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So as someone very critical of the whole DeFi / Smart Contracts philosophy (purely in terms of practicality, not the high-level concepts behind it) - please exp

So as someone very critical of the whole DeFi / Smart Contracts philosophy (purely in terms of practicality, not the high-level concepts behind it) - please explain to me how the impacts of those bugs are going to be mitigated going forward. At will and ex-post broadcasting "oops, we had a bug - please roll back or block the bad actors" doesn't strike me as a solid solution, nor a fair & automated one. I was under the impression this hyped up space learned from the DAO fiasco but i might be wrong.

zimbatm 5y ago
I bet that we will see insurance companies emerge in the market. Contracts will send a portion of the transaction to an insurance company. The insurance company would mandate "layers" to validate the contract. Users can then claim damages if there was a bug in the contract. Once all this is done, the transaction fees will be equal or higher than traditional banking systems :-p
- xur17 5y ago
  There are a number of "smart contract" insurance companies already, Nexus Mutual is one of the main ones, and the rate of return after paying for insurance on a number of platforms exceeds what normal banks would pay you.
Taek 5y ago
At least up to this point, the amount of growth in the industry from moving fast and having buggy software (as opposed to moving slow and having fully verified software) has more than made up for all the hacks. For every $600 million dollar hack, there's been $6 billion dollars in gains from growth in the industry. Moving slower means fewer hacks, but it also means lower growth, and the growth is the more important multiple right now. As the growth slows down there will be an increased focus on best practices for smart contracts, on auditing, and on formal verification. There are also a lot of startups that are looking into insurance for smart contracts and crypto balances in general. In general, the best experts in the space could probably write smart contracts with >100x fewer bugs than your typical smart contract. Especially with something as complex as the EVM it's difficult to assert that any piece of software is truly bug-free, but there are a lot of steps that can be taken to make them significantly more rare. It's just that these mitigating steps are more expensive than the growth at this time.
- gjulianm 5y ago
  There are several issues with this. The main one is how can people trust a product that will let them lose money in the name of growth. The second one is that the more money, the more incentives to hack. And given that transactions are irreversible, you only need each bug once, you don't care that it's fixed later. So if a bug can report a hacker millions of dollars, there's going to be quite a lot of hackers researching, probably with more effort there than the effort put in best practices, audit and formal verification.
masa331 5y ago
You can't really mitigate this entirely as you can't really write software without bugs. There will always be a need for this eventual "please roll back or block the bad actors". And more money you put into the game more it will be demanded when someone gets hurt. I don't like crypto but this way of fixing things is pretty normal and standard in software and orher industries also. You simply can run into situations which weren't planned. So i don't think there is a problem with these fixes
- lmm 5y ago
  > I don't like crypto but this way of fixing things is pretty normal and standard in software and orher industries also. You simply can run into situations which weren't planned. So i don't think there is a problem with these fixes It's normal in most industries, but it also defeats the main selling point of crypto - "code is law" doesn't actually work, you always end up in a world of humans and politics.
  - masa331 5y ago
    Yes i agree and i don't think there is actually a problem with that. We are humans and we should be able to solve problems like this. I try to view it just as another way of bug fixing technique. Sometimes you can just explain that you messed up and others will understand
- throwaway6734 5y ago
  Relying on an external authority to control the allocation of money seems to completely undermine the purpose of crypto. What's to stop these actions being taken for reasons other than theft?
  - masa331 5y ago
    You always need to rely on some external authority. You can't crypto/decentralize everything. And relying on external authorities is a good thing actually. Because it's way way more effective than software solutions. Now of course the external authority can compromise sometimes but for this we also already have solutions for like thousands of years - diversification. If people just would learn not to put all their eggs into pne basket and expect eventual compromise that wouldn't be a problem. I think some 101 finances and practical real world problem solutions classes or something like this would get us way further than decentralisig everything with software
legutierr 5y ago
Over time, there will be old smart contract code that is trusted because it has been used for so long, and there will be new code that is less trusted because it is new. Time will ensure that smart contract code that is flawed will be discarded and forgotten, or blacklisted, so it will be safe to assume that any old code that is still popular is trustworthy. Time will also ensure that popular code is well understood by experts who would be in a position to detect and understand any problems in the code. The problem of buggy software will continue to exist for new smart contracts that are introduced and manage to capture value quickly, but as the ecosystem matures and more niches are filled, new code will be less likely to attract large numbers of users, so the scope and impact of any bugs in that code will be much less. Eventually an equilibrium will be reached whereby survival of the fittest ensures that the smart contracts most people rely upon can be trusted. Effectively, some smart contracts will build brand value, and people will be able to rely on the reputations of these smart contracts. Some people may take a risk on a new smart contract and loose (or win), but most people who follow the heard will not have a problem.
- GhostVII 5y ago
  The problem is that it is totally possible for there to be a hidden bug in an old smart contract that everyone trusts. And only a single bug like that can destroy the entire ecosystem. It's not enough for trusted smart contracts to be less buggy, they have to be so secure that they don't have any bugs ever
  - legutierr 5y ago
    Yes, the process I described above would not be sufficient to ensure that smart contracts are perfectly safe, with zero exceptions ever. It is also important that scrutiny be applied to these protocols, and I imagine that at some point DeFi protocols may be be subject to regulator audit and approval before they are opened up and made available for use by retail customers. If the right people pay enough attention to the implementation of these protocols, then it should be possible to trust them. Also, if you yourself are risking significant funds, it wouldn't be a bad idea to personally review and understand the smart contract code. That being said, over extended periods of time (decades), long-lived smart contracts will tend to be safer, and insecure smart contracts will tend to be identified as such. If enough value is at risk, and if enough time has passed, then it is extremely unlikely that an exploitable bug will exist that has not already been exploited. Keep in mind that as a general rule smart contract implementations are immutable, so any bug that exists within a protocol is typically a bug introduced to the protocol when it is first deployed. There are never any "new" bugs that are introduced to an existing smart contract; if a bug emerges after a long period of time has passed, it is a bug that existed at the beginning but had not been previously identified. At a certain point the passage of time will have reduced this risk below a tolerable threshold that is more than outweighed by the value that people get from using the software. So in practical terms, in the aggregate, such long-lived systems could reasonably be treated as secure.

