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Will Ethereum's Hack Impact Future Blockchain Use?

Blockchain could be a great option for future data use, but a recent hack could have changed this

20Jun

The use of digital currencies has grown significantly in the past few years, with currencies like Bitcoin and Ethereum becoming hugely popular among the online community. There are a number of factors behind this, one of which is their seemingly ever increasing value. Most important among the reasons, however, is the security they represent for those using them.

The security that blockchain (essentially the data storage behind both Bitcoin and Ethereum) offered has been seen as one of the biggest developments in data storage. It has the potential to hold information of every single transaction in the history of that chain, whether it is financial or not. It also allows for a more-or-less open approach to holding data as everybody involved in any 'block' can see the transactions within that block. A particularly important element for data storage and future analysis is that data cannot be forged or manipulated, so the data is always true. This is essentially what gives it the potential to be incredibly powerful for use in a wider data capacity in the future.

However, the idea of blockchain as a bastion of online security has now been damaged, potentially setting the more widespread adoption of blockchain back by years.

This has been caused by the hacking of DAO, a distributed autonomous organization that has tens of millions of dollars in Ethereum. The idea behind it is to act as a vehicle for supporting Ethereum related projects. The members of the organization gain voting rights through a digital token, which they can then use to vote on projects to fund and the future direction of the organization.

The hack has seen $50 million worth of tokens stolen, which was valued at over $79.6 million when it initially took place. It has had a massive impact on the value of Ethereum, with prices of the currency dropping from $21.50 to $15 in a few short hours. To put the theft in perspective, DAO held 7.9 million units of Ethereum and 3.5 million were stolen. The wallet where the stolen Ethereum has been placed has been identified and developers are developing a fix to try and retrieve the stolen currency, but it may have done irreversible damage to the currency.

However, the shockwaves are likely to go further than just a currency valuation drop, it is going to impact the use of Blockchain too. The theft alone is bad, but the fact that they could exploit it to the extent they did is a terrifying prospect. Peter Vessenes, Former CEO of CoinLab and Chairman Emeritus of the Bitcoin Foundation predicted that this could happen in a blog on June 9 'Your smart contract is probably vulnerable to being emptied if you keep track of any sort of user balances and were not very, very careful.'

This is something that would have been completely necessary at DAO and could conceivably be a risk with companies needing to track data in their systems and chains. It essentially leaves open the real prospect of data loss from a system that has been touted as security minded.

All of this could have a profound impact on the future of blockchain and its adoption in data storage capacities. It may be the case that it is an isolated incident and now that the issue has been found it will be fixed, but the damage has been done and few company leaders will want to make even an experimental move into its use for a while. 

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