On November 7, 2017, Github user devops199 posted a simple message: “I accidentally killed it”.
The post included a link to a transaction on the Ethereum blockchain that effectively resulted in 513,774 ETH (currently worth over $1.7 billion) becoming permanently frozen, affecting thousands of holders.
Now, a group of holders who have their ETH stuck in the smart contract are proposing a plan to recover the funds.
How did 513,774 ETH suddenly become frozen?
On November 6, 2017, devops199 was messing around on the Ethereum blockchain, like many developers do in order to play around with the Solidity-based smart contract platform. During this exploration, devops199 found an uninitialized wallet and proceeded to initialize it, becoming the sole owner. Their next move was to use the kill function, destroying the wallet’s contract data (devops199’s motive for doing this is unclear).
As it turned out, this wallet was the library upon which all Parity multisig wallets relied on to function. After calling the kill function, devops199 went to Github and reported what happened.
While the “I accidentally killed it” meme has become a testament to the experimental nature of Ethereum and smart contracts, the victims are still left in limbo with no way to access their funds. The funds are not lost, not stolen or burned. They are essentially just frozen still sitting safely in the multisig wallet in which they were placed in 8 years ago.
A brief recap of recovery attempts
In 2017 and 2018, several EIP and proposals were proposed to fix the issue and allow the victims to access their funds. However, none have been accepted by the Ethereum community.
Only a year and a half before the Parity bug incident, there was a massive project on the Ethereum blockchain called “the DAO”. The project aimed to be an Ethereum-native investment fund and gained massive support from ETH holders.
Within 28 days, the crowd sale raised a stunning 11.5 milion ETH which equated roughly 14% of all ETH tokens in existence at the time. However, disaster struck only a month later.
In June 2016, an unknown black hat hacker managed to exploit vulnerabilities in the DAO smart contract. The hacker drained 3.6 million ETH to a sub contract under their control. Due to the way the DAO contract was setup the hacker wouldn’t be able to move the ETH to an external wallet for a period of 34 days.
This created a unique scenario for the Ethereum community where they had 34 days to decide on how to handle the situation. Eventually (after much debate) it was decided a hard fork would take place to extract all the funds from the DAO contract and place them in a withdrawal-only contract where the original investors could withdraw their tokens back to their own wallets.
In the period that followed, the Ethereum community went through an intense period with vicious debate between opponents and proponents of the fork.
This led to a chain split during the hard fork and the fork’s opponents branded their project as Ethereum Classic (ETC). Its proponents view ETC as the original chain that stays true to Ethereum’s principle of immutability.
Initially, ETH and ETC almost reached parity in valuation, showcasing the severity of the rift inside the community. Nowadays, the ETC market cap is only about 0.5% of the ETH market cap, but the fact that it still exists is a testament to how sensitive the issue of immutability and hard forks are.
How the DAO incident influenced the community’s response to the Parity bug
Due to the traumatic experience from the DAO hack and the fallout that happened afterwards, there is understandably a strong resistance to any kind of new hard fork or rollback on the Ethereum blockchain. However the funds in the Parity wallet multisig can only be salvaged by a hard fork.
From a technical perspective, it wouldn’t be very complicated to reinsert some contract code to the deleted library to restore withdrawal functionality.
Therefore, the debate is not technical in nature, but is actually political. On one side, we have the victims and proponents of recovering the funds. On the other side, we have Ethereum investors who are afraid any kind of intervention will lead to tarnishing Ethereum’s immutability again and the possible fall out that was seen before with the DAO hack.
The result? A stalemate wherein no action has ever been taken beyond proposals to fix it that have never received approval.
A new solution emerges
In early 2024, a group of ETH holders affected by the Parity bug banded together in a Discord server called the Locked Ether Collective to see if they could come up with a solution to their shared misfortune.
In October 2024, they reached out to the ETH community, searching for ideas and collaborations. Through further discussion and much refinement within the group, their proposal slowly started taking shape.
Now, they have gone public with their proposal hoping to convince the greater ETH community of its merits.
Ethereum Fund Recovery Protocol (EFRP)
Their new proposal is unlike any that has been proposed before. Notably, it can apply to other similar scenarios, not just limited to the Parity wallet freeze that inspired the proposal.
The proposal, called the Ethereum Fund Recovery Protocol (EFRP), has the potential to see thousands of users regain funds long thought lost. It is a general recovery protocol open to anyone no matter how small or large.
Instead of trying to recover the frozen ETH directly (which can only be achieved through a hard fork), the proposal envisions burning the locked ETH and giving holders a compensation token called sETH. Over time, sETH would be replaced with ETH sourced from redirecting the base transaction fees that are currently being burned through EIP-1559. Over time, this process would make the Parity bug victims whole again.
The EFRP proposal also includes the formation of a small DAO that would oversee the process and manage the distribution of sETH tokens.
Having a working general recovery protocol could improve confidence in interacting with smart contracts on the Ethereum blockchain. This would help lower the barrier to entry of blockchain users without sacrificing immutability or decentralization.
However, it remains to be seen whether their proposal will be accepted by Ethereum investors.
