Bank of Japan Official: DAO-Style Problems Could Dampen DLT

An official from Japan’s central bank invoked failed ethereum-based project The DAO in a speech yesterday.

AccessTimeIconMar 1, 2017 at 10:50 a.m. UTC
Updated Sep 11, 2021 at 1:07 p.m. UTC
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An official from Japan’s central bank invoked failed ethereum project The DAO in a speech yesterday, suggesting that reoccurrences of such events could impede blockchain adoption.

at a fintech forum hosted by the bank, Shigehiro Kuwabara, Bank of Japan executive director, argued that when building distributed ledger frameworks it is important to build in "resiliency in emergency responses".

Notably, Kuwabara directly cited The DAO, the smart contract-powered funding vehicle that collected over $100m-worth of cryptocurrency as part of a planned bid to invest in community projects.

The project raised those funds by selling tokens that were to be used by stakeholders to cast votes for projects they wanted to see funded going forwards. Yet a flawed element of the DAO’s underlying smart contract was exploited, allowing outside parties to siphon off tens of millions of dollars last summer.

In the end, developers moved to effectively turn back the clock on the blockchain, reverting the transactions. That decision proved to be a divisive one, causing a split in the tech and ultimately giving rise to the 'ethereum classic' project.

Arguing to event attendees that repeated episodes could harm confidence in the system, Kuwabara said of the decision to "rewind the payment records":

“There are still different opinions about the propriety of this response, but in any case, we should aware that if such incidents occur frequently, it may spoil the credibility on the technology and the framework, and consequently hinder the development of fintech.”

The executive director went on to say that, while DLT is an "unprecedented innovative technology", based on the current state of the tech, "it cannot be said to have yet reached the absolute superiority required to fully replace the current centralized system".

In more general remarks, though Kuwabara didn’t disclose any specific experiments underway at the Bank of Japan, he did touch on a partnership with the European Central Bank – work that he indicated could have an impact on how the Japanese central bank works.

“The bank recognizes the need to conduct research and analysis on fintech continuously, in view of the possibility that the bank itself may apply fintech technologies to its operations in the future,” he said.

Bank of Japan image via Shutterstock

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