The Immutability of Ethereum, TheDAO Hack, and how it relates to Lisk

This post is one I wrote back in July and is another carry-over from LiskNation.com as part of my transition to Steemit as a primary blogging platform (read more in this post). This is the last post to transition and I will be officially shutting down LiskNation in the next few days. Thanks for reading! 

Everyone in this industry is focused on decentralization. The purpose being to create systems that are immutable, i.e. unable to be changed. Ethereum, in their early promotional materials, declared their system “runs without any possibility of fraud or third party interference”. After the fiasco that was TheDAO and the subsequent hack that destroyed it forever, we now know these claims to be only partially true. Ethereum, and all crypto-currencies, are not truly immutable, given the right series of circumstances. They are decentralized yes, distributed yes, but immutable, no. So, the question for us to examine, is how immutable is Lisk, how does this impact or influence the Lisk image, and what key points should we take away about the decentralized nature of the DPoS system?

The first question is fairly simple. Lisk, nor Ethereum, nor Bitcoin are truly immutable. That is to say, they CAN be changed given the right circumstances. In each network, a group of people has influence over the version of the client, and the blockchain (i.e. the actual database) that is used. When Ethereum created a hardfork, in order to halt the hacker that stole the funds from TheDAO, what they did was agree upon changes to the core technology, that allowed them to alter the way in which it worked. They essentially changed the rules of the network in order to take the funds away from the person who stole them. If that sounds scary, it’s because it really is. The core premise of the network was that something like this could not happen. So, how did it happen?

It’s important to understand that no single individual or small group of individuals had the authority to make this change. While that is only a small consolation for those who opposed it, it is a key difference between a decentralized network and a traditional centralized database. In a centralized database, the company running it could simply go in and change the values, lock an account with stolen funds, or move them anywhere they so choose. In Ethereum, this change DID require consensus among miners, the community, and those running the network. In order for the change to take effect, a majority of those people running full nodes, including exchanges, miners, etc, all needed to move to the new client that incorporated the changes necessary to return the funds. This required community consensus that appears to have been achieved. It was achieved through a public discourse that was mostly controlled by the influential members of the community, such as Vitalik Buterin and the Slock.it team (who were responsible for the problem to begin with), and it would be safe to say that a large amount of politics and message manipulation were involved. This however is irrelevant, as the real issue is with the nature of the networks as a whole.

Let me make this clear; No crypto-currency should be marketed as immutable. PoW, PoS, DPoS, can all be changed if the right people, or the right number of people, can be influenced that the change is necessary. Even Bitcoin has had forks in the past and may still in the future. So to bring this all back to the point, Lisk is NOT immutable. The network CAN be changed. We will talk about the key factors you need to understand about DPoS and how that would be possible in a second. First, I’d like to discuss the impact or influence this might have on Lisk in the intermediate term.

It’s no surprise that TheDAO hack was a major event in the crypto-currency world. The downtrend reached far and wide and impacted the market capitalization of any technology that was even considered comparable to Ethereum. Eth was considered the king of the mountain, so if they were vulnerable, how could these other guys not be? The key for Lisk here needs to be in their message and I think a perfect opportunity to differentiate Lisk from the pack was missed here. If you read my other post, “3 Ways Lisk Isn’t Ethereum, and why that’s probably a good thing“, you will already know that Lisk isn’t a Smart Contract system, it is a side-chain and blockchain-as-a-service platform. This is a key difference that needs to be stressed in order to help others understand that not only is the Lisk network itself not susceptible to this type of theft, but it shouldn’t be at any point in the future either.

Lisk will utilize other networks such as Ethereum, through delegates running multiple nodes, to implement smart contracts. What this means for Lisk, and why I think this hack does have an impact, is that Lisk smart contracts will be as vulnerable as the network you use to run them. If Ethereum has critical flaws, it limits the ability of users to implement them into their side-chains without the possibility of catastrophic events like the previous hack. While Lisk is the base platform that will tie many pieces together, it also inherits some of their weaknesses. The positive spin on this, is that if another platform for smart contracts is developed, that makes it more secure, you can simply plug and play the new type of smart contract into your side-chain and no one will know the difference. This will be the main strength of the Lisk service. As the industry develops around them, developers will be primed to adopt the best possible solution available.

There are a few key things to remember in all of this when it comes to Lisk.

First, The failure of a side-chain, or it’s smart contract, will have no impact on the Lisk main network. As the side-chain is an isolated database, not directly inserted into the Lisk blockchain, forking the Lisk network itself would be pointless, and all of the damage and blame would lie with the creator and administrators of the side-chain. So in the case that a faulty or vulnerable smart contract is implemented on a side-chain and a theft occurs, there will be no risk or changes necessary to the actual Lisk network itself. That is key point one and can not be stressed enough. The argument over forking the main network would not have even occurred if this had happened with Lisk.

Second, Lisk is not immutable. The Lisk network is based on a technology called Decentralized Proof of Stake (DPoS). In DPoS, as implemented in Lisk, 101 delegates run the network. Those 101 delegates are voted on by the people and control the consensus mechanism for the network. In order for the network to be forked in a way that would cause changes to the technology or the distribution and allocation of funds, the delegation would need to be influenced and agree to adopt the change. This means that a majority of the 101 delegates would need to upgrade to the new version of the software in order to enact the changes and achieve consensus moving forward.

Third, and most important, you need delegates you can trust! If you have stayed with me and read everything up to this point, you might begin to see why the delegation chosen to secure the Lisk network is paramount. The 101 delegates can, if they reach consensus among themselves and choose to do so, enact changes to the network through implementation of software upgrades. Much like the hard fork that Ethereum just went through and Bitcoin experienced in their early days, these are the individuals who will speak for you and control the fate of the network. By casting your vote for them, you are entrusting them to be your voice, to take their position seriously, and to shape the future of the network. If you wouldn’t trust them to make a decision about the future of the network, DO NOT cast your vote for them.

At the end of the day, no network or new technology will be perfect. Ethereum, Lisk, even Bitcoin will still experience growing pains. The recent hack of TheDAO was a huge even in the crypto world and had an indirect impact on Lisk for good reason. By understanding how Lisk really works, the differences between Lisk and Ethereum, and the nature of DPoS, I hope you can better understand why the future of Lisk is a bright one. While there is still a long way to go, I believe Lisk will emerge from all of this as a strong competitor and a top platform in the crypto space.