What is Ethereum Classic and How it Compares vs Ethereum
Consensus is one of the most important concepts in cryptocurrencies and their underlying technologies. Blockchain networks are maintained by miners who typically verify transactions through consensus algorithms, while changes and upgrades to the network are also decided by consensus among users, developers and miners. But what happens when network consensus isn’t reached? We’ll examine an answer to that question as we take a look at Ethereum Classic (ETC).
In this guide we’ll cover everything you need to know about Ethereum Classic, starting with its origins in Ethereum and the fundamental disagreement over the handling of a security exploit that resulted in a hard fork, creating two separate networks.
- The DAO Incident
- The Ethereum Hard Fork
- Mining Ethereum Classic
- Trading/Storing Ethereum Classic
As Ethereum and Ethereum Classic share the same early history and fundamental technology, we’ll cover both in this section. The concept for Ethereum was first introduced in a 2013 white paper written by Vitalik Buterin, a developer who had been working for Bitcoin Magazine.
Buterin argued that Bitcoin need a scripting language that would allow for application development on its network—a way to evolve into something more than a peer-to-peer cash or store of value system. He chose the name Ethereum by searching through science fiction Wikipedia pages.
“I immediately realized that I liked it better than all of the other alternatives that I had seen; I suppose it was the fact that it sounded nice and it had the word ‘ether’, referring to the hypothetical invisible medium that permeates the universe and allows light to travel.”
In Early 2014, Buterin, along with Mihai Alisie, Anthony Dilorio and Charles Hoskinson made up the core Ethereum team. They began formal development of the network under a Swiss company, Ethereum Switzerland GmbH.
Like other cryptocurrencies, Ethereum is built around a blockchain, or a distributed ledger of transactions that are verified and secured by mining. Mining is a cryptography-based process that allows certain computers connected to the network to exchange computing power for a reward when a block of transactions is completed. What separates Ethereum from some other blockchain technologies like Bitcoin is the Ethereum Virtual Machine and smart contracts.
The Ethereum Virtual Machine is a decentralized computing platform. It is essentially a super computer that relies on the computing power of connected hardware to implement processes for any number of applications. The Ethereum Virtual Machine functions separate from the Ethereum main network, meaning it functions as a tool to safely test systems on the platform before they are fully implemented.
A smart contract is a computer program that automatically executes according to its programmed conditions. For example, I could write a smart contract that says I will pay you 10 ETC (The Ethereum Classic network’s native currency) on a certain date if you perform a specified task for me. The contract itself is recorded on the public blockchain. When you fulfill your conditions of the contract, the payment is authorized for execution on the agreed upon date. That transaction will also be recorded on the blockchain and, ideally, all parties will be satisfied. Smart contracts are implemented and processed on the Ethereum Virtual Machine.
The previous example was a simple financial transaction, but smart contracts have an even broader potential for application. Intellectual property, real estate, insurance—basically anything that is handled using real-world contracts—can be handled by a smart contract that allows for increased security and flexibility without the need for third-party intervention.
Combining the tools provided through smart contracts and the Ethereum Virtual Machine, users on the network can create decentralized applications or DApps. Use cases for DApps include financial products, gambling, supply chain management, and utility sourcing and pricing.
A decentralized autonomous organization or DAO is one of the more ambitious implementations of the Ethereum platform. Functions are carried out by DAOs by set rules established in smart contracts and processed within the Ethereum Virtual Machine. Ideally, DAO’s would be used to replace roles typically carried out by people, reducing or eliminating the risk of human error. However, sometimes human error still finds its way into these systems and that was the case in the events that led to the hard fork of the Ethereum network.
In 2016, a decentralized venture capital fund was established under the name The DAO. The DAO represented one of the most exciting use cases of Ethereum and blockchain technology in general. It was intended to operate as a hub that would distribute funding to projects as a typical venture capital fund would without the need for traditional management or a board of directors.
What made The DAO especially interesting, was the fact that it was crowdfunded through a record breaking $100 million token sale in May of 2016. Investors purchased DAO tokens with Ethereum and those tokens gave them voting rights when it came to project investment decisions. The largest single investor in DAO tokens held less than 4% of the total supply, meaning the crowdsale was a success and no individual could influence excessive power on the system.
