3.6 million ETH stolen, changing Ethereum history: a review of the biggest on-chain attack in history

On February 22, Laura Shin, the host of Unchained, published an article in Forbes stating that according to the relevant evidence she found, the identity of the hacker in the Ethereum 2016 The DAO incident was suspected to be Toby Hoenisch, the co-founder and CEO of TenX and an Austrian programmer. Laura Shin said that based on her data tracking of the suspect and the on-chain analysis of the blockchain analysis company Chainalysis, she locked the node address of TenX in Singapore. This largest hacker attack in history six years ago has brought back many people's meetings.

“At that time, I saw Ethereum founder Vitalik suddenly say that The DAO was hacked and the money was being taken away by hackers. I thought it was a joke, and then I was stunned,” said Daniel, co-founder of cryptocurrency wallet ImToken.

3.6 million ETH, more than 60 million US dollars at the time, was the amount stolen in this far-reaching hacker attack. If calculated based on the historical highest price of ETH, 3.6 million ETH is worth nearly 17.5 billion US dollars.

Two lines of code worth $60 million

Until now, many people probably still feel scared when they think of the hacker attack in the encryption industry six years ago.

Everyone knows that Bitcoin is a global ledger that securely records all transfer records and enables barrier-free peer-to-peer transfers. Ethereum can be seen as the 2.0 version of Bitcoin. It can be seen as a "global computer". Based on Ethereum, developers can efficiently and quickly develop many upper-level applications.

On such a system, many projects dedicated to solving real-world pain points began to emerge. At that time, this way of operating by code and not relying on personal subjective will was sought after by many people. It was also in this context that The DAO was born.

It was actually a project initiated by a German startup called Slock.it. At the time, the company was engaged in the blockchain business of physical assets, but because it was difficult to raise funds in traditional industries, they came up with a bold idea: since no one was investing in them, why not create an investment institution?

They introduced the concept of distributed autonomous organizations, using contracts to bring a group of stakeholders (investors) together to put their money together. If someone comes with a business plan to seek financing, everyone votes on whether to invest. If successful, everyone shares the profits.

The whole process actually works like this: users submit proposals for investment, and after the proposal is publicized, if more than half of the users vote in favor, the virtual "VC" will take out a sum of money and invest it in the project. The invested project needs to guarantee that its business will continue to return to the institution through this contract, including principal and interest, and each LP in the "VC" can share the corresponding income.

The DAO, which completely relies on smart contracts, has been welcomed by the community. The project started fundraising at the end of April 2016. In less than a month, it attracted 11,000 investors to participate and successfully raised 11.5 million Ethereums. This amount of ETH accounted for 15% of the circulation of the entire Ethereum network at that time, with a total value of over 150 million US dollars. This also made The DAO the project that raised the most Ethereum in the history of encryption.

But the seeds of danger were quietly planted when the news of the project's successful financing came out.

At that time, even the team did not expect that the project could raise so much money, and they were so confident that they put all the ETH in one address. This is a very scary thing. Anyone with a little common sense knows that if you have a huge amount of tokens, it is best to spread them across multiple addresses, so that even if a part of them is lost, they will not be completely lost.

The DAO became a target for hackers with ulterior motives.

In fact, as early as May 2016, members of the Ethereum team had called for security issues in such DAO projects and provided several possible attack scenarios. On June 11, another Ethereum project also discovered that the contract had such a problem, but fortunately it was handled in time and no losses were caused.

However, even after the team received the same security report, they still did not pay attention to it, thinking that the vulnerability would not pose a threat. In addition, there were already dozens of proposals waiting for voting at the time, and if the contract was suspended for inspection, it was estimated that the community would not accept it.

Just when everyone thought everything was fine, danger struck.

The hacker was very smart. He first quietly wrote an attack contract on June 15, quietly ambushed for two days, and did not take action until June 17. Exploiting the loopholes in the contract, the hacker successfully transferred more than 3.6 million ETH from the main contract to a child DAO. This was a recursive split method, and ultimately the collected coins were transferred in a single move.

The problem is with the following two lines of code: The code is correct, but the order is reversed.

Some people analyzed that if the programmer had swapped the order of the two lines of code, the functions would not have changed, but the loopholes could have been avoided, and perhaps The DAO would have been successful.

Of course, this is just a beautiful fantasy. Hackers took advantage of this loophole and successfully transferred more than 3 million ETH, causing an uproar in the crypto community.

The attack caused the project to lose 3.6 million ETH, which was worth more than 60 million U.S. dollars at the price at the time. If calculated based on the historical highest price of ETH, the lost assets were nearly 17.5 billion U.S. dollars. The news quickly affected the secondary market, and the price of Ethereum fell from 20 U.S. dollars to below 13 U.S. dollars, a drop of more than 30%.

However, the cunning hacker did not expect that because the child DAO contract was still in the creation stage and had a 27-day lock-up period, he could not transfer the money in a short period of time.

Everyone only has more than twenty days to make a decision before the money is transferred.

After the attack, Vitalik published an article, restoring the details of the attack on The DAO and providing a solution. He proposed that the community conduct a soft fork on the Ethereum blockchain, treating the related transactions as invalid transactions to prevent the attacker from withdrawing the stolen ETH. After that, a hard fork vote will be initiated to recover the ETH.

Before the coins were transferred, the Ethereum community released such a big move, and the hackers could no longer sit still.

On June 18, the hacker who claimed to have led the attack showed up and published an open letter to The DAO and the Ethereum community. He expressed his disappointment that the community defined his behavior as “theft” and claimed that the ETH he obtained was legal and legitimate. “My law firm stated that such behavior is completely in compliance with the law.”

However, someone discovered that the signature he left was fake, so this open letter may have been forged.

On June 19, a user named "daoattacker" appeared in the slack channel discussing the incident. In an anonymous conversation, he said that he would take measures to stop the organized "theft" of his property. "Soon we will formulate a smart contract to reward miners who do not support the soft fork, a total of 1 million ether and 100 bitcoins." He tried to encourage miners not to support the fork. Interestingly, he also sent a few BTC to those who left their addresses in the discussion area.

The hacker’s meaning is clear: he does not approve of the Ethereum fork. However, most people in the community will ignore his defense.

Soon, the Ethereum community launched a vote on whether to support a hard fork. Nearly 97% of ETH holders voted in favor, with only a few disagreeing with the fork. Ultimately, the hard fork plan was passed unanimously.

On July 15, 2016, the specific hard fork plan was announced and the coin withdrawal contract began to be established. Since July 21 was the deadline, the final deadline for the hard fork execution was determined. More than 85% of the computing power supported the hard fork, and the Ethereum hard fork was successful.

Today, when we look back at this hacker attack in the crypto world, we will find that this attack not only brought down The DAO, but also had another worse "side effect": many people began to doubt whether decentralized autonomous organizations are fantasy and whether "Code is Law" is a castle in the air? The Ethereum community did initiate a hard fork vote and stopped an attack in order to recover the losses of most investors.

But from a certain perspective, what the “hackers” said is not without reason: The DAO itself is a smart contract, and its arbitrator is itself, and no other external node can change the established rules. The official practice of Ethereum overturned this rule.

Many times, incidents that trigger hacker attacks can be avoided as much as possible when developers are writing code, but hackers in the crypto world can exploit not only lines of code, but also loopholes in human governance.