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Ethereum’s History

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Ethereum is a highly successful public blockchain by adoption,
mindshare, and the number of developers working on Ethereum smart
contracts and decentralised apps. Below is a short history of Ethereum,
and some difficult periods in its history that it has managed to overcome.
Vitalik Buterin described Ethereum as a concept in a white paper in late
2013. This concept was developed by Dr Gavin Wood who published a
technical yellow paper in April 2014. Since then, the development of
Ethereum’s software has been managed by a community of developers.
A crowdsale took place in July and August 2014 to fund development,
and Ethereum’s live blockchain was launched on 30 July 2015. You can
see the very first block here:
Ethereum crowdsale
The development team was funded by an online sale of ETH tokens
during July to August 2014 where people could buy ETH tokens by
paying in Bitcoin. Early investors received 2,000 ETH per BTC, and this
was gradually reduced to 1,337 ETH179 per BTC over the course of about a
month, to encourage investors to invest early.
Crowdsale participants sent bitcoins to a Bitcoin address and received an
Ethereum wallet containing the number of ETH bought. Technical details
are on Ethereum’s blog180.
A little over 60m ETH was sold this way for more than 31,500 BTC, worth
about US$18m at the time. An additional 20% (12m ETH) were created to
fund development and the Ethereum Foundation.
Software Release codenames
Frontier, Homestead, Metropolis, and Serenity are friendly names for
versions of the core Ethereum software, a little like Apple’s OS X version
names such as Mavericks, El Capitan, Sierra.

