What Is Ethereum Classic (ETC)? A Smart Contract Platform Betting on the ‘Code Is Law’ Philosophy

The main difference between Ethereum Classic (ETC) and Ethereum (ETH) is on ideological level – ETH vision is that blockchain records should be revised if the majority of the community decides so, while the ETC belief is that code is law and the blockchain must be immutable.

Ethereum Classic (ETC) is a blockchain-based computer platform specializing in smart contract functionality. It came into existence after a split within the Ethereum community over how to deal with an incident known as the DAO. Basically, ETC is the original version of Ethereum and that’s why it is called Classic

The DAO was a form of investor-directed venture capital fund, which raised $160 million via a token sale in May 2016. However, about a month later hackers exploited a vulnerability of the code and stole 3.6 million Ethers. There was a 28-day waiting period before the hacker was able to transfer the stolen funds from the DAO account to another address.

After contemplating for three weeks what action to take, the community decided to execute a hard fork on July 20, 2016 in order to undo the damage from the DAO failure. The majority of the community, backed by Ethereum’s creator Vitalik Buterin, decided that the stolen amount is too big and may lead to the death of Ethereum, so a hard fork was performed and the stolen Ethers were refunded back to their original owners.

However, some people believed that the blockchain must remain immutable, because the hack was due to an issue with the DAO itself, not because of any problems with the Ethereum network.

So, they organized and published their declaration of independence and since July 20, 2016 Ethereum Classic (ETC) became a competitor to Ethereum (ETH).

The DAO hack outlined big philosophical and ideological differences in both projects, but in the end of the day they remain technically quite similar.

Ethereum Classic vs Ethereum

Immutability

ETC and ETH are decentralized platforms for running applications and smart contracts. However, after the hard fork, most of the merchants and market movers followed Ethereum and ETC was abandoned like the smallest kid in the neighborhood, whose bigger friends suddenly run away from him and leave him alone just for fun.

The biggest difference between the two projects is on ideological level – Ethereum’s vision is that blockchain records should be revised if the majority of the community decides to do so, while the Classic belief is that code is law and the blockchain must be immutable.

PoW vs PoS

Currently, both chains use Proof-of-Work (PoW) as a consensus mechanism but Ethereum plans to move towards Proof-of-Stake (PoS) in the near future, which will lead to a significant technological separation.

The first part in that direction for Ethereum Classic was the defusion of the Ethereum “difficulty bomb”, which was implemented in the original Ethereum protocol in order to push the system into Proof-of-Stake. What is the difficulty bomb?

In Ethereum, the difficulty of block issuance inflates on purpose, so as to make it less and less profitable to mine with the idea that eventually it will become untenable to sustain PoW. At that point a hard fork will be necessary. That hard fork could go one of two ways – it can either defuse the difficulty bomb, postponing PoS, or switch the system to PoS.

On January 14, 2017, Ethereum Classic executed a hard fork under the code name “Die Hard”, which delayed the difficulty bomb and added a replay protection to prevent transactions on the Ethereum network being accepted on the Ethereum Classic chain.

Basically, the ETC community took a different path when it decided that it won’t follow the Ethereum Foundation roadmap towards PoS. For now, Ethereum Classic is committed to the PoW algorithm and will try to resolve the scalability issue with the implementation of sidechains, which is a similar solution to what Bitcoin does with the Lightning Network. 

Monetary policy

Currently, Ethereum has a ~3% inflation rate per year with unlimited supply of ETH, while ETC executed another hard fork on December 12, 2017, which implemented a fixed-cap monetary policy with max supply of around 210 million coins. Ethereum Classic will remain inflationary until about 2025, at which point there should be around 200 million ETC in circulation. After that it will become a deflationary currency.

ETC main competitors

There are plenty of projects with ambitions to be on top of the platforms for decentralized applications (dApps). As of July 2018, the undisputed leader is Ethereum. Hence, it is the main competitor and threat for Ethereum Classic.

Another project that is up and running and may be considered as a key opponent of Ethereum Classic is NEO, also dubbed as the Chinese Ethereum. It is one of the few platforms that is already live and doesn’t function just on its Testnet.

The so called third generation cryptocurrencies, like EOS and Cardano, are coming, too - with huge plans to bring fundamental changes to the cryptocurrency market.

Many believe that Bitcoin with sidechains like RootStock will be the people’s main choice for building dApps.

