Cryptocurrency-Backed Venture Capital Fund Hacked; Ether Plunges

  • Ethereum ‘perfectly safe,’ co-founder Vitalik Buterin says
  • Hack invokes jitters after Mt. Gox bitcoin exchange collapse

Hackers moved some digital money from the Decentralized Autonomous Organization, a cryptocurrency-backed venture capital fund, sending the price of ether -- the virtual currency underlying the project -- plunging.

Vitalik Buterin, co-founder of Ethereum, which supports ether, asked exchanges in a Reddit post to “please pause ETH and DAO trading, deposits and withdrawals until further notice,” as hackers were draining DAO’s funds. In a follow-up posting to Ethereum.org, Buterin proposed a software fix that he hopes will neutralize the hack and prevent the funds from being spent. He later said Ethereum was “perfectly safe” and said exchanges can resume trading ether. Many Ethereum supporters, such as the Gemini digital currency exchange, continued to trade the currency Friday.

The DAO, which confirmed the hack on its blog, has raised millions for various virtual currency projects, such as Slock.it -- which would let people rent or share everything from unused office spaces to a wireless router without middlemen.

“Gemini has not stopped ether trading because ether and the Ethereum network are perfectly safe,” Gemini Chief Executive Officer Tyler Winklevoss said in a statement. “This is a vulnerability of the DAO smart contract, not the ether or the Ethereum network.”

Still, the attack left many investors shaken, reminding them of an earlier digital currency crisis: In 2014, Mt. Gox, a key bitcoin exchange, lost customers’ bitcoins.

“As a new organization that had a valuable native currency, the DAO became a target for hackers that were able to steal some of this currency,” Gil Luria, an analyst at Wedbush Securities, said in an e-mail. “It appears that the leadership of Ethereum is helping the DAO prevent more losses from happening, but some damage has already been done.”

Luria added that he expects Ethereum to move forward “just like bitcoin did after Gox.”

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