Martin Tillier, a financial advisor who writes for Nasdaq, says the recent DAO hack shows there is a vulnerability in Ethereum and that while some might have thought it would reflect negatively on bitcoin, bitcoin’s price activity demonstrates the reverse. While bitcoin does not offer the development capabilities of Ethereum, it has demonstrated better reliability.
In an opinion piece titled “What Does Ethereum’s Massive Hack Mean For Bitcoin?” Tillier noted that some have touted Ethereum as the cryptocurrency most likely to emerge as the “winner” currency, “a VHS to Bitcoin’s Betamax” for those old enough to remember that rivalry.
Confidence In Ethereum Falls
While the full implications of the $60-million-plus hack on Ethereum are not yet known, Tillier thinks confidence in the currency has suffered a setback that it won’t be recovering from anytime soon.
The attack was against DAO, whose name stands for exactly what it is: a distributed autonomous organization, meaning it is a leaderless group. The hacker was able to penetrate the system and transfer funds from the DAO to a dummy version of the organization to which only the hacker possessed the key.
The fact that a loose group of Ethereum developers could counterattack against the hacker to recover the funds and in turn be attacked once again indicates a serious flaw in Ethereum that will not be easily rectified.
Funding Relies On Confidence
Only a small number of people fully understand Ethereum. But to fund Ethereum projects, people outside that group must be confident in its value. Digital currency, like the paper version it may eventually displace, relies on confidence and faith for its value.
That there are millions of dollars of Ethereum moving between different accounts does not inspire the confidence level a currency requires. The price hit that Ether suffered after the attack was followed by a rebound only to fall again.
Price, according to Tillier, is only an indicator of Ethereum’s trust problems.
Why Hasn’t It Hurt Bitcoin?
It would be logical to assume Ethereum’s problems would impact bitcoin in a negative manner, seeing there are similarities between the currencies. But as the DAO hack unleashed itself, bitcoin’s price continued its acceleration.
Bitcoin’s positive pricing trend results in part from a sense that a major bitcoin competitor was in trouble. It also results from a recognition of bitcoin not being vulnerable in the same manner.
Ethereum advocates have cited its ease of being easier to make applications for as an advantage over bitcoin. Bitcoin’s slower development was seen as a disadvantage. The recent DAO hack, however, has changed that perception.
“It is a kind of high-tech tortoise and hare story, and the tortoise looks like winning this one too,” Tillier noted.
Bitcoin Has Actually Benefited
Many who are not developers or coders view this scenario as reinforcing bitcoin’s long-term value instead of a worry.
Ethereum developers could win the current DAO challenge, find the stolen funds and implement a soft fork that will defeat the hacker. But the damage to confidence and the Ethereum system’s underlying currency will sustain for some time.
“For now, I’ll stick with bitcoin,” Tillier noted.
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Last modified: March 4, 2021 4:49 PM