Ethereum Classic is - as the name suggests - a clone of the Ethereum cryptocurrency.
It was created due to a hard fork on the Ethereum cryptocurrency.
If you don't know what a hard fork is, it is basically the process by which a piece of software is modified so dramatically that it cannot work with any previous version of itself. The term derives from the " merkle tree " system used by both the blockchain and the GIT (source code management) to manage incremental updates for data.
In terms of Ethereum, a great vulnerability has been discovered in the way funds have been managed and stored in a system known as "DAO". DAO stands for "Decentralized Autonomous Organization" and is basically a smart contract (application) that has made it possible to assign a "jar" of centralized Ethereum funds to projects implemented on the Ethereum platform.
In other words, the DAO had to cryptocurrency which venture capital is for startups. The process of being able to put in common the currencies and release them for particular app decentralized meant that the participants would have to make sure you agree with all the technology used to create these apps etc.
Unfortunately, despite raising $ 150 in a pre-sale, several community members pointed out a flaw in the fact that if you had your funds in the DAO and wanted to withdraw them, you would have several choices.
Firstly, you could create a " child DAO " that could be used to allocate funds to other projects, and secondly, you could simply save the Ethereum tokens back to your account. Although this is completely safe on paper, problems arise when trying to transfer funds to your account: there is a loophole whereby an anonymous user can actually repeat the transaction, drying up the DAO of all his funds.
We will cover the loophole further down the page. For now, all you need to know is that Ethereum and Ethereum Classic are the same thing, apart from the hard fork that solved the recursive call bug . This led to a very popular division on the net, leading to a lot of volatility within the Ethereum community itself (and volatility in its price).
What is Ethereum Classic?
There’s no secret that this is Ethereum but without the new updates delivered in the 'DAO fix' hard fork.
Whilst this wouldn’t normally matter, the most important thing is that it means any developments on the official Ethereum branch are not accessible to the classic one, which includes the likes of Proof of Work (PoW) to Proof of Stake (PoS), etc.
With this in mind, you may ask why it exists if it’s literally just an older version of the second most popular cryptocurrency. The answer is more political than technological.
When the DAO attack happened, the Ethereum community was split on what should be done to fix the underlying problem. The choices were…
Do Nothing
Ethereum was not at fault – it was an issue with the DAO code.
Create a soft fork
Would mean that the system would be entirely backwards compatible.
Create a hard fork
Would mean that the 'new' code was not backwards compatible – essentially preventing the problem from happening again from a centralized (fundamental) perspective.
The point here is that some in the Ethereum community suggested that the DAO problem was a human-made error, not with the core technology itself. Thus, to change the core Ethereum code was akin to rewriting the Internet’s standards just because a "website" crashed.
As such, when the hard fork was introduced, the underlying community (which includes everyone from developers to contributors) became split between wanting to support the new updates or actually proceeding with the older code.
As mentioned, the older code wasn’t the issue but how the new fork would undermine several core ideals held by the Ethereum community, namely that "code is law". The fact that the Ethereum network itself wasn’t to blame made many hardline activists think that the core problem was with the DAO, not the network.
Either way, it happened the way it did and ultimately lead to a split in the community.
Ethereum Classic was released in July 2015 but unfortunately, the majority of the best developers had already moved onto the new fork, leaving most the ETC by the wayside.
If you’re an investor looking at ETC, the reality is that it’s not likely to be adopted over the original Ethereum, especially considering the depth of expertise working on the main ETH branch.
Who created it?
As mentioned, the bulk of Ethereum’s code came from Vitalik Buterin (Ethereum founder).
Since it’s an open-source initiative, anyone can download, change and propose updates to the code (known as pull requests). The important thing to consider is that since ETH continued down its own path, all of these updates have been applied to the new fork only, leaving the ETC community to try and play catch up.
In other words, no-one created it – they simply took the pre-fork ETH code and applied it to their own currency. To this end, to determine who’s pushing ETC forward, the following names come to the fore:
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Early Bitcoin investor started pumping money into ETC in order to debase ETH
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Founder of Silver Lake capital (also manage Bitcoin trust fund)
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An influential group of digital media investors
As you can tell, it’s the money, not technology that’s been pushing ETC. Partly due to wanting to disrupt the ETH market cap, partly to try and line their own pockets, the group behind its adoption seem intent on proving a point.
Why does it exist?
As explained above, the ETH token was split with a hard fork – the older token was maintained as ETC (Ethereum Classic) which maintained a core community who refused to upgrade to philosophical grounds.
As such, if you’re involved with the Ethereum space, there are a number of things to appreciate about each version of the software…
Ethereum
Officially supported by the Ethereum Foundation (which controls EEA)
Many large players contributing to code & mining network
Reversed DAO hack and returned stolen tokens
Is being constantly updated with the latest changes
Ethereum Classic
No access to new updates
Most committed & able developers moved to the ETH fork
Considered insult and attack on Ethereum community (both philosophically and technicality)
Many labelled it as a scam
Again, the main reason for Ethereum Classic to exist was more a political argument than technical or economic. The underlying point does highlight – however – is that due to the completely decentralized nature of these solutions, without any central leadership structure, the various coins can easily be undermined.
Trajectory
Obviously, since this is just Ethereum but with all the old code, the system’s growth has closely followed that of its more widely-used namesake.
The most important factor to consider with this is that in order for Ethereum Classic to become adopted by the mainstream, not only does it require a large amount of computing power (miners) but it also needs a lot of functionality which the likes of ETH already has access to from its community.
From an objective financial perspective, it makes NO sense to back ETC when the other version of the currency is healthy and has the backing of the wider community.
When examining the growth of a cryptocurrency system, what you’re really looking for is adoption. No cryptocurrency is a currency in that it’s not backed by any assets.
Whilst Ethereum doesn’t proport itself to be a currency in the same way that Bitcoin does, its entire network and ideal basically have duped a lot of people into thinking its tokens are worth something (they’re not).
The point is that to measure Ethereum’s adoption, you’re looking for people utilizing its infrastructure and network to create viable smart contracts (decentralized applications).
The value of its underlying architecture is basically about which companies/entities are actively involved with it. This is the main difference between the official Ethereum and the "classic" derivative.
To this end, ETH is the hands-down winner, with over 200 of the most established financial institutions supporting it via the Enterprise Ethereum Alliance (EEA). The EEA was established to use the blockchain technology to run smart contracts at Fortune 500 companies for companies including… Microsoft, JP Morgan, Toyota, ING, etc.
Ultimately, whilst usage and trading volume of ETC has grown with its more famous counterpart, the market is so bullish right now that this is expected across ALL the altcoins. The real test will come when the market bottoms out (people realize none of the coins actually make any money), which is where the first wave of closures will happen.
