We have all sighing in relief when we wake up from a nightmare. Christoph Jentzch awoke instead from a nightmare on June 17, 2016.

“I was asleep. My wife woke up me because my brother had called. He recalls that she said “[Your brother] has told you something is wrong.” “I saw it was a hack. The withdrawals were regular and repeated.”

At that moment, I knew immediately: the DAO was over.

This article is part of CoinDesk’s “CoinDesk Turns 10”, a series that looks back at key stories in crypto history. Our choice for the biggest story of 2016 is “The DAO Hack”.

Some people may get confused when they hear “The DAO” singular. Decentralized Autonomous Organizations will be everywhere in 2023 – at least the label. There is only “The DAO”.

Jentzsch, along with others, launched an ambitious demo of what Ethereum could do in 2016, only a few months after its debut. The DAO was to use Ethereum technology to allow investors around the globe to pool their money, and then vote on its deployment. This was probably the first global fund ever created by humans that anyone could access.

But on that morning in June, The DAO dream died. The hacking spree would drain up to $60 million in Ether or one third of the funds raised by potential DAO participants. The stolen funds amounted to around 5% all Ethereum tokens at the time, even after a white-hat attack.

According to an insider, the DAO collapse “created Ethereum today”

A coordinated hard fork was the result. It is still considered to be one of the most controversial decisions in Ethereum history. The fork, which is sometimes jokingly called an “irregular change of state,” simply took money from the hacker and rewrote the Ethereum ledger. This move, both before and after it was made, sparked important and huge debates about the so-called immutability of blockchains. Some feared that it would set a precedent and make the system less trustable.

Overall, Ethereum was left with a dark episode. Jentzch, and those close to the incident now see it as less of a tragedy but as a formative event. One insider said that the collapse of The DAO “created Ethereum today.” This could be compared to the impact the Mt. The Mt. Gox hack was a stress test for Bitcoin, pushing the community to its limits. But it also created bonds and precedents that have helped us achieve the success that we enjoy today.

This includes making DAOs a key pillar of Ethereum. PleasrDAO, for example, operates on a model that is very similar to the initial investment fund, while MakerDAO uses governance models that are quite similar to achieve different goals – in MakerDAO’s case setting monetary policies rather than guiding investors. Many projects also use the “DAO”, more for its cool sound than how it actually operates.

I covered the dire event on behalf of Fortune. Insiders have pointed out a new consequence that I hadn’t considered before. The DAO’s failure forced other projects to find funding in different ways. This led to the ICO boom in 2017 and 2018. There are now a lot of fake and real project tokens being traded on exchanges all over the world.

Without The DAO, crypto as we know today would not exist.

Vitalik Buterin, co-founder of Ethereum in 2016,

Origins of the DAO

The Ethereum Foundation, a non-profit organization that oversees the development of the blockchain, ran out of funds.

Cristoph Jentzch was deeply involved in the development of Ethereum in its early stages after discovering the Whitepaper in 2014. He joined the Ethereum foundation and worked as a tester and coder for the C++ client. Jentzch claims he worked with Vitalik Buterin to build the Python client.

The Foundation’s funding was also low by the summer of 2015. Many of these contributors left quickly to pursue other projects. Gavin Wood, Ethereum’s co-founder, split off to form Parity and Polkadot. Jentzsch created Slock.it. Slock.it focused in part on “The Universal Sharing Network,” “a sharing economy” on Ether that is sometimes summarized as a “decentralized Uber.”

Jentszch’s team originally conceived The DAO specifically as a fundraiser mechanism for Slock.it. He said that the goal now was to raise $5 to $10 millions from Ethereum users.

Things got out of control quickly, as The DAO’s buzz grew. The project far exceeded its funding goal.

Read more: CoinDesk turns 10 – The legacy of Mt. Gox: The Greatest Bitcoin Hack is Still Important

This required a radical rethink.

Jentzsch says that after it raised $20 to $30 million, everyone was saying this wasn’t only for Slock.it and the USN. The narrative shifted from Slock.it to “let’s fund all apps on Ethereum.”

