The DAO crisis: Blockchain democracy and internal law enforcement become investors' hope

Rage Comment : After The DAO was stolen, there were many controversies over the specific solution, so the stolen funds were temporarily frozen in the DAO subsystem. As the deadline for freezing is approaching, this issue has not been finalized. Although the Ethereum community has always allowed The DAO token holders to participate in the resolution vote through token transfer, the interests involved have led to doubts about the validity of such voting, and no real consensus can be reached. And if the problem cannot be solved by itself, regulators may intervene. However, at present, legal intervention or internal democracy in the community is still the main way to recover investors' losses.

Translation: Annie_Xu

On a flight from the United States to Germany, Christoph Jentzsch said he had written early code for The DAO in the summer of 2015.

Originally, this software was used as a crowdfunding contract, and eventually upgraded to the first large-scale project based on Ethereum, which quickly raised $150 million to invest in other projects on the Ethereum platform. However, after its rapid rise, it encountered a storm, and anonymous hackers exploited code vulnerabilities and stole tens of millions of dollars in cryptocurrency (the total amount was $60 million at the time of the incident).

The stolen money is now in a DAO child system (child DAOs), still frozen and controlled by an unknown organization. The current problem is that according to the original DAO contract, the situation will change on July 24, and the thieves will be able to withdraw these funds.

And unlike traditional businesses, Jetzsch’s open-source codebase was written on the Ethereum blockchain and is free to use. No one has claimed responsibility for The DAO, and no one or organization has clear authority to take action.

In other words, the responsibility for the aftermath falls on the shoulders of altruists. At first, people mainly considered two solutions, but things have become complicated in the past two weeks.

A soft fork was rejected last month because it would have blacklisted the DAO subsystem, while another option would have been to roll back the blockchain with a hard fork, restarting the distributed ledger with a new smart contract using the stolen funds.

The new smart contract is designed so that it only allows the initial cryptocurrency holders to withdraw their funds.

However, the project code can only be adjusted if all project members agree. This means that solving the DAO problem is not only about the financial needs of 23,000 members, but also about trying to solve the problem with a new technology management model.

Developments

There is still controversy within the decentralized community about the future direction of development, which led to the emergence of the famous Robin Hood group.

The group of coders, whose identities are unknown for security reasons, took a more conservative approach to fighting back against the DAO attackers, known as a white hat attack.

Since the only option for developers - hard fork is no longer feasible, this solution is currently the safer and more comprehensive approach.

The victims of the computer tug-of-war between white hat hackers and attackers are not only investor funds, but also the future of a new type of business model without leadership.

Christoph Jentzsch

Many, including Jentzsch, worry that if the community fails, government agencies might step in.

“There have been no discussions with regulators yet, and I hope that this is one of the reasons for a hard fork.”

“If the funds were recovered via a hard fork, there would be fewer problems.”

Slock.it, which provided code for an early version of The DAO, has not yet been contacted by its co-founders, Jentzsch said.

However, the U.S. Securities and Exchange Commission (SEC), which is currently responsible for overseeing securities regulations, is already paying attention to this issue.

Consensus in crisis

Last month, Gary Goldsholle, deputy director of the SEC’s Division of Trading and Markets, said the hack vindicated his concerns about consumer protection.

To minimize the negative impact of the hacking attack on consumers, Jentzsch said a series of measures have been deployed within the community.

People discussed the issue in person, by phone and in letters, and ad hoc groups were formed on community sites such as Reddit and DAOHub and on social media platforms such as Facebook.

The goal of all discussions was to reach consensus, but this process was clearly more difficult than the ideal described by the coders.

The consensus here means either agreeing to use a hard fork to restore the transactions of the DAO subsystem to the state before the attack; or doing nothing and teaching investors a lesson.

Jentzsch worries that the latter could lead to regulatory action. What could happen (and, to some extent, has happened) is that everyone who has invested in ether would be able to vote using their tokens as proof of ownership.

Miners can then choose whether to adopt the resolution.

For example, last week, a voting campaign on carbonvote.com asked Ethereum holders to send their digital currency to a certain address to indicate whether they support the hard fork. The Ethereum address representing the support has received 83% of the votes.

Another more complex token voting proposal is that voters must lock up Ether for a predetermined period of time, and the more funds locked up, the more likely their vote will be adopted.

Choose a fork

In order to reach a consensus, Slock.it released the code of the relevant hard fork plan and hoped to obtain community feedback.

According to the initiative, the funds of the DAO subsystem will be transferred to a newly written smart contract, and only the initial ether holders can withdraw funds. Slock.it also sent the code to geth, parity, cpp-ethereum and pyeth for audit.

Miners who validate transactions on the Ethereum blockchain can then participate in the vote at some point.

Although there are still many uncertainties in this leaderless business model, we can still see clues of subsequent progress. During the process of the soft fork proposal being rejected, miner activities were discovered on the Ethereum platform.

Ethereum developer Vlad Zamfir said he believes a “similar miner voting process” could be in favor of the hard fork.

Vlad Zamfir

Zamfir said that other hard fork initiatives with different solutions are expected to emerge.

“It is very likely that the final hard fork code will be different from what Slock.it describes.”

If all else fails and an ethereum hard fork isn’t an option, a group of coders (at least some at Slock.it) are already working on what Jentzsch calls a “safety net.”

The Robin Hood group, which includes Slock.it chief technical engineer Lefteris Karapetsas, has come up with other initiatives in case all else fails.

The second major player among the 16 experts who provided the initial code for The DAO announced two initiatives on July 14 aimed at providing a platform for hackers to fight back in the event of a failed hard fork.

Karapetsas explained that the Robin Hood group kept some of its plans secret in order not to reveal its strategic planning.

The first initiative was to transfer the funds in the balance account to the original DAO to prevent the attacker from withdrawing the funds; someone had previously proposed buying back the tokens of the DAO subsystem.

But the group kept it strictly confidential.

Lefteris Karapetsas

“The DAO attacker can fight back or they can do nothing. Keep in mind there are a lot of DAO subsystems and the Robinhood team wants to deal with as many as possible,” Karapetsas said. “In some DAO subsystems we are in a better position, in others we are not so good.”

In addition to the smaller DAO subsystem, the Robinhood group also carried out so-called white hat attacks, where investors also transferred remaining funds to their own accounts.

Karapetsas's plan received unanimous support, meaning the other two proposals do not need to be implemented. But such unanimous support cannot be fully trusted.

Damage Control

The effort to save The DAO was so extreme that leading academics worried that an informal vote might not succeed.

Cornell University professor Emin Gün Sirer gave the example of many initiatives that tend to favor one.

Emin Gun Sirer

Sirer said people who voted against it were currently losing money and had no interest in voting, so the resulting support for the Robinhood group might not reflect the likelihood of a consensus.

Gün Sirer has been publicly critical of Slock.it’s handling of The DAO, pointing out that they had not conducted a serious review from the project’s inception to its conclusion. Last month, he even called on the Ethereum community to expel Slock.it’s founder.

But on the question of whether Ethereum should hard fork to protect the interests of investors, Gün Sirer and the leaders of Slock.it rarely agree, but he only supports it within the distributed community. "Everyone who invested heavily in The DAO wants a hard fork. People who have no conflict of interest with The DAO want to see a hard fork. In any case, the people of Slock.it will be sued, but they want to minimize the legal liability as much as possible."