4 ms·

Can someone eli5 what DAO and ethereum are?

by spdionis 10y ago

witty_username 10y ago
The DAO is basically an investment fund, i.e. people pool money to invest in companies and get shares.
staticelf 10y ago
I am thinking the same, this is all hieroglyphs for me.
mbrock 10y ago
Ethereum is a P2P accounting system, like Bitcoin, but allowing users to upload automatic contracts that decide autonomously what to do with the tokens they possess. For example, you could upload a contract that lets some specific set of accounts withdraw money unless the balance goes under 500 ETH (which is the basic Ethereum currency). "The DAO" is such a contract but with more complex logic that amounts to a kind of venture fund. If you send money into it, you get to vote in proportion on proposals for "The DAO" to fund projects. That contract was hyped enormously as the future of financing etc and indeed received an enormous amount of ETH from people who hoped it would benefit the Ethereum ecosystem. In the first weeks after its recent launch, the contract logic was shown to have economic flaws that would most likely lead to bad fund performance, and it seemed as if the incentives for voting on proposals didn't work: no proposal ever made it past the threshold. And now it turns out that despite the assurance of security audits, the logic (written in Ethereum's contract language Solidity) had a serious bug that allowed an attacker to start draining all of the fund's assets.
- deleted 10y ago
  [deleted]
- raisedbyninjas 10y ago
  Correct me if I'm wrong, but the patch is not in the DAO contract. It's in the Ethereum platform. I don't know what the alternative would be to prevent the attacker from draining the DAO, but this patch seems incredibly hacky. Will this just be an ever-growing oopsie transaction blacklist in the code?
  - mbrock 10y ago
    I don't know about ever-growing. The community is very actively discussing the implications of this bug, whether and how to mitigate it, etc. Probably the failure of "The DAO" will be an important event in the Ethereum history that people will refer to, for example to point out the importance of contract security diligence... But yeah, your concern is shared by many.
- Zelmor 10y ago
  Now there are a couple things I still do not understand. 1. How do I exchange this cryptocurrency for something that I can go and buy a sandwich with at the Deli? 2. Why is there a need for this instead of using traditional methods with contracts, banks, etc? Money as is, is a collective illusion we all subscribe to anyway, and these things aren't any more different from that. What is the purpose of this cryptocurrency? 3. Who on earth are putting all these millions of dollars into these systems and how?
  - mbrock 10y ago
    1. You just make an agreement with someone who would like to buy your tokens for some national currency. If you ever played an MMORPG or Diablo 2 or something, you know that "imaginary" digital items can be traded for "real" money. There are many exchanges where you can do this conveniently. 2. For one example, consider how tedious it is to open a new bank account; with cryptocurrency, you just make a new keypair. Smart contracts improve on normal contracts in that they are executed automatically and cheaply. One of the first theoreticians of smart contracts wrote: "A canonical real-life example, which we might consider to be the primitive ancestor of smart contracts, is the humble vending machine. Within a limited amount of potential loss (the amount in the till should be less than the cost of breaching the mechanism), the machine takes in coins, and via a simple mechanism, which makes a freshman computer science problem in design with finite automata, dispense change and product according to the displayed price. The vending machine is a contract with bearer: anybody with coins can participate in an exchange with the vendor. The lockbox and other security mechanisms protect the stored coins and contents from attackers, sufficiently to allow profitable deployment of vending machines in a wide variety of areas. Smart contracts go beyond the vending machine in proposing to embed contracts in all sorts of property that is valuable and controlled by digital means." http://szabo.best.vwh.net/smart_contracts_idea.html http://szabo.best.vwh.net/smart_contracts_idea.html 3. Lots of different people. Many of them probably purchased the tokens when the network was young and the exchange rates were much lower, or mined the tokens themselves. The sum of the market value of these networks starts at zero and gets bigger as the tokens become scarce and valuable.
    - developer2 10y ago
Olscore 10y ago
Cryptocurrencies are digital tokens. Ownership of these digital tokens are kept in a ledger called a blockchain. Every transaction or transfer of tokens is recorded in the blockchain. Everyone can also see the blockchain as it is a public ledger. Both Bitcoin and Ether are cryptocurrencies. Bitcoin was the first to demonstrate blockchain technology. In practice, these tokens function like programmable money. However the usefulness of Bitcoin is limited. Ethereum was developed to expand the original concept so more things could be done with these digital tokens. Ethereum made the programmable tokens more powerful with features like smart contracts. It is worth noting that each cryptocurrency has its own blockchain which can be confusing. DAO is an autonomous corporation that runs on top of Ethereum. The digital token in the Ethereum ecosystem is called Ether. So the DAO raised somewhere around ~$150M USD in equivalent Ether funds during its IPO-like phase.

