July 19, 2021

‘The DAO Attack’ - The Attack That Shocked the Ethereum Community!

 In the crypto basics article: Ethereum Classic (ETC), Team Intraday has touched a little on ‘DAO attack’ or known as any DAO attack. DAO is also actually no stranger to the crypto sector, again since Wyoming declared the American CryptoFED DAO as the world’s first DAO.

What is DAO?

DAO, decentralized autonomous organization is a project that focuses on coding organizational rules and decision -making functions, eliminating document and person requirements in the administration, and building structures with decentralized control.

It is developed at the very top of most blockchains.

The DAO attack

In May 2016, several members of the Ethereum community developed The Dao (Genesis DAO) as a smart contract on the Ethereum blockchain. The project raised $ 150 million from 11,000 interested investors, setting a record for the most funds in history.

However, on June 12, one of the DAO developers, Stephan Tual revealed that there was a 'recursive call bug' in the software but no risk was identified.

But Tual was wrong. On June 17, a hacker discovered a flaw in the software code, allowing him to steal 3.6 million ETH (~ $ 70 million at the time) from The DAO. ETH prices continue to fall sharply from over $ 20 to under $ 13!

However, because the funds were put into a locked account within 28 days, the hacker failed to proceed with the theft.

Ethereum Splits, Ethereum Classic (ETC) Exists

Ethereum eventually went through a hard fork phase for the purpose of sending the funds back to its original owners. Token owners are given an exchange rate of 1 ETH: 100 DAO tokens, the same rate as the initial offer.

Since then, many exchange platforms like Kraken and Poloniex have delisted DAO tokens. Because The DAO is a security, the Securities and Exchange Commission (SEC) has confirmed The DAO and its investors have violated securities laws.

Today, many DAOs have been developed, for example: Aragon, Boardroom, Colony, DAOStack, DXdao, Daohaus, Snapshot, and Tally. They made The DAO a reference to be more sustainable.

As shared, The DAO incident was not caused by the Ethereum network but was due to a flaw in The DAO code that made it easy for funds to be stolen. Perhaps, if the code was well generated, the crash was unlikely to happen.