zimbatm 5y ago

I bet that we will see insurance companies emerge in the market. Contracts will send a portion of the transaction to an insurance company. The insurance company would mandate "layers" to validate the contract. Users can then claim damages if there was a bug in the contract. Once all this is done, the transaction fees will be equal or higher than traditional banking systems :-p

xur17 5y ago
There are a number of "smart contract" insurance companies already, Nexus Mutual is one of the main ones, and the rate of return after paying for insurance on a number of platforms exceeds what normal banks would pay you.

Taek 5y ago

At least up to this point, the amount of growth in the industry from moving fast and having buggy software (as opposed to moving slow and having fully verified software) has more than made up for all the hacks. For every $600 million dollar hack, there's been $6 billion dollars in gains from growth in the industry. Moving slower means fewer hacks, but it also means lower growth, and the growth is the more important multiple right now. As the growth slows down there will be an increased focus on best practices for smart contracts, on auditing, and on formal verification. There are also a lot of startups that are looking into insurance for smart contracts and crypto balances in general. In general, the best experts in the space could probably write smart contracts with >100x fewer bugs than your typical smart contract. Especially with something as complex as the EVM it's difficult to assert that any piece of software is truly bug-free, but there are a lot of steps that can be taken to make them significantly more rare. It's just that these mitigating steps are more expensive than the growth at this time.

gjulianm 5y ago
There are several issues with this. The main one is how can people trust a product that will let them lose money in the name of growth. The second one is that the more money, the more incentives to hack. And given that transactions are irreversible, you only need each bug once, you don't care that it's fixed later. So if a bug can report a hacker millions of dollars, there's going to be quite a lot of hackers researching, probably with more effort there than the effort put in best practices, audit and formal verification.

