Mon, Jun 20, 2016 - Page 14 News List

Millions of ethers stolen from DAO

‘STATEMENT OF TRUTH’:A Bitcoin Foundation official said blockchain is a ledger that is only as good as its resistance to censorship, change, demands or attack

NY Times News Service

A hacker on Friday siphoned more than US$50 million of digital money away from an experimental virtual currency project that had been billed as the most successful crowdfunding venture ever — taking with them not just one-third of the venture’s money, but also the hopes and dreams of thousands of participants who wanted to prove the safety and security of digital currency.

The attack most likely puts an end to the project, known as the Decentralized Autonomous Organization (DAO), which had raised US$160 million in the form of ether, an alternative to the digital currency bitcoin. While the computer scientists involved in the project are aiming to tweak the code that underpins ether in a way that would recover the money, the theft is nevertheless prompting a bigger debate about the viability and principles of virtual currencies like bitcoin and ether.

“This is one of the nightmare scenarios everyone was worried about: Someone exploited a weakness in the code of the DAO to empty out a large sum,” said Emin Gun Sirer, a computer science professor at Cornell University, who co-wrote a paper pointing out problems with the project.

Central banks and financial firms have been exploring how to use the technology underlying virtual currencies — known as blockchain — to improve their own internal systems. The technology is considered to have advantages in terms of transparency and security. Earlier this month, US Federal Reserve Chair Janet Yellen told central bankers at a trade industry conference that they should accelerate their efforts to explore blockchain.

However, the incident on Friday provided another reminder of how the code can be just as vulnerable to human greed and mistakes as paper bills.

The DAO was meant to be a standard-bearer for online currency ventures. It was funded by investors from around the world using ether, which has become popular over the past year. However, just before the project stopped raising money late last month, computer scientists pointed out several vulnerabilities in its underlying code — effectively warning that what happened to the experimental consortium would be possible or even likely.

“The DAO is being attacked,” Griff Green, a community organizer with the company that wrote the project’s software, Slock.it, wrote on a chat channel for the project on Friday morning. “This is not a drill.”

The money the hacker moved appeared to be frozen on Friday as a result of a safeguard previously built into the code. Programmers working on the Ethereum network, which hosts ether, were debating whether to make a one-time change to the code to recover the frozen money. That faced immediate opposition from many virtual currency purists, who were attracted to the technology because of its ostensible freedom from human meddling.

“The strength of blockchain tech is that it is a ledger, a statement of truth,” Bitcoin Foundation board member Bruce Fenton said. “That ledger is only as good as its resistance to censorship, change, demands or attack.”

The hacking underscored the complicated governance structure employed by cryptocurrencies. These currencies are not run by any company or individual, but by the computers of anyone who chooses to support the network.

The DAO was supposed to be a further extension of this concept of group decisionmaking. Thousands of people around the world financed the project by sending in ether. The DAO was supposed to act as a sort of venture capital fund, investing in projects that were voted upon by people who contributed money. The attack took place before any projects had been funded.

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