The Parity wallet freeze on the 6th November 2017 is possibly the biggest hack in the short history of cryptocurrencies. It has rendered over $280 million worth of Ethereum completely frozen and inaccessible.
The breach has affected hundreds of multi-signature wallets.
Multi-signature wallets are most commonly used by startups and large groups. As a result, they usually contain very significant amounts of money. It could spell disaster for many of them.
What Caused the Parity Wallet Freeze – Was it Really All An Accident?
On Tuesday, November 8th, Parity announced that all of its multi-signature Ethereum wallets created since July 20th (when the last security breach occurred) had ‘accidentally’ been frozen. The company has marked the severity of the incident as ‘critical’.
The $280 million that was compromised included a whopping $90 million that had been raised by Parity’s founder, Gavin Woods.
This is huge news. It has rendered over 500 Ethereum wallets (possibly permanently) completely inaccessible. The anonymous user behind it all, known as ‘devops199’ on GitHub, has since deleted their account. They claimed to have simply tried to delete a buggy wallet they created.
Whether or not it was an accident is still up for debate.
Tech startup Cappasity has claimed that the freeze was almost certainly a hack. The firm had almost $1 million worth of ETH in their wallet.
In a statement this week, the founder, Kosta Popov, said:
“When you are tracking all their transactions, you realize that they were deliberate… Therefore, we tend to think that it was not an accident. We suppose that this was a deliberate hacking. We believe that if the situation is not successfully resolved in the nearest future, contacting law enforcement agencies may be the right next step.”
However, Parity has not yet provided further comments to the media regarding this issue.
The Impact of the Freeze
One thing is for certain: the incident has had a huge impact on the tech community and has left many startups in complete limbo. Those that cannot access funds raised for development and operations have been left to rely on cash in hand, which in many cases is quickly running out.
Many people are saying that the only solution to this problem is another hard fork. However, a significant proportion of the community is strongly against it.
The Potential for Another Hard Fork…
The last contentious hard fork of Ethereum occurred after a vote in July 2016, when approximately $50 million worth of Ether was taken from the account of a venture capital fund called The DAO, and moved to another account without the owners’ consent by exploiting one of the vulnerabilities that had been made a couple of months prior.
A hard fork in the Ethereum code was used to move the Ethereum taken in the exploit to another smart contract so it could be returned to the owners from which it had been taken.
However, a large proportion of the Ethereum community “rejected” this hard fork on the grounds that the blockchain cannot be changed. This section of the community decided to keep using the unforked version of Ethereum – known as Ethereum Classic (ETC).
Ethereum Classic still offers the same features as Ethereum, including the creation and deployment of smart contracts and decentralized applications. It also has all the same specifications.
ETC has also demonstrated real credibility when splitting from the Ethereum community. Unlike Ethereum itself, Ethereum Classic is a truly immutable blockchain – which is probably one of the most important aspects in the blockchain community. The Ethereum Classic community has gained huge respect from the wider crypto community for sticking to their principles.
Throughout the first 8 months of its existence, Ethereum Classic struggled to break past the $2 mark. However, between March 21 and May 24, 2017, Ethereum Classic rose from $1.40 to surpass $20 – an impressive 1,400% return.
It has since emerged as one of the most popular altcoins, and currently resides around the $16 mark.
Mati Greenspan, the Senior Market Analyst at eToro weighed in saying:
“The precedent set by the ETC hard fork was a dangerous one indeed. Back then the uses of Ethereum were much more limited and the DAO tokens represented a large portion of all activity that was happening on the Ethereum network. These days there are hundreds of different Ethereum based tokens and we can’t simply fork the network in two every time a major hack occurs.”
The Future of Ethereum
While the last security breach of this nature (the $50 million hack in July 2016) caused Ethereum to crash in value, we’re surprised to find that this security breach has had little to no effect on the price of Ethereum itself.
In fact, its value has actually increased since the issue was announced – despite this breach resulting in a much more significant loss than the last.
Despite the drawbacks that come with blockchain technology, we can take refuge in one thing: the value of cryptocurrencies has remained strong.
If this doesn’t foreshadow a promising future for the crypto community, I don’t know what else does.