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Introduction to Philosophy and Values Behind Blockchain Technology Part 5

The perspective of the attackers. Blockchain transactions.

 

The attackers wrote a letter to the Ethereum community explaining their viewpoint about what happened. It is not known if there was just one attacker or a group of them and how many of them were male or female, which is why further in this article we will refer to the attackers as “them.”

In their letter, the attackers did not describe what they’ve done as an attack or hacking. According to them, it was “participation.” They also claimed that the “participation” was fully legal because the terms of the creation of “The DAO” did not prohibit the creation or a child dao. Then they claimed that they deserved the reward (the funds in the child dao) as it was rightfully theirs per the contract of “The DAO.” At the end of their letter, the attackers have even mentioned taking legal action against anyone who would try and take the coins that they viewed as theirs.

 

Transactions on blockchain networks

To understand what happened next, you first need to understand the concept of fork on blockchain networks, know about the types of forks and why they can happen.

In simple language, blockchain networks are software and a fork is a change of this software. In reality, because many blockchains keep processing transactions non-stop, forks (meaning software changes) occur on many networks on a regular basis, it is just that these changes are in many cases not noticeable to regular users because they are temporary and no not have an impact on how a blockchain network operates.

For example, miners on the Bitcoin, Ethereum and other blockchain networks keep compiling transactions into blocks of blockchains 24 hours a day, 7 days a week. On the Bitcoin network you can see the transactions that are occurring in real time as you are reading this article here: https://blockchain.info/unconfirmed-transactions

On the page, you will see a list of transactions and you will see new transactions appearing all the time. These transactions are also known as unconfirmed. A confirmed transaction on a blockchain network is a transaction that has been included in a block of the blockchain. The way transactions work is the following: first, a user sends funds to someone and the network software notifies the network about it. Then, miners pick up the transaction and add it to a block of the blockchain, so that the network has a record of the transaction and can verify that the user did not try to spend money several times (which is also known as the issue of “double-spending.”

One of the true breakthroughs that the Bitcoin network introduced to the world was the solution of the issue of double-spending through mining and cryptography hashes). On the Bitcoin network, once miners include a transaction into a block of the blockchain, they need to seal the block with a cryptography hash that corresponds to the current network difficulty level. Creation of the hashes is the reason why mining today takes a lot of electricity and requires expensive hardware. Once the miners include a transaction into a block of the blockchain and seal the block with a hash, the block becomes a part of the blockchain, the miners get a reward for mining a block, and the transaction becomes a part of the blockchain as a part of the block. This means that the transaction now has one confirmation. Many of the wallets on the Bitcoin network require at least six confirmations for a transaction to become valid, meaning that blocks that come after the block with the transaction need to reference the transaction and the block that includes via cryptography hashes.

 

Current transactions and temporary forks

Here’s what this has to do with forks: suppose at the same time miners on the network compile transactions occurring on the blockchain into different blocks.  Let’s say after block A miner 1 creates block A1 and miner 2 creates block A2. Technically, there are now two blockchains. One that goes from block 1 to A and then incudes block A1 and the second one goes from 1 to A to A2. This means that block A is the last block that these blockchains share and then there’s a split, or a fork.

To protect itself from forks, the Bitcoin blockchain and many other blockchains use the rule of the longest chain, which says that the longer chain of a blockchain wins. This rule is simple to what happens during the democratic election process. Those who can vote cast their votes and the party, candidate or proposal that gets the most votes wins.

On a blockchain network, when there are several options, such as blocks A1 and A2 in the example above, miners need to decide to which chain they are going to be adding new blocks. In essence, miners are voting on the valid blockchain by choosing to which blockchain they will be adding the blocks. The longest chain rule shows the winner of this process and in essence says that the chain with the most votes, which is the same as the chain with the biggest number of blocks, wins.

During this process, miners have an incentive to mine for the longest chain because they are getting rewards from the blockchain and it makes no sense for them to mine blocks for a blockchain with less valuable rewards. At the same time, there is no law that prevents miners from mining on a different network or from using their hardware to overtake a network. This is the reason why the attackers of “The DAO” were able to make the argument that they made. Legally, there was nothing prohibiting them from doing what they’ve done.