The DAO was a blockchain based crowdfunding project that raised the equivalent of USD $133 million in Ethereum from investors via token sale in 2016. The DAO project is named after the term DAO, which stands for Decentralized Autonomous Organization, and was built on Ethereum. It intended to aggregate applications for funding from blockchain based projects, and give DAO token holders the right to vote on which projects to fund. On June 16th, 2016 a hacker managed to move 3.6 Million in ETH from the DAO project’s single Ethereum address to a different address where it remained locked. At the time, the DAO contained 15% of all circulating ether, and lawyers suspected that the project might be in violation of existing securities laws.
There were three proposed solutions:
- Vitalik Buterin proposed a soft fork of the Ethereum network, which would freeze the funds in any DAO addresses (including that of the attacker) and prevent anyone from spending from them. This would need to be approved and executed by Ethereum’s network of nodes to take effect.
- Hard-fork Ethereum to reverse the attacker’s DAO transaction entirely, which sparked controversy in the Ethereum community, as it would represent a small group of individuals influencing a system built on principles where no group has the authority to take such action.
- Do nothing, since the Ethereum software and smart contract worked as intended. The attacker wrote an open letter threatening to take legal action if the fork took place, reasoning that their attack was perfectly legal, in that it took an action that was allowed in the DAO’s code itself, which appeals to the Ethereum community’s base philosophy that “code is law”.
On June 22 the network voted to implement the soft fork, but that plan was subsequently abandoned. The hard fork proposal was then voted in and completed on July 20th, returning funds to investors. This fork led to two different chains, where the Ethereum chain included the hard fork, and the original chain became Ethereum Classic.