$60 Million Lost in Digital Currency Hack

It’s difficult not to show enthusiasm for online currencies which are gaining traction and audience by the day, but it is incidents like these which keep the guys behind the projects and the fans humbled. A new hacking event has seen the rising Ether cryptocurrency being attacked, and that too quite successfully. As a result, digital money worth $60 million has been lost.

The attack took place in the DAO, or the Decentralized Autonomous Organization, an investment fund which holds substantial reserves of the cryptocurrency. Unlike investment funds though, the DAO makes decisions based on the wishes of its 11,000 or so backers who collectively raised $150 million in funding for what’s arguably the biggest crowdfunding event in history a few months back.

The attacker took use of the flaw in the code in DAO’s smart contracts, eventually raking in between $47 and $80 million in the cryptocurrency’s units (depending on its price per share before and after the hack). The news could spell trouble for Ether and DAO, which currently holds more than one-tenth of all Ether units in its reserves.

The result has been unexpected, with Ether losing 25 percent of its value in a matter of hours, just days after seeing its overall capitalization rise to $1.6 billion. Price per unit fell sharply from $21.5 to $15, too.

Ether cryptocurrency uses the same blockchain as Bitcoins. It is however, different from the other since it allows much more than just blockchain backed transactions. Using the same system, it allows the setting up of much complex institutions and businesses.

Several solutions have been proposed to ease off the situation. One solution is to “roll back” the currency in its entirety, a move which would erase payments that have taken place in that hour. It is a highly radical move which would affect the entire community as a whole, though. Another is to use a software fork to stop the hacker from making valid transactions, while the assets are still in locked in for 27 days before being moved out. Given the crowdfunded nature of the community places more importance on reaching a consensus than ever, though.

The fate of the DAO is not known right now, but it raises several questions regarding the safety of such institutions. While some backers are now calling for DAO to be disowned, it can be a controversial move which can result in the loss of millions still. We’ll see how the founders tackle this issue while the currency is still in its nascent stage.

  • This article is too difficult to understand for an audience that has no idea on how virtual currencies work.

  • Ltd feature videos

    Watch more at LTD