A hacker exploited this small loophole in the DAO and took away nearly one-third of the DAO’s total funds. A soft fork or a hard fork is the only ways through which a chain could be updated whenever there are issues occurring such as an attack on DAO. The main primary difference between hard fork and soft fork is that hard fork is not backward compatible. There were people who stuck with the original chain calling it the Ethereum Classic as they opposed to the hard fork.
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Construction of Decentralized Autonomous Organization and Ethereum Classic
Smart contracts are the basis of how all the ecosystem of Ethereum works. In the Ethereum eco-system for uninitiated purposes smart contracts are basically how tasks get done. Smart contracts are automated contracts that facilitate and enforce the terms of the contract itself putting.
Decentralized Autonomous Organization (DAO) tried to revolutionize Ethereum forever and this was a complex smart contract. Its main aim was to fund all future DAPPS made within the eco-system which were basic decentralized venture capital funds. How it worked and operated could be understood by anyone.
Buying DAO Tokens for a certain amount of Ether could guarantee one to have a say in any of the direction of funding in the DAPPS. In order to be part of the DAO system the tokens were a great indication.
Construction and Approval of DAPPS
In order for DAPPS to get constructed and approved it called for firstly being whitelisted by curators who, in the Ethereum world have basic knowledge about the figureheads. They get voted on by the DAO token holders after getting their stamp of approval.
Additionally, they get assisted with the required funds to get started only if the proposal gets 20% approval votes. People leaped in to get a share of the pie since the potentiality of the DAO and the flexibility, complete and control transparency that it gave was unprecedented. It did accumulate over $150 million worth of Ether in a crowd sale within 28 days of its formation. During that specific period, 14% of all ether tokens that have ever been issued to date were contained.
For one to be able to go out of the DAO and if some DAPP gets approved and yet one is not a fan of such approval, an exit door termed Split Function was created for them. One could create his or her own Child DAO by getting back the ether that was invested upon by the individual using this split function.
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Furthermore, one could create their own Child DAO and start accepting proposals by splitting off with the multiple DAO token holders. However, there was a single condition in the contract after splitting from the DAO, and that was an individual was to hold back their ether until 28 days had gone in order for the individual to spend them. Although, as much as things became more calm for some period there still existed a single tiny problem.
This problem was seen by many people and it was pointed out. In retaliation, the DAO creators tried to assure people that this was not a major issue and it was being handled. The issue at hand was that there was a creation of an entire storm that brought about splitting of Ethereum into Ethereum Classic and Etheruem.
Attacks on DAO and Establishment of Ethereum Classic
A hacker exploited this small loophole in the DAO and took away nearly one-third of the DAO’s total funds on 17th June 2016. This was almost $50 million dollars of cash missing. In hindsight, the loophole that was manipulated by the hacker was pretty straight forward. This was proved since; if one wished to also manipulate the loophole in the DAO they could do so by only sending in a request.
After sending a request the splitting function could then follow the following two steps; that is registering and updating the internal token balance of the transaction in the ledger and giving the user their Ether in exchange of DAO tokens. Basically, a recursive function in the request was made by the hacker and the splitting function followed these tracks: taking the DAO tokens from the user and giving them the Ether that was asked for and a recursive function made, making the code to transfer even more Ether for the same DAO tokens issued before they could register the transaction.
Pandemonium went over the entire Ethereum community as expected when this issue went on until $50 milion worth of Ether were taken away and stored in a Child DAO. Blaming Ethereum for the DAO hack was like claiming that the internet was broken each and every time a website went down according to Gavin Wood the co-founder of Ethereum.
DAO Attack Aftermath and Ethereum Classic
The beliefs that people had in crypto currency were shattered generally although, Ethereum was in no shape or form to blame for what had occurred with the DAO. People started to celebrate when the price of ether decreased from $20 to $13. The hacker did manage to take away $50 million worth of Ether but the only problem was that he could not access them.
This was because according to the smart contract in the DAO clearly states that any ether investment taken from the DAO takes 28 days in order for it to be accessible. Having this in mind, three potential solutions were brought in place by the team and its community and these were; soft fork, hard fork and nobody does anything.
