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Cryptocurrency reverse

Damaging blockchain heist fails to deter innovators

A blockchain-based crowdfunding platform – heavily reliant on a Swiss-designed cryptocurrency – can rise from the ashes of a multi-million dollar heist that has tarnished its reputation, according to one of its key figures.

The Decentralized Autonomous Organization (DAO) platform was a victim of its own success by raising far greater funds for investing in start-ups than was thought feasible, Fabian Vogelsteller told a Zurich conference on Thursday. It attracted $160 million (CHF156 million) within a few weeks of being launched this year rather than the expected $20 million.

Speaking at an event organised by Swiss blockchain start-up consultancy nexussquared, Vogelsteller said this unexpectedly large haul of funds attracted a criminal hacker who made off with around a third of the pot last month.

“What started off as a great success now seems like a failure,” Vogelsteller told the delegates. “But I don’t think that DAO will die. I think there will be a second DAO which will collect even more money.”

The platform was viewed by many as one of the most innovative ways of raising funds for start-up investment. Hosted by a Swiss-based server and using the ether cryptocurrency of Zug-based firm Ethereum, DAO utilizes blockchain technology to circumvent the traditional financial system and allow investors to club together directly to decide where to invest their money.

An emerging Swiss hub for cryptocurrency

Ethereum is one of several notable blockchain and cryptocurrency firms to have set up in the Zug region in the last couple of years, leading to the region getting the moniker ‘crypto-valley’. One of the intentions of nexussquared is to build on that start to make Switzerland one of the leading blockchain centres of the world.

Vogelsteller, a leading developer at Ethereum, is also a curator at DAO, checking the authenticity of bids before passing them on to the platform’s investors.

A hacker exploited a technical loophole that allowed him to set up a separate DAO account and trick the system into sending it huge amounts of funds. The hacker’s true intentions are as yet unknown as they cannot yet pull out the funds, but sinister motives are suspected.

Vogelsteller is undaunted, telling the Zurich audience that it might yet be possible to foil the attacker. Even if that is not possible, he has not lost faith in the system.

Getting DAO back up and running would require plugging technical deficiencies but also learning from human mistakes. Part of the problem, according to Vogelsteller, is that the users of the democratic system failed to pick up on clues that would have revealed the intentions of the hacker.

“It is an experiment and everyone involved in it knows that,” he said. “People will have to get accustomed to reading code and what to look out for.”

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