What is Ethereum Classic (ETC)?
What is Ethereum Classic (ETC) and how does it differ from Ethereum (ETH)? If you’d like to buy Ethereum Classic, this article will help answer that question. Whereas ETC is commonly regarded as a fork of ETH, the truth is that Ethereum forked away from Ethereum Classic. Let’s back up and look at why Ethereum forked into two in the first place…
The ETC logo is similar to but distinct from ETH’s grey “diamond.”
The History of Ethereum Classic
As we explained in our recent article on Ethereum, one of this cryptocurrency’s major features is the ability for anyone to create and run smart contracts on its blockchain. This led to a lot of innovation, as individuals and companies used Ethereum’s expressive programming language to create all kinds of novel applications, financial and otherwise. But to understand what is Ethereum Classic, we need to delve into the dramatic history of one application in particular…
The DAO’s logo
One of the most popular applications built on Ethereum’s blockchain was known as The DAO – an acronym for “Decentralized Autonomous Organization,” a term coined in 2013 to describe an organization which is defined and run by code, rather than by executives and shareholders. Built by the Slock.it team as an implementation of such an organization, The DAO was an open and transparent venture capital fund, unique for being controlled by investor votes.
The DAO was a great, even revolutionary, idea. It promised a decentralized fundraising platform, selecting the best startups to incubate by leveraging the wisdom of crowds. Launched in May of 2016 as an open-source software project, The DAO raised a massive 11.5 million ETH – roughly 14% of the entire ETH supply – from around 18,000 participants. The sum was worth around $168 million at the time, granting The DAO the distinction of being the largest crowdfunded campaign ever.
Unfortunately, despite the project’s winning concept and massive popularity, its technical execution was dangerously lacking. On June 17th of 2016, a flaw in The DAO’s smart contract was exploited by an attacker, leading to the loss of roughly 3.6 million ETH, or about 33% of all funds invested into the DAO.
This was a devastating financial loss for many participants – including several developers – and a major black eye for the entire Ethereum project. The attack was particularly embarrassing given that the flaw was publicly disclosed and discussed in advance of the attack, highlighting the security problems with Ethereum smart contracts.
Due to the way The DAO was set up, the funds weren’t immediately accessible to the attacker but rather held for 28 days in a specialized account, giving the community that time to decide how to respond to events. After much debate and a vote, it was decided to hard fork Ethereum in such a way as to nullify the attacker’s exploit and return the taken funds to all original investors.
So, what is Ethereum Classic’s relationship to this complicated catastrophe? Well, a minority of Ethereum users, developers, and investors disagreed with the decision to hard fork. They argued that the social contract had been broken, that immutability was an integral part of the coin in which they’d invested their wealth, time, and energy. A fundamental principle of a DAO was that “code is law,” meaning that the DAO attacker had not in fact broken the letter of the contract, given that its code permitted the attack.
Such objections led directly to the creation of ETC, which kept to the original version of the blockchain in which the attacker retained the 3.6 million ETH drained from The DAO. When Ethereum miners switched over to the new software which reversed The DAO attack, Ethereum Classic miners remained on that chain. ETC thus came into being on July 20th of 2016.
How Ethereum Classic Compares to Ethereum
Ethereum Classic works exactly like Ethereum, barring some minor differences. For example, ETC’s currency is known internally as “classic ether.” ETC also adjusted certain internal pricing mechanisms and its mining Difficulty curve. It’s expected that the two projects will diverge further going forward.
ETC also uses Proof of Work as its consensus model, and the same Ethash algorithm as ETH. It uses the same scripting language, Solidity, and the same sandbox environment for code execution, the Ethereum Virtual Machine. As in Ethereum, “gas” is used to price and prioritize computational power.
There is a philosophical gulf between ETH and ETC, with Ethereum Classic defining itself as “decentralized, immutable, and unstoppable.” ETC thus aligns itself more with the values of Bitcoin, which has similarly refused to roll back its blockchain in the face of major coin losses, the infamous Mount Gox failure for example.
The ETC Price
Despite the 51% attack described above, the ETC price held surprisingly steady during the start of 2019. It’s possible that it was supported by some of its well-known backers, such as the well-capitalized Grayscale fund which maintains the Ethereum Classic Investment Trust, a product which allows American, mostly institutional or accredited investors to buy Ethereum Classic via traditional, regulated markets.
The weekly ETC price chart, courtesy of TradingView.
As to whether now is a good time to buy Ethereum Classic, that’s not something we can determine. We would say that largely depends on the direction of the overall crypto market: Bitcoin is currently leading markets, with the longer-term direction of altcoins largely dependent on BTC’s movements. However, in the past, there has been a pattern whereby Bitcoin tends to outperform altcoins, and then vice versa. Should “altcoin season” resume, ETC may get another chance to shine. Its ultimate success though may depend on finding a market untapped by Ethereum, or providing some unique utility.
Alternately, as Ethereum’s blockchain is under increasing load as it struggles to scale, it’s quite possible that certain use cases will be priced out of ETH and overflow to ETC’s blockchain. While Vitalik Buterin has proposed offloading Ethereum’s excess data to other blockchains such as Bitcoin Cash, ETC would certainly be an easier option. After all, the two cryptocurrencies are almost perfectly compatible, despite their ideological differences.