How a hacker stole $53m in digital currency and could legally keep it

On 17 June, a hacker rocked the digital currency world by exploiting a security vulnerability in a non-hierarchical collective Ethereum investment fund, stealing $53m (£36m) in digital currency.

After a usual cyberattack, this would be the end of the story, with the victims left to grieve their losses. However, nothing is ever simple in the unique and quirky world of cryptocurrencies. According to
IBTimes UK and how it happened and what the consequences are. Ethereum is the name of a developer platform, where a large virtual network made up of multiple computers around the world make it simpler to build software programs, as the computers can encrypt data and check results without web developers needing to have a prior background in cryptography or mathematics.

The programs run smart contracts – i.e., the applications run exactly as programmed without any downtime or censorship, fraud or possible interference from third parties.

Ethereum uses a digital currency called Ether (ETH) – a variation of Bitcoin – to pay for transaction fees and computational services, and this currency is traded on cryptocurrency exchanges just like other virtual currencies.

On 17 June, a hacker used a weakness in the DAO's code to drain 3.6 million ETH ($53m), essentially a third of the fund, into his account, within just a few hours. To prevent the hacker from withdrawing the tokens, converting them back into Ether and then withdrawing the digital currency as cash in the real world, Vitalik Buterin, a Russian programmer who co-founded Ethereum, decided to freeze the entire fund. This means that 25,000 members who hold DAO tokens cannot access them, for now.

To make matters even more interesting, on 18 June, the hacker posted a carefully-worded letter on Pastebin, stating that he deserved to keep the $35m and that the DAO had to release it to him.

Since the DAO is decentralised, there are no terms of conditions or governing laws, so the hacker said his law firm confirmed that his actions were fully compliant with US criminal and tort law, and therefore, by using the feature, he considers the 3.6 million ETH to be a "reward" from DAO (see: Legal experts examine the DAO attack and Ethereum fork).

"A soft or hard fork would amount to seizure of my legitimate and rightful Ether, claimed legally through the terms of a smart contract. Such fork would permanently and irrevocably ruin all confidence in not only Ethereum but also the in the field of smart contracts and blockchain technology. Many large Ethereum holders will dump their ether, and developers, researchers, and companies will leave Ethereum. Make no mistake: any fork, soft or hard, will further damage Ethereum and destroy its reputation and appeal," the hacker, who calls himself "The Attacker", wrote on Pastebin.

"I reserve all rights to take any and all legal action against any accomplices of illegitimate theft, freezing, or seizure of my legitimate ether, and am actively working with my law firm. Those accomplices will be receiving Cease and Desist notices in the mail shortly."

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