Millions of Dollars Worth of Ethereum Got Locked Up. Here's Why
An Ethereum hard fork may be in the future.
That’s after a user of digital currency wallet Parity, which many use to store their Ethereum, effectively froze millions of dollars worth of the cryptocurrency on Tuesday—apparently by accident. The user accidentally triggered a flaw with an update to Parity’s multi-signature wallets, according to the open-sourced wallet maker, which cut off all access to the funds they contained.
“This means that currently no funds can be moved out of the multi-sig wallets,” Parity warned. “We very much regret that yesterday’s incident has caused a great deal of stress and confusion amongst our users and the community as a whole, especially with all the speculation surrounding the issue.”
Although it’s unclear how much has been cordoned off, early estimates from investors and cryptocurrency watchers put it between $150 million to $280 million.
The Parity flaw, which affects versions of the wallets deployed after July 20, allowed the user to take control of a smart contract that included coded transaction instructions for multiple wallets.
After making himself the owner of the contract, the user deactivated it—thereby cutting off access to the ether within. (To reduce the burden on computers, Ethereum users usually deactivate the contract once they’re done with it, or “self-destruct” it.)
“The only way to ‘re-activate’ the smart contract is to perform a ‘hard fork’ that effectively reverses the work,” wrote Patrick McCorry, a cryptocurrency researcher at University College London. Hard forks effectively create a new version of a cryptocurrency when a faction of users refuse to update the original currency’s underlying software—resulting in two different sets of transaction ledgers.
Vitalik Buterin, the creator of Ethereum, addressed the Parity issue on Twitter but did not weigh in on whether a hard fork will happen:
If a fork does occur, it wouldn’t be Ethereum’s first one. After hackers made off with $60 million from a crowdsourced venture capital platform based on Ethereum last year, the blockchain underwent a hard fork to rewrite the ledger and delete the stolen tokens from hackers’ accounts. But it did result in a faction of the Ethereum community splitting off to continue using the old ledger.
The price of Ethereum on Wednesday was up 2.3% to $301.25.