The DAO Hack
There is a concept called a ‘Decentralised Autonomous Organisation’. The
idea is that an automated company or entity runs itself according to some
encoded charter, without human intervention or management. It just
does what it says it will do. A common example is a self-driving taxi that
makes money by providing a taxi service and can go and get itself
repaired or filled with petrol. Call me old fashioned, but this sounds
fantastical to me without a human ultimately responsible for the actions
of the taxi.
Anyway, some enthusiasts seem to love the idea. In 2016, a team from a
German company called Slock-it pivoted from their business model of
making smart locks that can be opened using tokens on blockchains and
built a sort of automated venture capital (VC) company as a smart
contract deployed on Ethereum’s public blockchain. They called it ‘The
DAO’ (note the capitalisation). This is a confusing name, it is like calling a
bank ‘The Bank’ or a company ‘The Company’. Anyway, The DAO is an
example of a DAO.
The idea behind The DAO is that it would be a cryptocurrency fund for
funding startups. Investors who want to invest in relevant startups would
send money (in the form of ETH) to the smart contract, and the smart
contract would issue them DAO tokens in proportion to their investment.
The smart contract would be the pot of money used to fund the startups,
like a traditional VC fund.
In a normal VC fund, the investors, called Limited Partners, give money
to the fund and expect the management of the VC firm to manage the
funds and to generate a return by investing in successful ventures. In The
DAO, the investors would have a more active role. They would receive
DAO tokens in return for their investment, and use them to vote on what
startups receive funding. In this way the investors would have direct
input into which startups get funding, instead of devolving that
responsibility to a management team. The smart contract would govern a
voting process, and at the end of a vote, cryptocurrency would be released
to the startups that had the most funding votes. That was the theory
behind The DAO.
Of course, there was actually human intervention. Someone—a
management team—had to curate a list of potential startups that
investors could vote on, so in fact it wasn’t much of a DAO after all. All it
did was automate the provision of funds. Anyway, none of this really
mattered because the DAO failed before it invested in a single startup.
Over a one month funding period in May 2016, The DAO managed to
raise the equivalent of over $150m USD in ETH from over 11,000
separate addresses. This suggests a large number of investors, but it is
hard to tell, as a single investor may have multiple ETH addresses. ETH
was trading between $10 and $20 per ETH and The DAO held about 15%
was trading between $10 and $20 per ETH and The DAO held about 15%
of all ETH in existence.
In June, a hacker managed to find a way to get the DAO to release
3,641,694 ETH, then worth about $50-60m, into another account
controlled by the hacker. This sent the price of ETH down almost 50%.
When the hack was discovered and investigated, some white-hat (ethical)
hackers replicated the attack and drained the rest of the ETH into their
own accounts. This is like the goodies stealing money from a broken vault
so that the baddy can’t steal it. Now remember, that smart contracts
simply do as they promise they will do, and DAOs just do as they have
been programmed. The user agreement is right there in the code. If you
find a way to get the smart contract to do something that it has been
programmed to do, and it does it, is it a hack or is it just behaving
according to the rules which you all subscribed to?
Anyway, this was considered a hack and the Ethereum Foundation
suggested an update for all Ethereum participants which would in effect
freeze the ETH that had been drained by specifying a blacklist which
would invalidate any transactions trying to spend money from the theft
account. This goes against the vision of a censorship resistant world
computer, but this was an emergency, and many early supporters of
Ethereum were in danger of having their money stolen. So lost money
took precedence over values. The pressure on the Ethereum Foundation
to find a way to ‘unwind’ the transaction must have been huge. Just
before the proposed implementation of this change, a bug was found with
the proposed change, so the blacklist wasn’t adopted. The Ethereum
Foundation then made a proposal to unwind the specific transactions
related to the theft and allow DAO investors to withdraw their invested
Again, this transgressed the very principles of a censorship resistant
Again, this transgressed the very principles of a censorship resistant
world computer. In cryptocurrencyland, it is apparently fine to cheer for
censorship resistance, unless you’ve lost money.
In July 2016, a vote was taken to determine the fate of the stolen Ether,
and the result was that the community decided to install an upgrade in
what is known as a hard fork, that would move the stolen Ether to a new
smart contract and have them returned to the original investors.
This was quite controversial. After all, an unstoppable immutable world
computer was stopped and mutated to cater to a small number of people
who lost a lot of money to a smart contract which functioned exactly as it
specified it would.
Ethereum Classic
A small but vocal part of the community thought that unwinding
contradicted the values of Ethereum and continued with the old
Ethereum software. This resulted in two Ethereum blockchains, one
which returned the stolen funds to the DAO investors, another which
didn’t. The one that didn’t became known as Ethereum Classic. Ethereum
and Ethereum Classic have a shared history until block 1,920,000 (July
2016) after which point the blockchains diverge. Anyone who owned ETH
before the fork, now had an equal amount of ETH (tokens recorded on
the Ethereum blockchain) and ETC (tokens recorded on the Ethereum
Classic blockchain). This was good for anyone who had ETH before the
hard fork as, to all intents and purposes, they received free money in the
form of ETC181.
The Parity Bug
Parity is a piece of Ethereum software written by Parity Technologies. It
acts as a full node on the Ethereum network, storing the blockchain,
running contracts, forwarding transactions, etc. At time of writing, about
a third of Ethereum nodes run Parity software.
Source: Ethernodes182
Parity also contains some advanced wallet software that you can use to
store ETH. The wallet has had a couple of critical bugs. On 20 July 2017,
Parity’s code was updated to fix a bug that had enabled a hacker to steal
$32m worth of ETH from Parity multi-signature wallets. However, this
update itself contained a bug: A smart contract was deployed which was
relied upon for some wallet functionality, but it had a vulnerability.
Anyone could convert this smart contract into a multi-signature wallet,
take ownership of it, and then suicide it, destroying this particular piece
of code on which multi-signature wallets created after 20 July relied,
freezing the assets in the wallets.
So, someone with the Github handle devops199 ‘Did just that on 6 Nov
Almost 600 wallets were affected, with a combined balance of over half a
million ETH, valued at the time at about $150m. Ironically, Gavin Wood,
founder of Parity Technologies, had about 300k ETH in a Parity wallet
related to funds raised in an ICO called Polkadot. Those funds are frozen.
The ETH are still there in the wallets, but currently can’t be sent. As of
early 2018, developers are still investigating if anything can be done to fix
this bug.

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