Can someone eli5 what DAO and ethereum are?

witty_username 10y ago

The DAO is basically an investment fund, i.e. people pool money to invest in companies and get shares.

staticelf 10y ago

I am thinking the same, this is all hieroglyphs for me.

mbrock 10y ago

Ethereum is a P2P accounting system, like Bitcoin, but allowing users to upload automatic contracts that decide autonomously what to do with the tokens they possess. For example, you could upload a contract that lets some specific set of accounts withdraw money unless the balance goes under 500 ETH (which is the basic Ethereum currency). "The DAO" is such a contract but with more complex logic that amounts to a kind of venture fund. If you send money into it, you get to vote in proportion on proposals for "The DAO" to fund projects. That contract was hyped enormously as the future of financing etc and indeed received an enormous amount of ETH from people who hoped it would benefit the Ethereum ecosystem. In the first weeks after its recent launch, the contract logic was shown to have economic flaws that would most likely lead to bad fund performance, and it seemed as if the incentives for voting on proposals didn't work: no proposal ever made it past the threshold. And now it turns out that despite the assurance of security audits, the logic (written in Ethereum's contract language Solidity) had a serious bug that allowed an attacker to start draining all of the fund's assets.

deleted 10y ago
[deleted]
raisedbyninjas 10y ago
Correct me if I'm wrong, but the patch is not in the DAO contract. It's in the Ethereum platform. I don't know what the alternative would be to prevent the attacker from draining the DAO, but this patch seems incredibly hacky. Will this just be an ever-growing oopsie transaction blacklist in the code?
- mbrock 10y ago
  I don't know about ever-growing. The community is very actively discussing the implications of this bug, whether and how to mitigate it, etc. Probably the failure of "The DAO" will be an important event in the Ethereum history that people will refer to, for example to point out the importance of contract security diligence... But yeah, your concern is shared by many.
Zelmor 10y ago
Now there are a couple things I still do not understand. 1. How do I exchange this cryptocurrency for something that I can go and buy a sandwich with at the Deli? 2. Why is there a need for this instead of using traditional methods with contracts, banks, etc? Money as is, is a collective illusion we all subscribe to anyway, and these things aren't any more different from that. What is the purpose of this cryptocurrency? 3. Who on earth are putting all these millions of dollars into these systems and how?
- mbrock 10y ago
  1. You just make an agreement with someone who would like to buy your tokens for some national currency. If you ever played an MMORPG or Diablo 2 or something, you know that "imaginary" digital items can be traded for "real" money. There are many exchanges where you can do this conveniently. 2. For one example, consider how tedious it is to open a new bank account; with cryptocurrency, you just make a new keypair. Smart contracts improve on normal contracts in that they are executed automatically and cheaply. One of the first theoreticians of smart contracts wrote: "A canonical real-life example, which we might consider to be the primitive ancestor of smart contracts, is the humble vending machine. Within a limited amount of potential loss (the amount in the till should be less than the cost of breaching the mechanism), the machine takes in coins, and via a simple mechanism, which makes a freshman computer science problem in design with finite automata, dispense change and product according to the displayed price. The vending machine is a contract with bearer: anybody with coins can participate in an exchange with the vendor. The lockbox and other security mechanisms protect the stored coins and contents from attackers, sufficiently to allow profitable deployment of vending machines in a wide variety of areas. Smart contracts go beyond the vending machine in proposing to embed contracts in all sorts of property that is valuable and controlled by digital means." http://szabo.best.vwh.net/smart_contracts_idea.html http://szabo.best.vwh.net/smart_contracts_idea.html 3. Lots of different people. Many of them probably purchased the tokens when the network was young and the exchange rates were much lower, or mined the tokens themselves. The sum of the market value of these networks starts at zero and gets bigger as the tokens become scarce and valuable.
  - developer2 10y ago

Olscore 10y ago

Cryptocurrencies are digital tokens. Ownership of these digital tokens are kept in a ledger called a blockchain. Every transaction or transfer of tokens is recorded in the blockchain. Everyone can also see the blockchain as it is a public ledger. Both Bitcoin and Ether are cryptocurrencies. Bitcoin was the first to demonstrate blockchain technology. In practice, these tokens function like programmable money. However the usefulness of Bitcoin is limited. Ethereum was developed to expand the original concept so more things could be done with these digital tokens. Ethereum made the programmable tokens more powerful with features like smart contracts. It is worth noting that each cryptocurrency has its own blockchain which can be confusing. DAO is an autonomous corporation that runs on top of Ethereum. The digital token in the Ethereum ecosystem is called Ether. So the DAO raised somewhere around ~$150M USD in equivalent Ether funds during its IPO-like phase.