With Ethereum, entirely new ways of open collaboration over the Internet have become possible. Take, for instance, DAOs (decentralized autonomous organizations), which are entities governed by computer code, similar to a computer program.
One of the earliest and most ambitious attempts at such an organization was “The DAO”. It would have been made up of complex smart contracts running on top of Ethereum, functioning as an autonomous venture fund. DAO tokens were distributed in an ICO and gave an ownership stake, along with voting rights, to token holders.
Not long after its launch, however, malicious actors exploited a vulnerability and drained almost a third of the DAO’s funds. It’s worth bearing in mind that, at that time, 14% of the entire ether supply was locked up in the DAO. Needless to say, this was a devastating event for the still-fledgling Ethereum network.
After some deliberation, the chain was hard forked into two chains. In one, the malicious transactions were effectively “reversed” to restore the funds – this chain is what’s now known as the Ethereum blockchain. The original chain, where these transactions weren’t reversed, and immutability was maintained, is now known as Ethereum Classic.
The event served as a harsh reminder of the risks of this technology, and how entrusting autonomous code with large amounts of wealth can backfire. It’s also an interesting example of how making collective decisions in an open environment can pose significant challenges. Overlooking its security vulnerabilities, though, The DAO perfectly illustrated the potential of smart contracts in enabling trustless collaboration on a large scale over the Internet.