Ethereum 101: The DAO Hack

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Intro

In June 2016, a pivotal incident shook the Ethereum community, famously known as the "DAO Hack," followed by the consequential "DAO Fork."
The DAO (Decentralized Autonomous Organization) was an ambitious project aiming to create a decentralized venture capital fund. Investors would buy DAO tokens and use them to vote on funding proposals for various projects. The capital for these investments was pooled from the Ether (ETH) raised by the DAO. In its crowdfunding campaign in May 2016, the DAO amassed an impressive $150 million in Ether, marking a significant milestone in decentralized finance.
However, in June 2016, the DAO's fortunes took a drastic turn. An attacker exploited a vulnerability in the DAO's smart contract, diverting approximately one-third of the DAO's funds (valued around $50 million or 3.64 million ETH, which was about 5% of all ETH in circulation at the time) into a "child DAO."
This event propelled the Ethereum community into a complex ethical and technical dilemma. They faced two choices: to let the hacker retain the stolen Ether, upholding the principle that "code is law," or to intervene by executing a hard fork, thereby returning the stolen funds but challenging the blockchain's immutability principle.
In response to the crisis, Ethereum's co-founder Vitalik Buterin proposed a soft fork, intended to blacklist the hacker's funds without reversing any transactions or blocks. However, this proposal was met with controversy when the hacker threatened legal action, claiming the funds were legally obtained according to the smart contract's terms. Doubts were also raised about the authenticity of this message.
The situation escalated with a more assertive proposition: a hard fork that would entirely reverse the theft, allowing the DAO token holders to reclaim their Ether. After intense community deliberation and voting, the decision was made in favor of the hard fork. In July 2016, at block 1920000, the Ethereum blockchain underwent this hard fork. It implemented an irregular state change to transfer around 12 million ETH from the "Dark DAO" and "Whitehat DAO" contracts to a recovery contract, effectively negating the theft. This new branch of the blockchain, supported by 85% of miners, continued as Ethereum (ETH).
However, a segment of the community staunchly believed in the blockchain's immutability. They argued that despite the unfortunate nature of the hack, the blockchain's original state should be preserved. This group continued to mine and support the unforked blockchain, which came to be known as Ethereum Classic (ETC), representing a fundamental philosophical split in the Ethereum community.
Most of the original Ethereum community followed on to the new blockchain, which retained the original name Ethereum; however, a sizeable group of developers, miners, and community members viewed the hard fork as antithetical to what the platform stood for: an immutable and fungible decentralized virtual machine. This group remained on the original chain, renamed it to Ethereum Classic, and has been developing the platform ever since. The key difference between the two projects, at the time, boiled down to ideology.
Following the split, Ethereum Classic released its “Declaration of Independence,” outlining the tenets of their platform, which focuses on immutability, fungibility, and the notion that Code is Law. Ethereum has dominated in popularity over Ethereum Classic ever since the fork, remaining the 2nd most popular cryptocurrency behind Bitcoin for nearly the entire time. Despite this, the Ethereum Virtual Machine (EVM) is essentially the same for both networks.
The ETC Cooperative—the non-profit organization supporting ETC—releases a biannual report every year, and the April 2020 release highlights how the platform has progressed during the bear market. 
This incident remains a defining moment in Ethereum's history, highlighting the complexities and ethical considerations in decentralized networks.