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Litigation Resulting from Ethereum Hard Fork Unlikely

By

Jeffrey

Berns

WriterETHNews.com

Today the Ethereum community reached a consensus and implemented a successful “hard fork” of the Ethereum blockchain, which provides for the return of funds that were previously lost as a result of the exploitation of the DAO. There will unlikely be any legal consequences resulting from the implementation of this hard fork.

Earlier today, the Ethereum blockchain hard fork was successfully implemented.  The hard fork split the Ethereum blockchain by creating a new chain while leaving the old chain in place. This has resulted in the return to the DAO of more than $40 million worth of Ether, which is now available for withdrawal by the original investors.

This hard fork solution is a great accomplishment for the Ethereum community because a major injustice involving millions of dollars was swiftly remedied (it was less than five weeks from the DAO exploitation to the execution of the hard fork), through democratic means, using little to no economic resources. This level of responsiveness to a major problem is unprecedented in the legal world. If the DAO exploitation was the subject of litigation in state or federal court, it likely would have taken many years to resolve and the cost would have been astronomical. The same would undoubtedly be true if the government sought to intervene and pursue legislation.

This is a remarkable achievement for the Ethereum community and everyone should be extremely proud of the community’s ability to solve this problem so quickly without litigation or government action. In stark contrast to the decisive action to remedy the DAO exploitation, the Bitcoin community has been debating and discussing the block size issue for years, and there still is no consensus. Today, the Ethereum community has shown the world, including the blockchain skeptics, that we will not tolerate injustice and that we will take the necessary action to ensure that injustices are remedied; but more importantly, we have also proven that consensus works and blockchain technology is here to stay.

While the hard fork received substantial support, there is a small minority of DAO token holders that disagree with the solution, some of whom have even threatened litigation. It is unlikely that these token holders of the DAO will actually pursue (let alone prevail in) litigation, as they have not suffered any damages. Generally, a plaintiff seeking damages must prove two elements by a preponderance of the evidence (i.e., that it is more probable than not): 1) the fact of damages, and 2) amount of damages. Youst v. Longo, 43 Cal.3d 64 (1987).

Certainly, returning the DAO Ether-backed tokens to their rightful owners has not harmed anyone. Indeed, rather than causing any damages, the hard fork has prevented the loss of tens of millions of dollars to the DAO’s investors. While there may have been other potential solutions to remedy the exploitation of the DAO, it is hard to envision a circumstance where someone can prove that an alternative solution would have been more financially beneficial to the DAO’s investors than the implementation of the hard fork.  Without the ability to make that showing, any litigation is doomed from the beginning. Finally, as mentioned above, the hard fork merely created a new chain, while leaving the old chain intact, thus those who do not want to participate through the new chain can always opt to go back to the old chain, which currently remains in existence. Again, no one has been harmed. As an experienced litigator, I think it is extremely unlikely that any attorney would consider pursuing litigation regarding the hard fork on a contingent fee basis, such that no litigation is likely to ensue. 

Jeffrey Berns

Jeffrey K. Berns is the Managing Partner and head of the Los Angeles office for Berns Weiss Inc. Over the course of his 25-year legal career, he has tenaciously fought for the rights of consumers, concentrating his practice on consumer lending and consumer fraud class actions. Among his other accomplishments, he led a group of 20 law firms that prosecuted cutting-edge class action cases against financial institutions, such as Countrywide, Wells Fargo, and JPMorgan Chase, concerning destructive negative amortization loans that unknowingly caused borrowers to assume tens of thousands of dollars of additional debt. These efforts led to settlements comprising hundreds of millions of dollars in cash payments and substantial loan modification relief. Visit www.law111.com for more info.

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