The DAO

Established in 2016, The DAO was a decentralized autonomous organization created to act as a venture capital firm directed by investors. The DAO raised about USD$150 million USD worth of ether (ETH) and was an early crowdfunding effort and popular project developed on the Ethereum blockchain, which was one year old at the time.

On June 17, 2016, the DAO was hacked and 3.6 million ETH were pilfered, the equivalent of USD$70 million then. The attacker “asked” the smart contract (DAO) to give back the EtherETH several times before it could update its balance. Two major problems made this possible.: Whenwhen the DAO smart contract was made, the coders did not think about the possibility of recursive calls,; and that the smart contract sent the ETH funds before updating the internal token balance.

On 17ththe Junesame day, Ethereum Foundation's Vitalik Buterin, issued a critical update about the DAO being under attack and proposed a solution:

On 17th June, Ethereum Foundation's Vitalik Buterin of the Ethereum Foundation, issued a critical update, saying thatabout the DAO wasbeing under attack and that he had worked outproposed a solution:

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Launched in 2016, The DAO was an early decentralized autonomous organization (DAO) intended to act as an investor-directed venture capital firm. Lauded as a revolutionary project, The DAO raised $150 million USD worth of ether (ETH) and was one of the earliest crowdfunding efforts and high-profile projects built on the Ethereum blockchain — which at the time was only one year old. Less than three months after its launch, The DAO was hacked and $60 million of ether was stolen. The Ethereum blockchain, on which The DAO was built, was later controversially forked to restore the stolen funds, which were returned to investors.

Established in 2016, The DAO was a decentralized autonomous organization created to act as a venture capital firm directed by investors. The DAO raised about $150 million USD worth of ether (ETH) and was an early crowdfunding effort and popular project developed on the Ethereum blockchain which was one year old at the time.

A software fork has been proposed, (with NO ROLLBACK; no transactions or blocks will be “reversed”) which will make any transactions that make any calls/callcodes/delegatecalls that reduce the balance of an account with code hash0x7278d050619a624f84f51987149ddb439cdaadfba5966f7cfaea7ad44340a4ba (ie. the DAO and children) lead to the transaction (not just the call, the transaction) being invalid ....

However, on June 17, 2016, a hacker found a loophole in the coding that allowed him to drain funds from The DAO. In the first few hours of the attack, 3.6 million ETH were stolen, the equivalent of $70 million at the time. Once the hacker had done the damage he intended, he withdrew the attack. In this exploit, the attacker was able to “ask” the smart contract (DAO) to give the Ether back multiple times before the smart contract could update its balance. Two main issues made this possible: the fact that when the DAO smart contract was created the coders did not take into account the possibility of a recursive call and the fact that the smart contract first sent the ETH funds and then updated the internal token balance.

On 17th June, Vitalik Buterin of the Ethereum Foundation issued a critical update, saying that the DAO was under attack and that he had worked out a solution:

A software fork has been proposed, (with NO ROLLBACK; no transactions or blocks will be “reversed”) which will make any transactions that make any calls/callcodes/delegatecalls that reduce the balance of an account with code hash0x7278d050619a624f84f51987149ddb439cdaadfba5966f7cfaea7ad44340a4ba (ie. the DAO and children) lead to the transaction (not just the call, the transaction) being invalid …

How Do DAOs Work?

1. Rules are created via smart contracts through community voting

DAOs operate using smart contracts, and are decentralized and community-led with no central authority. These smart contracts lay the foundational rules of how a DAO is to operate. And these rules cannot be changed unless they’re voted upon by the DAO’s core community members. As decisions to the DAO’s operational workflows, governance system, and incentive structures will need to be voted on in order to take effect, smart contracts are essential to creating a sustainable and autonomous DAO.

2. Users can fund DAO’s growth by purchasing the DAO’s native tokens

Once the rules of the smart contract are written onto the blockchain, the next step is to acquire funding. Since smart contracts require the creation and distribution of internal property like native tokens, which can be used for voting or incentivizing certain activities on the protocol. Individuals or entities interested in participating in the DAO’s growth can purchase the DAO’s native token which are cryptocurrencies tied to certain projects. Token holders are given voting rights proportional to their holdings and are able to own equity in the DAO to help shape the DAO’s future.

3. Receive governance tokens to influence token distribution and treasury management

Once there’s enough funding for a DAO to kick-off, all of its decisions will be made by token holders through a consensus vote. As the DAO’s stakeholders, community members will then work towards the most beneficial outcome for the entire network. Beyond voting rights, members can also work for their DAOs where they can get governance tokens in return, including roles in token distribution and treasury management.