Parity, the company whose multi-sig wallets were frozen due to a bug in their smart contract code which was exploited by a Github user, is now asking the Ethereum foundation for a hard fork in order to recover the lost funds. At today’s prices, the value of the locked Ether exceeds $350 million.
Back in November, user devops199 sent a ‘kill’ command to the parity multi-signature wallet contracts, which essentially froze all of the Ether inside. In a previous statement, Parity had announced that they felt confident that a recovery of the funds trapped would be possible.
At the present time, however, it appears that they have now reached the end of their attempts and are currently asking for a hard fork.
What would a hard fork do?
Back in 2016, a crypto venture capital fund of sorts called the DAO was hacked and more than $150 million worth of Ether was stolen. Following this, the Ethereum foundation underwent a highly contentious hard fork in order to undo the damage that had been done. Not all participants agreed and the result was the Ethereum chain splitting into today’s Ethereum and Ethereum Classic.
Many blockchain experts such as Charles Hoskinson have claimed that doing a hard fork in this way causes far more damage than good. This is because it destroys immutability and trust. Further, Hoskinson describes this sort of loss as a necessary growing pain for blockchain assets.
Impact on either a valuation
Ethereum today has something of a problem with its token supply. At the present time, there is no limit on how many Ether tokens will come into existence. The problem with this is that it makes Ether a poor method of storing value long-term since the supply will always be increasing.
Ethereum founder Vitalik Buterin has recently been considering methods of lowering the token supply without implementing a hard cap. For example, certain actions on the network should result in Ether being ‘burned’ or rendered unusable forever.
Ethereum Classic, on the other hand, has just released its latest monetary policy that will reduce its block reward every so often resulting in a hard cap somewhere between 210 and 230 million ETC units.
If 500,000+ units of Ether are permanently taken out of circulation, this will have a positive effect on Ether valuations as the supply has been noticeably reduced. If a hard fork occurs and these funds are then returned to circulation, it could cause Ether prices to drop. This would at least be temporary until a new equilibrium is reached.
In the last two weeks, Ether prices have increased from an average of $430 to now a current high of $740 each. This recent price increase, however, may not necessarily be tied to the reduced supply, and instead be tied to recent activity on the bitcoin futures front. Litecoin, another Coinbase listed asset, has also seen massive upswings in price.
Will a hard fork happen?
As for whether or not the Ethereum Foundation will go through with the hard fork in order to resolve the parity wallet issue, no one knows for sure. Vitalik Buterin and other members of the foundation have yet to make an official comment as to whether or not a hard fork will happen.
If a hard fork does occur, and there is enough contention surrounding it, it is possible that we may see another split just like we did after the DAO hack. According to an informal Twitter poll held by localthereum.com, 59 percent of respondents voted that Ethereum should not hard fork in response to the Parity hack.
Critical bug found in @ParityTech multi-sig wallets. ~500K ETH lost forever.
Should Ethereum fork again?#ethereum
— LocalCryptos (@LocalCryptosEN) November 7, 2017
Finally, as Ethereum is a much more mature platform then it was in the days of the DAO, it is quite possible that they will not hard fork. It is also possible that they will come up with an alternative solution to the problem. Perhaps one that can satisfy Parity and also the community at large.
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