Nobody Does Anything
In relation to the underlying philosophy and nature of Ethereum itself people argued that making changes in it could go against the basic laws of construction of the Ethereum. According to the code of law after all it was supposed to be immutable. However, quite a number of people were not happy with such a decision so majority of the people preferred going with a Soft Work.
Definition of a Soft Fork
A soft fork or a hard fork is the only ways through which a chain could be updated whenever there are issues occurring. A soft fork is thought of as an update in the backward compatibility of software. This, in layman’s language means that one can still open a spreadsheet built in MS Excel 2015 when running a MS Excel 2005 as it is still backward compatible on a laptop.
Consequently the main difference is that all updates that are enjoyed in newer versions cannot be got since you are still using older versions. Heading back to the MS Excel explanation, one cannot be able to view GIFs in 2005 versions suppose there are features which allow viewing GIFs in spreadsheets in the 2015 version.
Basically, one will not be able to view the GIFs but can see the texts. This therefore, was what Ethereum had planned on getting done on its block chain. Whereby, it was a person’s choice on whether he or she could update or not but all in all the users could still interact with each other.
The main idea was to completely block the hacker from being able to move the ether by segregating and ignoring any blocks that had a transaction which could assist the hacker in moving the ether. This plan seemed to work and many people in the Ethereum community agreed with it although a new predicament surfaced. This was implementing a soft fork, could bring DoS attack vectors.
Soft Fork DoS Understanding
“Gas” rewards any or all mining activities in the ecosystem of Ethereum. This is the only primary way through which DoS attacks can be prevented from attacking the miners. In an event where an attack occurs in the network through flooding transactions that require difficult computations, Gas comes in place.
The miners execute the computations and suppose they fail to complete them as needed they do have access to Gas score which is equal to a certain number of computations that have already been done.
The attacker will use their own money to spend on the attacks and at the very same time more Gas is collected as a lot of time is consumed and handled in the computations which are also difficult. The moment the soft fork gets used, the attacker finds a run around the system, which is what actually happens.
At this point the attacker makes the miners do endless computations for few or no Gas pricing and even at no expense to the attacker money-wise. This is because the attacker floods the network with transaction that interacts with the DAO.
Moreover, the attacker could even trick the miners through setting up high Gas prices so that they end up solving malicious computations. This therefore proved that soft work could not work as earlier stipulated thus proving that the only way that the Ethereum community could issue was through the hard fork.
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The main primary difference between hard fork and soft fork is that hard fork is not backward compatible. There is never going back whenever it becomes absolutely utilized. One does not get access to any of the new updates or interactions with users of the new system whatsoever if one does not join the upgraded version of the block chain.
It is a branch that separates from the main block chain at particular regions and according to this situation it separates immediately before a DAO attack in Ethereum hard fork. Immediately after the hard fork the two chains become completely two different entities that is the block 1920000 where new chain and old chain are the same. This new chain has an acronym ‘ETH’ or it is also named ‘Ethereum’.
Through a refund smart contract which has its sole function of withdrawing it was created to refund all the money that was lost by everyone in the DAO. Therefore, 1ETH is given to every 100 DAO token holders. This issue caused a major split in the community. Anti-hard fork people refused to change to the new block chain and thus they had to remain with Ethereum Classic or ETC which is the old block chain.
Therefore, this is the reason why there is a raging battle between ETC and ETH is occurring as we speak in the Ethereum community. This battle is ideological and ethical making it more fascinated. According to Gavin Wood this is the single most important moment in the history of crypto currency since the beginning of Bitcoin. So below is a keen examination of both of them in details.
There were people who stuck with the original chain calling it the Ethereum Classic as they opposed to the hard fork. Additionally, according to CoinMaketCap Ethereum Classic stands at $17.09 per coin. The market cap for ETC currently is the 5th most expensive crypto currency in the world and stands at a little over $1.5 billion.
