Ethereum Gets Its Hard Fork, and the ‘Truth’ Gets Tested

A controversial solution to a massive theft in the world of cryptocurrencies was implemented on Wednesday. If it works, it will see tens of millions returned to the original owners, but doing so may harm the reputation of the platform on which that currency was created.

The “hard fork” of the underlying software behind Ethereum went live Wednesday morning, with miners, developers, and users being give a choice of whether or not to adopt it, setting up a rare and philosophically fraught decision for the fledgling community. If the fork gets adopted, a massive fraud will be reversed – but doing so may harm the integrity of the underlying platform.

Ethereum is a bitcoin-like platform designed as a host for applications, essentially a decentralized version of the World Wide Web. In June, one of those applications, a venture fund called TheDAO was attacked, with the malefactor taking $ 60 million worth of Ethereum’s native currency, called ether. In the month since, the only viable solution has been this hard fork, which would effectively erase the transactions that created the theft and return the funds to their original owners.

User are now free to either adopt the fork or not adopt it, meaning that for a time – perhaps as short as several hours – there will be two competing versions of Ethereum’s ledger, called the blockchain. As users make those choices, one chain will eventually grow significantly longer than the other. At that point, users of the shorter chain should be compelled to adopt the longer chain, eventually leading to the dissolution of the former.

All the early indications pointed toward the hard fork getting adopted. There was a noisy group, however, arguing against it over the weekend on message boards, and pushing for the idea of maintaining a “pure,” non-forked blockchain. The argument against forking is that by altering the underlying code to erase specific transactions, you are destroying the very thing that makes cryptocurrencies worthwhile: an unalterable version of the “truth.” If the percentage split is narrow enough, say 55%-45%, both versions of the “truth” may remain alive, like living in a world with both Euclidean and non-Euclidean geometry.

“I totally get both sides,” Vitalik Buterin, the creator of Ethereum, told MoneyBeat. He said the reason he supports the fork is that Ethereum is still in development stages, and isn’t fully formed. As it grows, forks like this will be harder to do. “I don’t think the way things are done right now are precedent setting.” He acknowledged that the hard fork wouldn’t satisfy everyone, and that indeed it carried its own unknowns with it. Not doing the fork, though, would leave this “truth”: somebody gets away with $ 60 million.

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What makes Ethereum, bitcoin, and their like unique is that they utilize an open ledger into which every transaction is recorded – and importantly, unalterable. This feature is what negates the need for a middleman to keep records, and allows for true peer-to-peer transactions. The integrity of the open ledger is paramount in establishing trust. Ultimately, this is a debate about philosophical, digital utopia versus the nasty vagaries of the real world.

The DAO, which stands for Decentralized Autonomous Organization, was envisioned as a venture fund for Ethereum-based startups. In May, via a 27-day “creation phase,” it raised about $ 155 million worth of ether, the currency used on Ethereum. Shortly after, a bug was found in the code that would allow for the creation of a copycat fund that could simply drain assets from the parent. In June, somebody seized upon the bug, created the copycat, and made off with roughly $ 60 million worth of ether before being discovered.

That the hard-fork option is available at all is due to a quirk in the way the DAO was created: during that 27-day “creation phase” money put into the fund couldn’t be moved. This escrow period allowed Etheruem’s backers time to develop a plan to rescue the funds. They likely won’t have such a window again.

“The next time any major event happens, I don’t think we’re going to have any choice at all,” Mr. Buterin said.

MoneyBeat » Bitcoin

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