At this critical moment, the wrong choice will lead to the destruction of Ethereum

Edan Yago is the CEO of Epiphyte, a company dedicated to providing financial institutions with the ability to transact on open blockchains. Yago is also a founding board member of the Digital Asset Transfer Agency (DATA).

In this article, Yago discusses the crisis that TheDAO is facing and believes that the future of the Ethereum platform depends on how its development community finds solutions.

On July 8, 2011, Bitcoin’s first major bubble burst, with a shocking depreciation of 94%, and the price of Bitcoin eventually dropped from $31 to $2.

However, as you can see, Bitcoin has recovered quite well since then. Today it is back to $750, which is another miracle. Ethereum is now in a life-or-death situation. TheDAO was hacked, destroyed, and a large amount of funds have been stolen. Just like Bitcoin, Ethereum can recover, but a panicked response will push Ethereum to the brink of ruin.

Unfortunately, our response is one of panic.

Ethereum has value for one reason only—it is a Turing-complete smart contract protocol. In other words, the value of Ether is a direct result of the value of smart contracts, and Ethereum is positioned based on this protocol.

On June 17, 2016, TheDAO, a smart contract running on Ethereum, was hit hard. We must now respond in two ways: we can learn from the lessons and build better smart contracts in the future, or we can banish the flawed smart contract from Ethereum forever.

This is far more important than TheDAO itself, and even more important than Ethereum. What is at stake is the survival of the concept of immutable smart contracts.

TheDAO brilliantly demonstrates the core capabilities of smart contracts. These contracts are designed to demonstrate the 'iron will of unstoppable code'. The code is the smart contract and does not require or allow human intervention or interpretation.

Smart contracts are automatic and 'autonomous'. Deterministic outcomes based on code are what make them valuable.

This value is 100% dependent on the power of smart contracts: smart contracts run according to a trusted protocol with rules known in advance. This is the essence of Ethereum. However, the suggestion now is to change the protocol rules because smart contracts have been developed with vulnerabilities in applications.

Doing so would likely undermine the trust established by all contracts in the application.

Misleading history

Many people are pointing out that Bitcoin has forked in the past. This is true, but also very misleading. Bitcoin only forks when the protocol is broken, not when the protocol is working as planned and the results are not satisfactory.

Another argument in favor of forking is that consensus is created by the 'community' and 'determined by miners voting'. This is more subtle and misleading. Miners are not meant to be the final arbiters of transactions and contracts. By design, miners are supposed to be silent slaves to the rules of the protocol. Under deterministic rules, it's a dumb lottery to validate transactions.

If they need to exercise good judgment, we are at the mercy of their judgment.

The bottom line is that if smart contracts must be interpreted by humans according to their own "intentions" rather than being written in code, then smart contracts will not be able to be autonomous and automatic. Instead, smart contracts can be revoked by the community, courts or governments.

If this is the case, it will be difficult to reflect the true value of smart contracts, which means that Ethereum will be worthless.

The only way for Ethereum to recover from this incident and thrive again in the future is to stick to its principles.

It's a difficult choice, but it's the only one.