It has been proven to be philosophical when it comes to answering why people still stick to the old chain when Ethereum leaders such as Vitalik Buterin and Gavin Wood have shifted to the new chain. Immediately when crypto currency and Ethereum were created, generally they were aimed at curbing financial corruption. They wanted to ensure that the system was resilient against human whims as the block chain was made immutable.
Therefore, this is the reason why the hard fork is a complete and convenient cop-out to many ETC sympathizers. This is because the purpose of an Ethereum is completely defeated if changing the entire chain in one hack is done.
This issue has greatly revolved around great crypto-idealists such as Barry Silbert the CEO of Grayscale who is backing ETC. As much as this seems good there are certain issues with Ethereum Classic which must be addressed.
Issues with Ethereum Classic
Lack of backward compatibility in Ethereum classic and Ethereum Hard Fork is the main problem with Ethereum classic . Anyone who is part of the Ethereum classic will not be able to access any of the updates done in the ETH since all heavy weights of Ethereum community have moved on to the new chain.
A perfect illustration is when ETH moved to Proof of Stake (PoS) from Proof of Work (PoW). This cannot be implemented in ETC since their software does not allow one to conduct updates. Apart from this there are far much infamous problems with Ethereum classic with mostly which are bordered with conspiracy issues. According to many people they consider Ethereum classic to be an attack against Ethereum.
This means that a cause of disruption in the community was created only to support Ethereum classic according to anti-Ethereum camp which occurred in the post hard fork when the community was vulnerable and split. A report by one of the prominent bloggers once claimed that if Ethereum were a publicly traded company which eventually it could become, it could be illegal to promote Classic which in itself was an insecure orphan chain.
Ethereum Hard Fork
ETH is considered to be the new Ethereum and according to the above indications it is clear that it is the result of the hard fork. According to CoinMarketCap ETH stands at $260.49, this is the second most expensive crypto currency in the world after Bitcoin and its market cap for ETH currently stands at a staggering $24 billion. No matter what the detractors claim ETH is the new form of Ethereum.
ETH is also going through numerous revolutionary changes as earlier aforementioned in the switch from POW to POS and the original heavy lifters have ensured that they are being part of that revolution. The main aim for the formation of ETH is to ensure that funds stolen by the DAO attacker are returned to the rightful possessors.
It not only represents crypto currency but it also represents a great victory for the community of Ethereum. This is because during the worst hack in history of the crypto currency they stuck together and constructed a stronger block chain.
Major Issues with ETH
The idea of immutability of the block chain and the code being law philosophy goes against the formation of ETH as earlier mentioned. The main block chain should have been accepted for what it is in the eyes of the anti-ETH forks since it was a cop out from Ethereum.
Another major issue in relation to the future whims was no one knew if there could an occurrence of another hard fork and no one also knew if in the future there could be an occurrence hundreds of different versions of Ethereum running at the same period.
In addition, another issue was suppose different versions of Ethereum occurred would the crypto currency become devalued generally, although, with this assumption a great number in the Ethereum community votes could be made in order to impose these changes monumentally.
Advantages and Disadvantage of Both Ethereum Classic and Ethereum
Ethereum Classic has the following advantages: it has the backing of the few heavy lifters and in correspondence to block chain immutability it stays true with its philosophy.
On the other hand, the disadvantages of Ethereum Classic are: it has numerous scammers, it is considered an attack and insult to the Ethereum community, nearly all heavyweights have endorsed ETH in their eco-system and it does not have access to nearly all the new updates that are created in the ETH chain.
Likewise, Ethereum has the following advantages: it is exponentially growing, it contains large numbers of the big investors who created Ethereum, through revering the DAO hack they have managed to return stolen money to the rightful possessors, latest changes are constantly being updated.
In comparison to ETC it has higher hash-rate, it clearly shows how powerful the Ethereum community is when it comes to solving problems and over 200 corporations termed the Enterprise Ethereum Alliance (EEA) that aim to use block chain technology at fortune 500 companies through running smart contracts are backing ETH. The main and only disadvantage of ETH is it does not go hand in hand with the policy of immutability.