But in the age of blockchain, where there are no physical safes to crack, no galleries or galas to descend into via rope, heists become loftier, the robbers smarter, and their traces even harder to track. Add to this the fact that the blockchain is global, and therefore outside of any one government’s jurisdiction, that there is no court to enforce a lawsuit and no customer service rep to call when your digital vault is found empty, and you’ve got the best damn version of Ocean’s 11 ever written.

Like so many stories with a heist at the center of the plot, the history of the famous DAO project, the DAO, features greed, ambition, success, and a deadly blindspot that leads to an inevitable end. But did the founders of the DAO learn their lesson? 

What is a DAO?

A decentralized autonomous organization, or DAO, is defined by Omid Malekan in his book The Story of the Blockchain as “a programmed entity that exists in the jurisdiction of a blockchain, issues tokens to stakeholders, and fulfills functions governed by smart contracts.” They are like corporations in that they represent a group of people and their interests, but they differ in three key ways. 

Another big difference is the leadership structure that governs each entity. The standard structure for a corporation is as follows: shareholders, board of directors, officers, employees. Shareholders rarely get involved in any meaningful way except to elect board members. Board members protect shareholders and make decisions on their behalf, and ensure that the officers are doing their jobs. Conversely, a DAO is designed to be run directly by its investors.

What is the DAO?

The DAO was a venture capital fund, founded in April of 2016, that ran as a DApp, or decentralized application, on the Ethereum blockchain network. Anyone could join by sending any amount of ether to the DAO’s smart contract. Then, they would receive tokens representing their amount of equity in return. Not only would these tokens allow investors to vote, but they could also be traded on the secondary market like a stock. 

The way it was structured, new blockchain-based ventures could apply for funding, and token holders could vote on whether or not to fund those ventures. Once the vote passed, money would automatically be dispersed to the project from the community treasury. Once they made money, profits would automatically be sent back to the token holders. Each of these transactions would be executed via smart contracts, leading to an efficient exchange each and every time. New investors flocked to it, relishing this new technology that would allow them to see their money moving and growing in real time.

Within weeks, the DAO raised more than $150 million. This insane amount of money not only brought attention to the possibilities of crowdfunding on the blockchain, but it also increased the dollar value of ether by 50%, growing the worth of the funds in tandem. Once the DAO’s tokens were added to cryptocoin exchanges, they also began surging in value, making this one of the most successful and exciting moments of the blockchain era up until that point.

What is the take away?

When it comes to smart contracts, the law is only as tight as the code that governs it. Security experts had warned the founding investors of the DAO that the smart contracts they were using were vulnerable to potential attacks. According to Omid Malekan:

​​“The bug that was exploited by the hacker was, appropriately enough, found on line 666 of the smart contract code of The DAO. It was later determined that if a capital T in a command on that line had been lowercase, the theft would not have been possible.”

From “The Story of the Blockchain” by Omid Malekan

Additionally, Vitalik Buterin has since stated that he regretted the emergency hard fork that resulted in a split in the chain.

But the moral of the story is: Hackers are getting smarter every day, finding ways to get into the wallets of even the most careful crypto enthusiasts. So if you are looking into a big venture on the blockchain, make sure you check your work, then check it again. Remember that in times of crisis, you might want to have the flexibility, and the consensus needed to affect change. With great gains come the threat of even greater losses.