How a $64M hack changed the fate of Ethereum, Bitcoin’s closest competitor

Picture this: A thief steals millions of dollars by hacking into an investment fund. What if you could just hit the undo button and get that money back?

That was the dilemma that the creators of Ethereum, an upstart digital currency platform, recently faced.

Founded in 2015 by a group of researchers led by Russian-Canadian Vitalik Buterin — then only 19 years old — its currency, ether, is the second-most valuable digital currency after bitcoin.

But the currency suffered a blow recently after a hacker siphoned $64 million worth of ether from investors. In the wake of the hack, Buterin decided to turn back the clock through a software update and reset the entire system to its previous state — i.e., before the hack. The reset created a so-called hard fork, which split Ethereum into two parallel systems.

Buterin assumed most users would move to the reset platform, but the fork proved divisive and a small group of users continued using the old system, dubbing it Ethereum Classic and arguing Buterin had no right to reset the platform. That has confused cryptocurrency investors and cast a pall over the future of Ethereum.

It also opened up a rift between the currency’s creators, who were the ones to alter the code and render the stolen currency null and void, and dissenters who argued against any intervention — even in the face of an Ocean’s Eleven-style heist.

Smart contracts

While bitcoin is the best-known cryptocurrency, there are, in fact, hundreds of digital, decentralized payment systems that issue and trade digital currencies online.

Each operates on a blockchain, a digital ledger that keeps track of all transactions in transparent, peer-to-peer fashion.

While bitcoin did away with paper currency and a central banking authority, more complex transactions, such as setting up regular coupon payments on a bond, might still require the assistance of a lawyer or other third party.

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