The DAO was built using an open source base code that offered one of its biggest selling points, transparency. Anyone with the ability could examine the smart contracts of the system and ensure all transactions were being carried out as they should.
The month The DAO crowdsale went live, a paper was published identifying a number of security vulnerabilities found in the system’s code. By June, members of the Ethereum community and DAO investors had verified that these vulnerabilities were indeed a threat and fixes were proposed awaiting the approval by members of The DAO.
On June 17, 2016 The DAO was attacked using a combination of vulnerabilities. The user exploiting these system flaws was able to siphon 3.6 million Ether from The DAO’s stores. This was a third of the funds held at the time.
The DAO would eventually be shut down, but not before changing the path of Ethereum forever.
This attack was a complete disaster, not only for The DAO, but for Ethereum in general. A debate about the future of the Ethereum platform began immediately. Vitalik Buterin and the core team wanted to return the stolen funds any way they could. They launched a counter attack that allowed them to steal back the funds that were taken from The DAO.
Some community members thought the Ethereum team’s intervention represented a larger problem than The DAO exploit itself. While the hacker stealing those funds performed a highly unethical action, some argued that the DAO’s vulnerabilities were known but went unfixed. It was like a bank leaving its doors and vault unlocked at night only for someone to walk in and load up their bags with cash. If the core team were able to police the network like they had just done, then that would suggest the network is not as decentralized as it was intended to be.
The core team and many in the Ethereum community proposed a hard fork, essentially a reset button that would allow them to take those recovered funds and write a smart contract that would only pay out to the original investors. The fork would split the existing blockchain and create a new path for future development and abandon the old one.
Opponents of the hard fork, led by Igor Artamanov, argued that this would be a slippery slope. If a select few powerful individuals could influence the entire network and make changes without proper consensus channels, the technology was founded on a lie.
Eventually, consensus was reached with a vote in July of 2016. Ethereum would implement a hard fork, creating a new ETH chain. The stolen funds would be returned via the proposed smart contract solutions.
Not all was lost for those who opposed the fork, however. 90 percent of the miners maintaining the Ethereum blockchain followed the new ETH chain, but the remaining 10 percent stayed as Artamonov and a new core development team renamed their chain, Ethereum Classic. The ETC team had to implement their own hard fork to reformat the network because it was no longer as robust. This would be called the ETC chain.
The ETC chain was operated and maintained under the original values set out in Buterin’s white paper. Blockchain immutability is the core tenet of Ethereum Classic. No individual or group of individuals should have the power to alter the blockchain other than to guide it in the direction set forth by the community.
Today, Ethereum Classic carries on this message as it continues to grow its network on a different path than that of Ethereum. “Code is law” is the concept that drives Ethereum Classic and updates to the network often include added functions that bolster decentralized decision-making functions.
Ethereum Classic is mined using a proof-of-work algorithm that verifies transactions on the blockchain through consensus. When a block of transactions is completed and added to the chain, the miner that completes this process is awarded an amount of ETC.
Miners on the Ethereum Classic network are the reason it exists today. When the ETH blockchain forked, some were surprised that the original chain was still operating, as 10 percent of the miners on the Ethereum network did not follow the fork.
While Ethereum Classic is not as popular as the forked ETH chain, ETC remains a commonly traded digital asset. ETC is available on a number of different cryptocurrency exchanges. It is typically available in trading pairs with Bitcoin and ETH. Not many exchanges offer fiat trading pairs with ETC.
Once you trade for your ETC, it is best to store it in a wallet. Cryptocurrency wallets include mobile, desktop, and hardware clients that offer you safe storage options for your investments. Hardware wallets are the safest options, while desktop and mobile wallets sometimes offer added convenience and additional features.
While most of the community went on to support the ETH chain of Ethereum, Ethereum Classic offers the same core functionality that was promised when Ethereum was first introduced. It boasts integrity and an immutable blockchain while adhering to the “code is law” concept of decentralized governance. ETC might not have the same partnerships and mainstream support, but it still offers value through solid technology.