What was The DAO?
The DAO was an early iteration of modern decentralized autonomous organizations. It was launched back in 2016 and designed to be an automated organization that acted as a form of venture capital fund.
Those who owned DAO tokens could profit from the organization’s investments by either reaping dividends or benefiting from the price appreciation of the tokens. The DAO was initially seen as a revolutionary project and raised $150 million in Ether ( ETH), one of the greatest crowdfunding efforts of the time.
The DAO launched on April 30, 2016, after Ethereum protocol engineer Christopher Jentzsch released the open-source code for an Ethereum-based investment organization. Investors bought DAO tokens by moving Ether to its smart contracts.
A few days into the token sale, some developers expressed concerns that a bug, in the DAOs smart contract could allow malicious actors to drain its funds. While a governance proposal was set forth to fix the bug, an attacker took advantage of it and siphoned over $60 million worth of ETH from the DAO’s wallet.
At the time, around 14% of all ETH in circulation was invested in The DAO. The hack was a significant blow to DAOs in general and the then-one-year-old Ethereum network. A debate within the Ethereum community ensued as everyone scrambled to figure out what to do. Initially, Ethereum co-founder Vitalik Buterin proposed a soft fork that would blacklist the attacker’s address and prevent them from moving the funds.
The attacker or someone or someone posing as them responded to that proposal, claiming the funds had been obtained in a “legal” way according to smart contract rules. They claimed they were ready to take legal action against anyone who tried to seize the funds.
The hacker even threatened to bribe ETH miners with some of the stolen funds to thwart a soft fork attempt. In the debate that ensued, a hard fork was determined to be the solution. The hard fork was implemented to roll back the Ethereum network’s history to before The DAO was hacked and reallocate the stolen funds to a smart contract that allowed investors to withdraw them. Those who disagreed with the move rejected the hard fork and supported an earlier version of the network, known as Ethereum Classic (ETC).
Part four will tell us about ‘Examples of DAOs”
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