Jentszch claims that he got much more than he bargained. He felt that The DAO was attracting too much attention and money before the hack.

Jentzsch says, “Before I got the hack done, it was the first time in my entire life that I felt completely burned out.” “I spent hours in the woods every day. My energy level was minus 10. I was worried about the DAO because I only wanted $5-10m, not $150m, and 15% of ETH. “That was insane… I was giving life to this project which could become something very bad in the world.

Jentzch was not the only one who panicked when the hack began to unfold. The DAO team was activated.

One member of DAO’s support team said, “My phone and my PC started to go red.” We’ll call him Igor, as he wishes to remain anonymous.

“Griff [Green] said, look at what’s happening here. Igor recalls that he sent me Etherscan link. “I am not a very technical person so I said, ‘Guys this does not look good.’ They replied, “No, it doesn’t look bad.”

It became apparent that the attacker used what is now called a “reentrancy”, which exploited an “fallback” native function of Ethereum’s new coding language Solidity. In a matter of weeks, the hacker was able to drain The DAO’s $150 million in ETH.

Not only did Ethereum leaders respond, but also figures from the entire crypto-space rallied around a solution. Vitalik Buterin, who was not directly involved in The DAO, joined the bailout. Some Bitcoiners, perhaps surprisingly, also joined the bailout effort.

The attack was a double-edged sword.

Igor recalls that the DAO crisis squad consisted of “white hats” Ethereum hackers, who “started by using the same exploit” to attack the hacker. Igor says that the white hats – who became known as the Robin Hood Group – “pulled as much as they could before the hacker had it… and then attacked him [back]”. “They were geniuses you know.”

The white hats were essentially robbing a bank. The tactics recovered a significant portion of the funds that were stolen, but not all. There was also a larger problem: the DAO (unlike many of its descendants) was truly decentralized. It was impossible to “pull out the plug” so to say, which meant that funds were at risk for an indefinite period of time.

The DAO quickly became a triple threat to Ethereum

Even after white-hat victories there was still no end in sight. Jentzch says, “We thought it would go on forever. We were hacking backwards and forwards.”

At the same, The DAO quickly became a triple threat to Ethereum. The money at stake, as well as the damage to reputation were both factors. It had also taken away the attention that developers desperately needed to get things moving.

Jentzch says that the Ethereum ecosystem has been focused on this for two months. “There was an idea. We need to move past this.” “A hard fork is a clean and simple way to end this phase.”

Ethereum Hard Fork

Then, an idea was put forward: What if changing the rules of the video game was the only way to defeat the hacker?

Hard forks of the Ethereum blockchain are not just a fix to the bug that crippled the DAO. They also include something more radical, a “irregular change of state.” It’s one of the most hilarious phrases in crypto because underneath its abstract meaning is something shocking and simple: they would steal a user’s money.

The hard fork proposal would have returned all funds that were hacked to their owners. The hard fork was similar to waving a magic stick and teleporting the vault back from a robbers’ hideout.

This sounded great on the surface. The long-term consequences were much more complex – and a warning was sent to the Ethereum community in part by Bitcoiners.

Igor says that initially, because the majority of people [invested in the DAO], the response was, “I want my money returned.” “But Vitalik and Bitcoiners joined the discussion later.” There were some fascinating discussions on [whether the hard-fork was the right thing to do].

Two strongly ideological camps formed soon, echoing the dispute over block size in Bitcoin, on the issue of hard forking Ethereum.

Read more: CoinDesk turns 10: What we learned from reporting a decade of crypto history

On the one hand, there were pragmatists. Not only investors wanted their money returned, but also figures within the Ethereum ecosystem saw a threat to their longer-term goals. The hacker, even after the efforts by the Robin Hood team had been made, still held $40 million in Ether. This was at the time equivalent to 5% of all the market capitalization of the Ethereum system. If the hacker kept control of the funds they had stolen, then the hacker would be in a dominant position within the ecosystem. This would have made Ethereum hard to take seriously ever again.