masa331 5y ago

You can't really mitigate this entirely as you can't really write software without bugs. There will always be a need for this eventual "please roll back or block the bad actors". And more money you put into the game more it will be demanded when someone gets hurt. I don't like crypto but this way of fixing things is pretty normal and standard in software and orher industries also. You simply can run into situations which weren't planned. So i don't think there is a problem with these fixes

lmm 5y ago
> I don't like crypto but this way of fixing things is pretty normal and standard in software and orher industries also. You simply can run into situations which weren't planned. So i don't think there is a problem with these fixes It's normal in most industries, but it also defeats the main selling point of crypto - "code is law" doesn't actually work, you always end up in a world of humans and politics.
- masa331 5y ago
  Yes i agree and i don't think there is actually a problem with that. We are humans and we should be able to solve problems like this. I try to view it just as another way of bug fixing technique. Sometimes you can just explain that you messed up and others will understand
throwaway6734 5y ago
Relying on an external authority to control the allocation of money seems to completely undermine the purpose of crypto. What's to stop these actions being taken for reasons other than theft?
- masa331 5y ago
  You always need to rely on some external authority. You can't crypto/decentralize everything. And relying on external authorities is a good thing actually. Because it's way way more effective than software solutions. Now of course the external authority can compromise sometimes but for this we also already have solutions for like thousands of years - diversification. If people just would learn not to put all their eggs into pne basket and expect eventual compromise that wouldn't be a problem. I think some 101 finances and practical real world problem solutions classes or something like this would get us way further than decentralisig everything with software

legutierr 5y ago

Over time, there will be old smart contract code that is trusted because it has been used for so long, and there will be new code that is less trusted because it is new. Time will ensure that smart contract code that is flawed will be discarded and forgotten, or blacklisted, so it will be safe to assume that any old code that is still popular is trustworthy. Time will also ensure that popular code is well understood by experts who would be in a position to detect and understand any problems in the code. The problem of buggy software will continue to exist for new smart contracts that are introduced and manage to capture value quickly, but as the ecosystem matures and more niches are filled, new code will be less likely to attract large numbers of users, so the scope and impact of any bugs in that code will be much less. Eventually an equilibrium will be reached whereby survival of the fittest ensures that the smart contracts most people rely upon can be trusted. Effectively, some smart contracts will build brand value, and people will be able to rely on the reputations of these smart contracts. Some people may take a risk on a new smart contract and loose (or win), but most people who follow the heard will not have a problem.

GhostVII 5y ago
The problem is that it is totally possible for there to be a hidden bug in an old smart contract that everyone trusts. And only a single bug like that can destroy the entire ecosystem. It's not enough for trusted smart contracts to be less buggy, they have to be so secure that they don't have any bugs ever
- legutierr 5y ago
  Yes, the process I described above would not be sufficient to ensure that smart contracts are perfectly safe, with zero exceptions ever. It is also important that scrutiny be applied to these protocols, and I imagine that at some point DeFi protocols may be be subject to regulator audit and approval before they are opened up and made available for use by retail customers. If the right people pay enough attention to the implementation of these protocols, then it should be possible to trust them. Also, if you yourself are risking significant funds, it wouldn't be a bad idea to personally review and understand the smart contract code. That being said, over extended periods of time (decades), long-lived smart contracts will tend to be safer, and insecure smart contracts will tend to be identified as such. If enough value is at risk, and if enough time has passed, then it is extremely unlikely that an exploitable bug will exist that has not already been exploited. Keep in mind that as a general rule smart contract implementations are immutable, so any bug that exists within a protocol is typically a bug introduced to the protocol when it is first deployed. There are never any "new" bugs that are introduced to an existing smart contract; if a bug emerges after a long period of time has passed, it is a bug that existed at the beginning but had not been previously identified. At a certain point the passage of time will have reduced this risk below a tolerable threshold that is more than outweighed by the value that people get from using the software. So in practical terms, in the aggregate, such long-lived systems could reasonably be treated as secure.