Start the conversation
Last week, I told you about the hack that drained $55 million in cryptocurrency from the crowdfunded Decentralized Autonomous Organization (DAO), and that a vote by members about how the handle the hack was forthcoming.
Voting by token holders on the future of the DAO wasn't as exciting as the Brexit vote, but it may have mattered just as much.
Token holders in the DAO (who in a parallel universe known as reality would be called investors, since they converted dollars into a cryptocurrency known as Ethereum and bought tokens, which in this parallel universe would be called capital voting shares) overwhelmingly voted to exit the would-be investment fund by reversing time in their digital Ethereum world, so it's like the hack – and the $55 million theft – never happened.
Profit Opportunity: How to Profit from the Mother of All Black Swans
Of course it was a no-brainer vote, right?
Who wouldn't vote to get all their dough back from a hacker who stole $55 million worth of ether from the $155 million crowdfunded pool?
Not everyone. Some folks voted to let the hacker keep what he stole… for the sake of the future.
The DAO vote, like the Brexit, will have far-reaching consequences for your financial future.
Here's what happened…
Breaking Down the DAO Vote
In the DAO world, the vote was about a so-called "fork in the road."
A "yes" vote to reverse the hack so everyone gets their ether tokens back is called a "hard fork," while a "no" vote would have resulted in a "soft fork."
Let's take a look at each…
The Hard Fork
Proponents of the hard fork, including some of blockchain Ethereum's founders (from which the cryptocurrency ether comes and was the basis of the "smart contract" upon which the DAO program was built) argued that reversing the chain of events that in the blockchain Ethereum world are supposed to be "immutable" wasn't a knock on Ethereum, but an admission that the program based on Ethereum was fatally flawed.
That argument, which I agree with, postulates that Ethereum is kind of like the Internet and the DAO was a program running on it. If there's a problem with a program on the Internet, it doesn't have anything to do with the Internet functioning normally.
We're Seeking Maximum Profits from the "IPO Icebreakers": 2016 has been a rough year for IPO investors, but that's about to change in the most lucrative way possible. Here's what you need to know to get ready for the turnaround. Read More…
Proponents of the hard fork also argued that by not returning what amounts to about 4% of all the ether in the Ethereum world, that "trapped" currency would impact future use of ether as a means of exchange.
The Soft Fork
On the other hand, soft fork proponents argued that in the reality of the DAO the hacker, the thief did nothing wrong. In fact, he, she, they, were just being rewarded for their activities which were technically, in programming terms, within the rules set out in the DAO's code.
In other words, if a smart contract is immutable, it should be immutable and irreversible, otherwise a precedent is being set that protects smart contract code mistakes with a full refund.
The hard fork was taken, overwhelmingly, and the hack was reversed.
What does it mean for blockchain technology?
What It All Means for the Future of Blockchain
Now, all blockchain technology and the promise of smart contracts are facing their own fork in the road.
Since it appears that no code is 100% safe – and we'll never know if any code ever is because coding is a science, which means that its only proved until it's disproved – will blockchain continue down the path it's on and take over the world as we know it?
Will smart contracts, based on supposedly immutable code, that we know can potentially be mutated, fulfill their promise of changing how the world works?
Based on the DAO vote, the jury's definitely still out.
But that's not going to stop the blockchain and smart contract juggernaut that's been unleashed.
It just means investors in blockchain technology, investors in cryptocurrencies, and investors who rely on smart contracts better know when they come to that proverbial fork in the road which one to take.
How to Invest in Bitcoin: Beyond its utility as a safe haven, Bitcoin has proven itself a remarkable investment, with a compound annual growth rate of more than 80% over the past three years. To find out how to add this "digital gold" to your portfolio, check out Money Morning's guide, How to Buy Bitcoins…
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.