep in mind that almost everything we discuss
in this episode has to do with THE DAO and
should not reflect negatively on any other
Decentralized Autonomous Organization.
With this out of the way, let’s see what
exactly was so interesting about THE DAO.
It was launched on the Ethereum blockchain
on April 30, 2016, its code written by Christoph
Jenczsch and made available publicly on GitHub.
The main idea was that all participants could–by
means of voting–decide where the capital
acquired at the ICO stage will be invested.
This concept is well presented in a book written
by Chris Burniske and Jack Tatar called “Cryptoassets”.
The vision of a decentralized autonomous organization
like The DAO is somewhat like autonomous vehicles—whereas
humans used to have to drive cars, the cars
increasingly can drive themselves.
Similarly, whereas humans used to be needed
for all aspects of business processes, often
in manual paper pushing, approval, orchestration,
and so on, a decentralized autonomous organization
can codify much of those processes so that
the company better drives itself.
The concept generated a substantial amount
of interest and through a series of funding
a total capital of over $168 million was collected
with the total number of token holders at about 11,000.
Of course, with this amount of money and hype,
it was obvious that certain individuals will
be interested in exploiting any and all potential
vulnerabilities.
Because the DAO software was hosted on the
Ethereum blockchain, it was publicly visible,
which meant that everyone could both identify,
warn against and exploit all possible loopholes in the system.
Some of the early warnings came from a group
of scientists including Dino Mark, Vlad Zamfir,
and Emin Gün Sirer who identified several
issues and advocated against any further activity
involving the DAO until these were addressed.
Unfortunately, the warning was not taken into
consideration and on May 28, 2016, right after
the crowdsale was completed, the DAO tokens
began trading on exchanges.
Just three weeks later, on July 17, 2016,
an attack took place which took advantage
of the vulnerabilities of the DAO voting protocols,
and resulted in over $50 million being stolen.
The hackers transferred 3.6 million ethers
(Eth) from the DAO fund and into their wallets,
the amount which, at that time, accounted
for 1/3 of the total fund allocated to the DAO.
This subsequently led to the scandal that
severely undermined the reputation
of Vitaly Buterin and the Ethereum platform as a whole.
In order to counteract the crisis, Buterin
and the entire Ethereum team decided to address
the issue and rebuild the network’s position
and trust.
This was challenging however, because Ethereum
as a platform provider should not really get
involved in the problems of a single developer.
Eventually, following a vote, the Ethereum
team decided to amend the code of their blockchain,
remove the funds from the hackers’ account,
and return them to their rightful owners.
Such an amendment, also known as a Hard Fork,
mitigated the situation, but also–in the
opinion of many people–went completely against
the core values of blockchain which should
be decentralized and immutable.
Oh and it also created Ethereum Classic (ETC)
in the process.
But that we’ll cover in detail in another
episode…
And when it comes to the DAO, between September
and December 2016, the token was delisted
from all major exchanges and that was the
end of the road for the first major DApp with
its own native token running on the Ethereum
Blockchain.
So that’s about it for this episode of Blockchain
Central, let me know in the comments and what
you think about the Hard Fork?
Was it the right call?
Are you a supporter of Ethereum Classic or
do you prefer
the decisiveness and leadership of Vitalik Buterin?
Also, if you have any suggestions for our
future videos and would like us to investigate
a topic, please leave the suggestion in the
comments below.
Make sure to hit that like button if you liked
this video and don’t forget to subscribe
to Blockchain Central to never miss a beat!
Happy investing!

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