This has been an interesting week for blockchain-based cryptocurrencies with an attacker stealing money from the Ethereum DAO (a decentralized company run entirely by smart contracts). The Bitcoin exchange Bitfinex went offline for approximately four hours during one of Bitcoin’s highest volatility periods to date due to a networking issue at its datacenter. And, also in exchange news, the Winklevoss twins intend to take their exchange, Gemini, to the U.K.

The Ethereum DAO story is not really a Bitcoin issue per se, but it is the first of its kind actually funded organization built entirely on smart contracts and code as governance. This is something that has been expected to come to Bitcoin (extended smart contract capability) and with the emergence of the Internet of Things (IoT) it is hoped and expected that blockchain technology might be used to do exactly what the DAO was envisioned to do.

It’s success or failure—and the trials and tribulations of its community and developers—will inform future implementations of smart contracts and other organizations similar to what the DAO is attempting. It also affects the reputation of Ethereum, a smart contract focused blockchain cryptocurrency, and by association the reputation of Bitcoin due to its “closeness” in the public eye.

As for the Bitcoin market, things have gotten surprisingly volatile during the past two weeks. As of writing BTC market value has fallen to $620 USD from $675 over the past 24 hours (BitcoinAverage.com) and from a high of $750 a week ago. The $750 value held from around June 16 until June 19 when the value began to slip and it has maintained a downward trajectory since that date.

Bitfinex outage yesterday during increased Bitcoin market volatility

Hong Kong-based Bitcoin exchange Bitfinex (BFXNA Inc.) spent approximately four hours offline this week after network instability at the platform’s datacenter forced it to shut down to repair. Warning was short on the emergency shutdown as it followed a few hours of instability, but the company kept to Twitter to keep customers informed of the problems and the company has asserted that it is working on network redundancies to prevent this in the future.

As of writing Bitfinex has not published a blog postmortem of what happened nor outlined the redundancy plans promised.

Yesterday’s series of tweets described internal networking issues: “1) Internal networking issues between our servers seem fixed allowing us to reliably run our backend and trading engine.” “2) External connectivity issues remain, however, which may result in unresponsiveness, our hosting provider continues to work on the problem.” “3) We will bring the system back up once again to allow people to cancel open orders for 15min before accepting new orders and matching.”

Since the fault, Bitfinex’s platform has been stable and trading has continued. The exchange still shows almost 55 percent of total global volume in trades on BitcoinAverage.com even as the Bitcoin market value continues to drop to $625 from $675 in the past 24 hours.

This outage for Bitfinex occurred during the initial stage of increased volatility in Bitcoin market value and notably increased trade volume. During the four hour offline time customers on the exchange could not make trades and this has generated some understandable frustration amid customers—not to mention exceeding 50 percent of trading volume means Bitfinex’s outage could have affected the market negatively.

Above: Cameron Winklevoss, one of the twins, is co-founder of the Gemini Bitcoin exchange that is moving across shores to open a branch in London, England. Image credit: techcrunch/Flickr/CC by 2.0

Winklevoss twins plan to send Gemini exchange to the U.K.

The Winklevoss twins intend to cross the pond and take their Bitcoin exchange Gemini (Gemini Trust Company, LLC.) to the United Kingdom and open trading to customers in that region. The twins will be opening a London branch of the exchange adding the U.K. to the platform’s United States and Canadian audience.

“The U.K. FCA (Financial Conduct Authority) has made it clear that they’re not regulating digital assets at the moment,” Tyler Winklevoss told Forbes in an interview. “That said, the second that there’s clarity that we have to file something, we will be the first company to file our paperwork.”

Upon initial launch, U.K. customers will only be able to trade Bitcoins for Ether (ETH, the digital token of the Ethereum blockchain) and vice versa, but the twins intend to open up the platform to support trades with U.S. dollars.

“The DAO has been created.” image via the DAO website.

Updates on Ethereum DAO hack and theft

The Ethereum DAO (Decentralized Autonomous Organization), also called The DAO, suffered a massive setback last week when an attacker discovered a flaw in the code that runs the organization and began to give themselves a huge amount of money in the form of Ethereum Ether (ETH). Overall, the attack drained almost $55 million USD in ETH at the time (ETH market value has undergone some volatility since then).

A snapshot of the Ethereum market unit value since the attack on the DAO within the past week. Screenshot courtesy of CryptoCompare.com

The DAO is an organization designed to run entirely on code and smart contracts, developed and designed by the company Slock.it UG using its own blockchain technology to enable smart contracts and the Ethereum blockchain to allow an exchange of value. The concept behind the DAO is a “digital company, but without an attached legal entity.” The DAO is made of self-operating computer code and is run entirely by the community.

After an attacker exploited the smart contract of the code of the DAO, a number of things have happened in an attempt to wrest control back and keep the Ether in the DAO from being drained (approximately 3.6 million ETH).

To do this, solutions were argued within the DAO community and then methods began to be implemented. First, as of today—Wednesday, June 22—it became impossible to split from the DAO (to create child DAOs) as this was part of the exploit used by the attacker to steal ETH. A “white hat” attack was performed against the DAO to drain 7.2 million ETH into a child DAO (called the Robin Hood DAO) to make it so the attacker could not affect the original DAO.

Further details of this “white hat” attack and the implications of not being able to split any further have been written up on the Reddit Ethereum subreddit.

“Since Friday I’ve been in contact with a group of very smart people with the intent on replicating the attack to avoid any more of the ether being bled,” Alex van de Sande explained. “Let’s call this group, collectively ‘Robin Hood’. Everyone in this group acted as an individual and did not represent or received the endorsements of their employers.”

As this draining attack was designed, the original attacker began draining ETH from the original DAO again (but at a slower pace) and the group designing the Robin Hood attack moved forward quickly to grab that 7.2 million ETH.

This move is designed to protect the remaining DAO funds itself for the time being, but it cannot do anything about the funds already drained (the 3.6 million ETH stolen initially and the extra stolen recently). There are further plans to deliver a soft- or hard-fork to the DAO code that will either freeze the stolen DAO funds or re-absorb them into another child DAO—both basically deny the funds to the attacker.

The ethics of a fork is still being hotly debated by the community and Ethereum developers as the decision made will have a moral effect on the future understanding of DAOs built on blockchain smart contract technology. This attack has also negatively affected the reputation of Ethereum as the blockchain (and its smart contract capability) has been blamed for the flaw in The DAO. However, the flaw was not in Ethereum or the blockchain, but instead in the governing code written into the DAO similar to having a poorly vetted loophole in a business contract.

If the DAO’s code is changed via fork, it will lead to understanding a precedent that future DAOs may be malleable to their communities outside of the voting mechanism set forth by the code itself. As one of the pillars of the DAO’s principal vision was to show how code could be governance and that it is immutable or unstoppable, this would be in effect showing how popular decisions by the community could change those rules.

Featured image credit: Dawson/Bloomberg News