Digital currency Ethereum is cratering amid claims of a $50 million hack

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The value of digital currency Ethereum has dropped dramatically amid an apparent huge attack targeting an organisation with huge holdings of the currency.

The price dropped to $15 from record highs of $21.50 just hours previously, with millions of units of the digital currency worth as much as $50 million stolen at post-theft valuations.

At a pre-theft valuation, it works out as a staggering $79.6 million.

Ethereum developers have proposed a fix that they hope will neutralise the attacker and prevent them from spending the stolen funds.

The core Ethereum codebase does not appear to be compromised.

This is a developing story. Check back for updates or click here to refresh the page.

What’s going on? Ethereum is a decentralised currency, like Bitcoin – but it’s built in such a way that it also allows for decentralised organisations to be built on top of its blockchain (the public ledger of transactions), and smart contracts that can execute themselves automatically if certain conditions are met.

One of these organisations is the DAO – the Decentralised Autonomous Organisation, that controls tens of millions of dollars-worth of the digital currency. (Bitcoin news site CoinDesk has a good older feature explaining more about how the DAO operates here.) The DAO is currently sitting on 9.2 million ether, according to its web page, worth $134 million.

Early Friday morning, it appears to have been hit with a devastating attack, with as-yet unidentified attackers appearing to exploit a software vulnerability and draining drain millions of Ether – with a theoretical value in the tens of millions of dollars.

One Ether wallet identified by community members as a recipient of the apparently stolen funds currently holds more than 3.5 million Ether. At a current exchange rate of around $14/1ETH, that works out at $47 million. At a $21.50 valuation, the price of Ether prior to the hack, it’s significantly more – $79.6 million.

The price may well drop further as the United States wakes up, and news of the hack spreads.

The community has been working to come up with a solution to the theft, which has continued over a period of hours. One solution proposed was to “roll back” Ethereum several hours to before the attack – essentially restoring a back-up of the digital currency, and erasing any recent payments. But there is significant resistance to this idea. “You can’t rollback and drag the whole of Ethereum into this mess,” one community member said in Slack. “The fault is entirely with The DAO and not Ethereum, let the DAO sink and have done with it. Ethereum will recover, there’s nothing wrong with Ethereum.”

Vitalik Buterin, the founder of Ethereum, is proposing a “soft fork” that will prevent the attacker from being able to make valid transactions, effectively freezing the funds. The stolen funds are currently locked in a “Child DAO” and are unable to be moved for another 27 days, Buterin says – giving the community time to debate and adopt a potential solution. “This will later be followed up by a hard fork which will give token holders the ability to recover their ether,” Buterin writes. (This solution would not involve any “roll back” or negating any transactions.)

The decentralised nature of the DAO – and Ethereum and digital currencies more generally – means that there’s no central authority that can simply flip a switch and make changes. Decisions have to be reached by community consensus.

The Ethereum Foundation, an non-profit that helps guide the digital currency, is calling on digital exchanges to temporarily halt withdrawals in light of the attack. Kraken has complied, writing on its website: “This does not appear to affect Kraken but, out of an abundance of caution, and at the request of the Foundation, we have temporarily paused withdrawals in order to prevent any ether stolen from The DAO from flowing through Kraken.”

The value of Ethereum relative to the US Dollars has plummetted over the last few hours, according to data from CryptoCompare. Meanwhile, the volume of transactions in Ethereum has spiked – indicating panic-selling.

The top graph shows the price of Ether in USD, while the second shows the volume of transactions on the network over time.CryptoCompare

The news comes after a recent boom for Ethereum (as well as sister digital currency bitcoin). It only recently passed $20/1ETH, in a first for the network.

The apparent exploit used by the attackers was documented earlier this month. “Your smart contract is probably vulnerable to being emptied if you keep track of any sort of user balances and were not very, very careful,” Peter Vessenes wrote in a blog post on June 9. It looks like we’re now seeing this in action.

There is currently no indication as to who is behind the attack.

This is a developing story. Check back for updates or click here to refresh the page.