Understanding a Revolutionary and Flawed Grand Experiment in Blockchain: The DAO Attack

17 Pages Posted: 11 Aug 2017 Last revised: 19 Jul 2019

See all articles by Muhammad Mehar

Muhammad Mehar

York University, Schulich School of Business, Students

Charlie Shier

Harvard University, Law School, Students

Alana Giambattista

York University, Schulich School of Business, Students

Elgar Gong

York University, Schulich School of Business, Students

Gabrielle Fletcher

York University, Schulich School of Business, Students

Ryan Sanayhie

York University, Schulich School of Business, Students

Henry M. Kim

York University - Schulich School of Business; Novera; Insolar

Marek Laskowski

York University; University of Guelph

Date Written: November 26, 2017

Abstract

In spring 2016, The Distributed Autonomous Organization (The DAO) was created on Ethereum. As with Bitcoin, Ethereum uses a P2P network, where distributed ledgers are implemented as daisy-chained blocks of data. Ethereum’s native cryptocurrency, Ethers, are spent to execute pieces of code called smart contracts. Investors paid their Ethers for The DAO to operate, and received the opportunity to vote on and become investors in venture projects proposed by Ethereum-based startups. Transactions and settlements between investors and startups executed autonomously. The DAO experiment failed shortly after inception as an anonymous hacker stole over $50M USD worth of Ethers out of $168M invested. The Ethereum community voted to return (or fork) the state of the network to one prior to the hack, returning Ethers back to investors and shuttering The DAO. However, this action arguably represented a bailout—ironically, Bitcoin was conceived as a reaction against the 2008 bailout of US banks—and violated the ledger immutability and “code is law” ethos of the blockchain community.

Keywords: Blockchain, digital currency, Bitcoin, Ethereum, decentralized autonomous organization

JEL Classification: M15, L86

Suggested Citation

Mehar, Muhammad and Shier, Charlie and Giambattista, Alana and Gong, Elgar and Fletcher, Gabrielle and Sanayhie, Ryan and Kim, Henry M. and Laskowski, Marek, Understanding a Revolutionary and Flawed Grand Experiment in Blockchain: The DAO Attack (November 26, 2017). Available at SSRN: https://ssrn.com/abstract=3014782 or http://dx.doi.org/10.2139/ssrn.3014782

Muhammad Mehar

York University, Schulich School of Business, Students ( email )

North York, Ontario
Canada

Charlie Shier

Harvard University, Law School, Students ( email )

1563 Massachusetts Avenue
Cambridge, MA 02138
United States

Alana Giambattista

York University, Schulich School of Business, Students ( email )

North York, Ontario
Canada

Elgar Gong

York University, Schulich School of Business, Students ( email )

North York, Ontario
Canada

Gabrielle Fletcher

York University, Schulich School of Business, Students ( email )

North York, Ontario
Canada

Ryan Sanayhie

York University, Schulich School of Business, Students ( email )

North York, Ontario
Canada

Henry M. Kim (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Novera ( email )

661 University Ave
Toronto, Ontario M5G 1M1
Canada

Insolar ( email )

Gartenstrasse 6
Zug, 6300
Switzerland

Marek Laskowski

York University ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

University of Guelph ( email )

Guelph, Ontario
Canada

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