There is a lot of speculation which one will be the superior one and Ethereum Classic is definitely one of the contestants in that race, even though it’s not a favorite.

However, most of the other projects are just babies with big ambitions. When they prove that their technology is reliable on scale, then we may draw any conclusions about their capabilities.

First, they have to put a big pot of money on the table and see if they can secure it in a smart contract. Sometimes this money will be stolen or locked into a contract accidentally, but this is the only way to learn and find the loopholes in the system.

A major difference between Ethereum Classic and the other smart contract platforms is that they are using some form of PoS, or Delegated Byzantine Fault Tolerance (DBFT) as a consensus mechanism, or plan to move towards PoS, what is the case with ETH, while ETC will stick to the more conservative PoW.

This approach may be attractive to everyone who prefers security and more decentralization, but if ETC couldn’t find a solution to scale its transactions it may be left far behind its competitors.

ETC – from #3 to #15 by market capitalization

Three days after the split with Ethereum, on July 23, 2016, Poloniex was the first exchange to list Ethereum Classic. During its first day of trading, ETC was changing hands at between $0.75 and $0.90.

More exchanges followed and it became clear that many miners will continue to mine Ethereum Classic. So, at the beginning of August 2016, ETC surged above $3.45 and became the third largest cryptocurrency by market capitalization during that time. Just two weeks after the fork.

However, this didn’t last for too long and just several days later ETC value dropped to around $1. Since then, the coin was trading between $0.70 and $1.50 until March 2017, when ETH lead most altcoins to remarkable heights.

Ethereum Classic followed its big brother and for the next three and a half months the value of ETC increased from $1.30 on March 2, 2017 to $23.3 on June 25, 2017.

In June 2017, the so-called ‘altcoin season’ ended and Bitcoin started to regain its market dominance. This resulted in a more than 50% correction for ETC and on November 2, 2017, Ethereum Classic was trading at $10.15.

Then, another impressive climb started, with a peak reached on January 14, 2018, when 1 ETC was changing hands for $46.50 – its current all-time high.

As of July 22, 2018, the coin lost around 65% of that value and is currently trading for $16.30.

However, Coinbase announced in June 2018 it will support ETC trading in the coming months, so on the short-term horizon Ethereum Classic price could rise.

As of writing, there are more than 103 million ETC coins in circulation, which makes the total market capitalization of Ethereum Classic $1.7 billion. This places it at number 15 of all cryptocurrencies, ranked by market cap.

ETC will never surpass ETH

The idea of a general-purpose programmable blockchain where you can run smart contracts is something that could change the way the world is run today, but at the same time it is a really difficult idea to execute.

In addition, there are plenty of projects with huge ambitions coming to the space, so Ethereum Classic will face a lot of competition if it wants to become mass adopted.

However, the biggest competitor and threat for ETC is and probably always will be Ethereum. The majority of crypto users have chosen to favor Ethereum and I don’t see ETC getting ahead of this race.

The main supporters of Ethereum Classics are blockchain purists and maximalists who believe that “code is law” and the blockchain records must remain immutable.

Although cryptocurrencies seem to be far away from reaching mainstream adoption, if this happens I don’t think that most of the users will care about the “immutability at all costs”. In fact, I don’t even believe that the vast majority of people will have in-depth knowledge about blockchains and consensus mechanisms at all.

In my opinion, cryptocurrencies and smart contracts will be used through applications, built for great user experience and the people won’t have any idea how exactly they function on the inside. The same way Linux operating system is used almost everywhere around us and most of us have no idea about that.

Did you know that Linux is in every android phone, in your car, in the elevators, in your vacuum cleaner, even in Windows now? Search in google and find for yourself if you don’t believe me.

Disruptive technologies may become mass adopted even if people have no idea they are using them. The biggest selling point of Ethereum Classic over Ethereum is the ideological principal of immutability and I don’t think this could turn things around and make ETC more popular to users and businesses than ETH. Hence, I don’t think ETC will ever surpass ETH.

This may be done by another platform for building decentralized applications that might not be even created yet, but in the race between ETC and ETH, my bet is on Ethereum.

The views and opinions expressed by the contributor in this text should not be considered financial or investment advice, neither treated as an expression of Cryptovest’s view. Neither the author nor the publication takes any responsibility or liability for any investments, profits or losses you may incur as a result of this information.

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