hasn’t regained its old high from before the hack.
The decision to fork rocked the blockchain world. It was the first time a majority blockchain project had hard-forked to make whole an investor. It called into question many of the principles that make blockchain technology so attractive in the first place.
Hacking a Blockchain
Ethereum has never been hacked. The hard fork in 2016 due to the DAO hack mentioned in the sidebar, “With great power comes … great power,” was not an actual hack of the system, but confusingly it is often referred to as a hack. Ethereum worked perfectly. The problem was it was too perfect. It became necessary to restart the system when a large amount of money and a majority of its users were threatened.
The only way to correct an action on a blockchain like Ethereum is to do a hard fork, which allows for a fundamental change to the protocol. (You can read more about forking in the context of cryptocurrency mining in Book 6, Chapter 8.) A hard fork makes previously valid blocks and transactions invalid. Ethereum did this to protect the funds that were being pulled out of the first DAO by a user. The DAO hack was, conceptually, one of the largest bug bounties ever.
That said, many scams and hacking attempts occur in the cryptocurrency space. Most of these attacks target centralized exchanges and applications. Many hackers want to steal cryptocurrency. It has real value and isn’t protected in the same ways that regular money is protected by governments. The anonymous nature of cryptocurrency also makes it appealing to crooks. Catching and prosecuting these individuals is difficult. However, the cryptocurrency community is fighting back and creating new measures to protect themselves.
Understanding smart contracts
Ethereum smart contracts are like contractual agreements, except there is no central party to enforce the contract. The Ethereum protocol “enforces” smart contracts by attaching economic pressure. They can also enforce implementation of a requirement if it lives within Ethereum, because Ethereum can prove certain conditions were or were not met. If it doesn’t live within Ethereum, it’s much harder to enforce.
Ethereum smart contracts do not include artificial intelligence. This is a cool possibility in the near future. But for now, Ethereum is just software code that runs on a blockchain.
Ethereum smart contracts are not safe. The DAO hack is a great example of the type of dangers that can occur. It is still early days, and putting a lot of money into an unproven system isn’t smart. Instead, experiment with small amounts until all the bugs have been worked out of new contracts.
Discovering the cryptocurrency Ether
Ether is the name of the cryptocurrency for the Ethereum blockchain. It was named after the substance that was believed to permeate all space and make the universe possible. In that sense, Ether is the substance that makes Ethereum possible. Ether incentivizes the network to secure itself through proof-of-work mining, like how the token Bitcoin incentivizes the Bitcoin network. Ether is needed to execute any code within the Ethereum network. When utilized to execute a contract in Ethereum, Ether is referred to as gas.
Executing the code within a smart contract also costs some amount of Ether. This feature gives the token added utility. As long as individuals want to use Ethereum for applications and contracts, Ether will hold a value beyond speculation.
The wild growth in the value of Ether has made it a popular token to speculate on. It’s widely traded on exchanges around the world. Some new hedge funds are looking at it as an investment vehicle. However, the volatile nature and low market depth make Ether a risky investment. Find out more about Ether, including how to buy, spend, and trade it, in Book 4, Chapter 1.
Getting Up and Running on Ethereum
This section walks you through how to get started in the Ethereum blockchain ecosystem. Before you can build anything on Ethereum, you need a wallet containing some Ethereum (ETH). Book 2, Chapter 3 explains the process of downloading and installing MetaMask for the Brave browser, which you can use for the instructions found in the remainder of this chapter.
Mining for Ether
Ethereum is kept running by a network of computers all over the world that are processing the contracts and securing the network. These computers are sometimes referred to as nodes, and they’re mining crypto Ether.
In order to reward individuals for the time and cost involved in mining, there is a prize of five Ethers about every 12 seconds. The prize is given to the node that was able to create the latest block in the Ethereum blockchain.
All new blocks have a list of the latest transactions. The proof-of-work consensus algorithm guarantees that prizes are won most often by nodes with the most computational power. Computers that aren’t as powerful can win, too — it just takes longer. If you want to try your hand at mining Ether, you can do it with your home computer, but it will take a very long time to successfully mine a block and win Ether.
Building your first decentralized autonomous organization
DAOs will change how the world does business in the future. They allow anyone in the world to create a new type of company online that is governed by pre-agreed-upon rules that are then enforced through the blockchain network. Creating a DAO is easier than you might think. In this section, you build your first DAO.
Open the browser (such as Brave or Chrome) that you use to access your MetaMask wallet, and follow these steps to create your first DAO:
1 Go to https://alchemy.daostack.io/.
2 Click the blue Connect Wallet button at the top right of your screen.
3 Click the Create a DAO button at the top right of your screen.
4 Within the Set Description box, name your organization.
5 Under Symbol, type in your ticker name, such as WXYZ, and click Set Description.The name of your ticker symbol should be related to your organization’s actual name. For example, Tesla’s Nasdaq symbol is TSLA, and Apple’s is AAPL.
6 Within Configure, keep all options as they are by default and click Set Configuration.Feel free to manually alter the Configure options if you know what you are doing.
7 Add members to your DAO by adding their ETH addresses.Figure 5-3 shows what the Add Members section looks like.
8 Click