Hacking a Blockchain

Ethereum has never been hacked. The hard fork in 2016 due to the DAO hack mentioned in the “With great power comes … great power” sidebar was not an actual hack of the system, but confusingly 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. 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 conceptual, 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. The cryptocurrency community is fight back, however, and creating new measures to protect themselves.

remember Hacking one place is significantly easier and cheaper than trying to overcome a decentralized network. When you read about hacking in the blockchain world, it’s likely just a website or a cryptocurrency wallet that has been hacked, not the whole network.

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.

warning Ethereum smart contracts are not yet legally enforceable and may never be because the perception is that you don’t need outside authorities enforcing agreements. Legal systems are controlled by governments. As they stand now, governments are central authorities — some with more or less consent and democratic principles. Within an Ethereum smart contract, each participant has an inalienable vote.

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.