Igor says, “I believe the people at [Ethereum] Foundation weren’t happy with the DAO even before the hack.” They thought it was too early. It was too early. That was the main reason for the rollback.

This pragmatic approach was met with a strong opposition, in part due to the vocal Bitcoiners. For them, “irregular states changes” were not only a form of cheating but also a betrayal to the blockchain’s entire purpose. Some clung to the “code-is-law” philosophy that was still prevalent at the time, the idea being that blockchains would replace courts and nation states as arbiters for fairness. According to some versions of the idea, if someone figured out how to steal money by hacking or exploiting blockchains, they had earned it fairly and squarely.

The deeper issue was trustworthiness. Ethereum’s ability to be patched and take away funds from a user, even if the hacker was the user, raised the possibility of the same happening to anyone. Hard fork opponents said that this would be more damaging to Ethereum’s integrity than allowing a hacker to own 5%.

The “code is Law” contingent chose to stay with the old chain following the fork, demonstrating the full extent of blockchain democracy. The chain, where the hacker had a large amount of their hoard, became known as Ethereum Classic. ETC was popular in its early days and has many adherents even today. However, it is lagging behind Ethereum both in terms of market interest and technological advancement.

What followed

Seven years on, it is remarkable that no hard fork like the DAO one has been proposed since. It seems the people who were worried about moral hazard and bailouts-like hardforks might have been too cautious. There was no serious proposal to fix the Parity wallet issue that occurred in late 2017. A catastrophic series of accidents resulted in around $150 million of Ether being permanently locked. A second hard fork would have allowed the money to be returned, but that never happened.

The DAO hack resulted in a shift away from collective organisations to direct-to investor ICO sales

The DAO hack has been a mystery to this day. The DAO team had identified bugs and were fixing them ahead of the distribution of funds. The timing of the hack may have led to rumors about an “insider job”, but this is pure speculation.

Despite its embarrassment over its DAO hack involvement, Slock.it remained a significant player in smart contract development until its acquisition by Blockchains.com mid-2019. Christoph Jentzch, amongst other things, is a venture capitalist.

Hacks of major crypto exchanges and projects have been commonplace in DeFi. They’ve also gotten bigger than the $60 million that was successfully taken from the DAO. It’s easy to think of examples like the Wormole exploit (325 million dollars) from last year and The Ronin hack (625 million dollars) from this year. According to Chainalysis’s report, DeFi hacks will account for 82 percent of all hacking crimes by 2022.

Bright side

Without The DAO’s early warning, the situation today could be worse. Jentszch says that, in hindsight the entire industry has shifted to security since [The DAO]. Before that, the environment was more of an ]… move-fast.

Jentzch thinks that the DAO hack has had a negative impact on funding models for crypto, as they have shifted away from collective organizations to direct-to investor ICO sales. The DAO was able to raise money on the blockchain, but it then collapsed leaving projects with no funds.

Jentzch says that many projects, who had planned to raise funds from the DAO, ended up using ICOs. “The good the bad and ugly.”

Jentzch argues that the loss of any expert oversight or vetting was caused by the switch from DAOs to ICOs. The DAO was a mixture of the wisdom from the crowd, as well as mature investors who did their due diligence and knew what they were doing. About 50% of investors were small and retail holders. The remaining 50% was held by 51 individuals. The idea was that projects would go to the DAO and they wouldn’t just receive a check. They’d get a smartcontract that sends money slowly.”

Jentzch confirms: “So, yes, there would have been more wisdom in it.” It would have been harder to get funding from the DAO compared to doing your own ICO. This could have led to more money going to genuine projects and less to scams during the subsequent ICO mania.

Jentzch also laments a decline in the wider ethos which led to the DAO.

He says that “the spirit of Ethereum, and the visionary view we had at the time was very similar to the early bitcoiners.” “We’ve kept some, but lost others. We didn’t follow through on the vision that we had then to build truly decentralized apps. “Smart contracts are much more secure today.”

We shouldn’t be afraid to try new things.

Ben Schiller is the editor.