Ethereum Values Crash After Cyber Attack

What is Ethereum?

Ethereum is a decentralized public blockchain platform with programmable transaction functionality. According to its official website, the platform is designed for “applications that run exactly as programmed without any chance of fraud, censorship, or third-party interference.” It offers a virtual machine that can execute peer-to-peer contracts using a cryptocurrency named ether.
In laymen’s terms, Ethereum acts as a decentralised currency like bitcoin. However, it is built in such a way that it also allows for decentralised organisations to be built on top of its blockchain and for smart contracts that can are completed automatically if certain conditions are met. The technology was originally described in a white paper by Vitalik Buterin in late 2013, and received its first crowdfunding in August 2014.

Hack details

One of the main organizations built on top of Ethereum is the DAO, or Decentralised Autonomous Organisation. The DAO controls 7.9 million units of ether, valued at $137.2 million. Early Friday morning, the organisation was hit with a damaging cyber attack, during which unidentified hackers exploited a software vulnerability to drain millions of ether. An either wallet which apparently holds the stolen funds is currently valued at around $47 million in stolen either (at pre-crash levels, it’s worth a whopping $79.6 million). Its entirely possible that ether values will continue to fall, as news of the security breach is circulated through the mainstream press.

Potential next steps

According to the EconoTimes, Buterin has proposed a solution to rescue the stolen funds. Essentially, the cyber attack was a “recursive calling vulnerability, where an attacker called the “split” function, then calls the slpit function recursively inside the split.” Essentially, it enables the attackers to collect ether time and time again, during a single transaction.
The proposed solution is a software fork, that will prevent the ether from being withdrawn by the attacker past a 27-day window. He advises the community to continue transactions as normal, wait for the soft fork code, and remain ready to download and run if this is the path chosen. Click here to view his instructions in their entirety on Reddit, where news of the attack first broke.

Investor takeaway

All told, there are possible solutions to the attack, which should leave the Ethereum community somewhat reassured. However, the attack revealed a major vulnerability in the software, which has profoundly shaken the confidence of many investors.
For many, the breach came as no surprise. CryptoCompare.com CEO Charles Hayter told Finance Magnates that “this was bound to happen – what has been impressibe is the speed of community reaction and solutions from Slock.it and the Ethereum Foundation. With experiments of this nature where money is involved – the 1,000 eyes looking to build it will see many more looking to exploit it.”
This incident just goes to show the riskiness of investing in new cryptocurrencies. Nonetheless, for many in the community, it’s not merely a financial investment. Rather, it’s an ideological commitment towards supporting decentralized currencies with the potential to totally transform how banking functions and currency trades hands.

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