What Happened to the DAO & What Must Happen Next to Save Ethereum

Disclaimer: As an investor in many of the top startups in the world, I've seen my fair share of crises, emergencies, and out-right PR nightmares.  It goes with the territory of taking on the high risk/high reward of startup investing.  Indeed, startup leaders can be immature and sophomoric... they often are lacking leadership skills and the ability to perform under pressure.  This is all understandable to some extent.  To successfully run a start up take an enormous amount of courage.  And I'm not afraid of investing in crazy speculative technologies and systems with phenomenal upside... hence why I'm invested in startups like the Ethereum project - and still - will stay with Ethereum/ETH long-term.

When I first heard of this new "cryptocurrency-meets-fintech" revolution called "Ethereum," I was hopeful.  Well, beyond hopeful... ecstatic.  In fact, I invested throughout many of the existing exchanges and have continued to advocate for the adoption of Ethereum across financial technologies like insurance, gaming, and banking. I bought a lot of the currency after researching the underlying technology and understanding how Ethereum and the DAO work (and their infinite potential).  I tracked the currency using Etherscan.io, CoinGecko, and read up on all of the pertinent developer blogs and Ethereum forums such as Reddit.  

I'm also heavily invested in top cybersecurity companies and happen to have taken quite a few classes at MIT focusing on cybersecurity and our future.

So, what is Ethereum/Ether?


Ethereum is to financial services and contracts, what the TCP/IP protocol back in the early 90s was to the internet.  Ether, the currency, and Ethereum, the decentralized network of nodes running and allowing smart contracts at nearly instantaneous speed, still can change the world of computing.  

And what is the "DAO" and how is it related to the Ethereum project?

According to the DAO website's:

The DAO’s Mission: To blaze a new path in business organization for the betterment of its members, existing simultaneously nowhere and everywhere and operating solely with the steadfast iron will of unstoppable code.

DAO was built to help facilitate new and hopefully amazing projects alongside the power of the Ethereum network.  It was to be the one of the first crowdsourced VC-style tokens to invest in developer projects that were built on the Ethereum's decentralized computing network.

DAO crowdfunded one of the largest amount of funding in the history of venture capital.  All was moving along...

Until this “unstoppable code” was in fact, stopped.

So, what happened to the DAO and why did it collapse (so far)?

As I awoke on the morning of Friday, June 17, logged into my exchanges, I noticed a nearly 25% drop in the value of Ether.  Surely something was wrong.  After reloading and refreshing my iPhone apps and then logging into the desktop versions of these exchanges... something had happened.

Then, I read Vitalik's synopsis and summary - citing the fact that, "An attack has been found and exploited in the DAO, and the attacker is currently in the process of draining the ether contained in the DAO into a child DAO. The attack is a recursive calling vulnerability, where an attacker called the “split” function, and then calls the split function recursively inside of the split, thereby collecting ether many times over in a single transaction."

As I researched further, it became clear that some hacker (maybe inside job hacker as is often the case) exploited a vulnerability that had only days ago been discussed by Stephan Tual, Founder of the Slock.it and one of co-creators of the DAO said... "No DAO funds at risk following the Ethereum smart contract ‘recursive call’ bug discovery" in a previous article.  

In fact, I had read this on the day the article was released and was pacified by his statements.  Thus, I continued to purchase ETH and ride the wave of the currency up to an all-time high of $21 per share on yesterday.  

Now the arguments have started pouring over into the fact that maybe it wasn't a hack on DAO after all, being that the DAO terms of service essentially condoned types of contract executions such as the one listed above.   Others are angry that people like Vitalik Buterin and the Ethcore group would even consider freezing the code or funds.  They suggest that this goes against the fundamental argument for decentralization and libertarian-computing freedoms.

So, here's what must and needs to happen to the DAO and for Ether/Ethereum's sake in order to not only survive, but thrive with its infinite potential:

(1) Stephan Tual must resign, effective immediately.  His earlier acknowledgment (only 4 days ago) of the problems in the code and explicit awareness are at best negligence and at worst fraudulent. 

(2) Appoint an independent board of cybersecurity experts to monitor the Ethereum network, code, and the non-profit structure & for-profit structure that's running the network and exchanges.  I am happy to help here, but honestly just want the best people involved, whether or not I’m involved. 

(3) Add an FDIC-style insurance to any existing exchanges and wallets (Gemini, Kraken, Poloniex and all of the big boys of this new currency trading should step-up to get insured. Adding a layer of insurance up to “X” dollars – let’s say insurance up to $50,000 (USD) in deposits – would enhance perception tremendously.  The Ethereum Foundation should sponsor this initiative with pre-sale ETH that was accumulated. 

(4) Do an independent investigation of this event, similar to what Erik Voorhees (Shapeshift.io) did within 24 hours.  This needs to happen immediately.

(5) All of the original co-founders of the Ethereum network, Vitalik, Stephan, Gavin, Anthony, and Joseph, and members of the “non-profit” Ethereum Foundation need to disclose their own holdings (not unlike a publicly-traded SEC-sponsored vehicle) does and further we need to see insider buying/selling published the same way insiders buying/selling publicly-traded stocks are required to disclose. 

True reforms must happen.  Now.

Like many of the startups I saved as an investor and advisor, I know that Ethereum’s potential is greater than anything I’ve ever seen… and it’s worth investing real reforms and instituting change effective immediately.

If the above changes take place, this news story will go from being the “Mt. Gox Moment” of years ago, to the future of Ethereum being strong, once again.

Bottom line: I'm here for developers, Ethereum geeks and all the people of the network who still believe.  We can, and will, transform this crisis from a PR-nightmare into the next level of Ethereum's dominance of the financial services industry.  

Feel free to get in touch if you want serious leadership to help save this massively important project, known as Ethereum… we can fix this for the better.


Ross D. Blankenship

CEO & Managing Partner of AngelKings.com (Startup Investing)

Linkedin: https://www.linkedin.com/in/rossblankenship

Ross’ bio:

Ross Blankenship - Expert on Startups and Investing

Ross Blankenship - Expert on Startups and Investing

Ross D. Blankenship ("The Investing King") is a 6x bestselling author on cybersecurity, angel investor, and expert on the next billion-dollar startups.  Ross Blankenship has written and been interviewed extensively on the future of cryptocurrency such as Bitcoin (BTC) and Ether (ETH) and how these technologies can help transform banking and consumer freedom.