What is Ethereum Classic? Ethereum vs Ethereum Classic
If you have been involved with cryptocurrency, then there is no way that you don’t have an opinion on this. The battle between Ethereum and Ethereum Classic is both an ethical and ideological one. Before we start explaining the basic difference between the two and drawing our own conclusions, it is important for us to know a little bit of history.
A lot of things needed to happen for us to arrive in this conjecture. So, let’s dial back the clocks and check out some of the most critical points in not just Ethereum history, but cryptocurrency in general.
The Formation of The DAO
The entire ecosystem of Ethereum works on the basis of smart contracts. For the uninitiated, smart contracts are basically how things get done in the Ethereum eco-system. To put it in layman terms, smart contracts are automated contracts that enforce and facilitate the terms of the contract itself.
The DAO aka the Decentralized Autonomous Organization was a complex smart contract which was going to revolutionize Ethereum forever. It was basically going to be a decentralized venture capital fund which was going to fund all future DAPPS made in the eco-system.
The way it worked was pretty straightforward. If you wanted to have any say in the direction DAPPS that would get funded, then you would have to buy “DAO Tokens” for a certain amount of Ether. The DAO tokens were indicators that you are now officially part of the DAO system.
So, how were DAPPS going to get approved and built? Well, firstly they need to get whitelisted by the curators, who have basically known figureheads in the Ethereum world. After getting their stamp of approval, they will get voted on by the DAO token holders. If the proposal gets a 20% approval in the vote, then they will get the required funds to get started.
The potential of the DAO and the flexibility, control and complete transparency that it offered was unprecedented; people leaped in to get their share of the pie. Within 28 days of its formation, it accumulated over $150 million worth of ether in a crowdsale. At that time, it had 14% of all ether tokens issued to date.
You might be wondering, that’s all good but how does one go out of the DAO? What if some DAPP gets approved that you are not a huge fan of, how do you opt out of the DAO then? To enable this, an exit door was created called the “Split Function.” Using this function, you would get back the ether you have invested and, if you so desired, you could even create your own “Child DAO.” In fact, you could split off with multiple DAO token holders and create your own Child DAO and start accepting proposals.
There was one condition in the contract, however, after splitting off from the DAO you would have to hold on to your ether for 28 days before you could spend them. So everything looks nice and spiffy for now….except, there was one little problem. A lot of people saw this possible loophole and pointed it out. The DAO creators assured that this was not going to be a big issue. The only thing is, it was, and that created the entire storm that split Ethereum into Ethereum and Ethereum Classic.
The DAO Attack
On 17th June 2016, someone exploited this very loophole in the DAO and siphoned away one-third of the DAO’s funds. That’s around $50 million dollars. The loophole that the hacker(s) discovered was pretty straightforward in hindsight.
If one wished to exit the DAO, then they can do so by sending a request. The splitting function will then follow the following two steps:
- Give the user back his/her Ether in exchange of their DAO tokens.
- Register the transaction in the ledger and update the internal token balance.
What the hacker did was they made a recursive function in the request, so this is how the splitting function went:
- Take the DAO tokens from the user and give them the Ether requested.
- Before they could register the transaction, the recursive function made the code go back and transfer even more Ether for the same DAO tokens.
This went on and on until $50 million worth of Ether were taken out and stored in a Child DAO and as you would expect, pandemonium went through the entire Ethereum community.
Note: Before we continue with the article let’s make one distinction clear. The hack happened because of an issue in the DAO not because of any issues in the Ethereum itself. Ethereum runs in the background while DAO runs on it.
As Gavin Wood, the co-founder of Ethereum puts it, blaming Ethereum for the DAO hack is like saying “The Internet is broken” every time a website goes down.
Aftermath of The DAO Attack
Now, while Ethereum is in no shape or form to blame for what happened with the DAO, regardless, the incident shattered the beliefs that people had in cryptocurrency in general. The price of ether plummeted from $20 to $13, and people were openly eulogizing.
Even though the hacker did take away $50 million worth on Ether, it was still sitting in the child DAO, and he couldn’t yet access them because the DAO smart contract explicitly stated that any of the invested ether taken out of the DAO wouldn’t be accessible for 28 days. With this in mind the Ethereum community and team decided to take action and three potential solutions were pointed out:
- Nobody Does Anything.
- Soft Fork.
- Hard Fork.
Nobody Does Anything
Some people argued that making any changes will go against the very nature and underlying philosophy of Ethereum itself. After all, it is supposed to be immutable and “code is law.”
A lot of people weren’t happy with this, however, so majority voted on going with a Soft Fork.
What Is A Soft Fork?
Whenever a chain needs to be updated there are two ways of doing that: a soft fork or a hard fork. Think of soft fork as an update in the software which is backward compatible. What does that mean? Suppose you are running MS Excel 2005 on your laptop and you want to open a spreadsheet built in MS Excel 2015, you can still open it because MS Excel 2015 is backward compatible.
Image credit: Vitalik Buterin
BUT, having said that there is a difference. All the updates that you can enjoy in the newer version won’t be visible to you in the older version. Going back to our MS Excel analogy again, suppose there is a feature which allows to put in GIFs in the spreadsheet in the 2015 version, you won’t see those GIFs in the 2005 version. So basically, you will see all text but won’t see the GIF.
That is basically what Ethereum planned to do with their blockchain, a soft fork wherein it’s your choice whether you want to update or not, but regardless the updated users and the non-updated users could still interact with each other. The idea was to completely lock down the ether that was stolen by the hacker by ignoring and segregating any blocks that contain a transaction which will help the hacker move around their stolen ether.
This seemed like a great plan and majority of the Ethereum community was on board, but then a problem surfaced, a problem which brought the entire community to another predicament. Implementing a soft fork would result in a “Denial Of Service” (DoS) attack vector.
Understanding The Soft Fork DoS.
Any and all mining activities are rewarded by “Gas” in the Ethereum ecosystem. That’s the primary way by which miners are protected from DoS attacks. Suppose someone decides to attack the network by flooding it with transactions which require difficult computations. The miners can then sit down and execute these computations and even if they fail to complete them successfully they will get a Gas score which is equivalent to a number of computations that they have done. So more time consuming and difficult the computation, the more Gas they collect, and at the same time, the Attacker will have to spend a lot of their own money to make these attacks.
But what happens is, the moment this soft fork gets implemented the attacker will find a run around this system. Now the attacker can flood the network with transactions which interact with the DAO and make the miners do endless complex computations for little to no Gas price and at no monetary expense to the attacker. In fact, the attacker can even trick the miners into solving a malicious computation by setting a high Gas price.
What this meant was that the soft fork was not a no go. This meant that there was only one way for the Ethereum community to go and that was the “Hard Fork.”
What Is A Hard Fork?
The primary difference between a soft fork and hard fork is that it is not backward compatible. Once it is utilized, there is absolutely no going back whatsoever. If you do not join the upgraded version of the blockchain, then you do not get access to any of the new updates or interact with users of the new system whatsoever.
The way the hard fork in Ethereum is supposed to work is that it’s a branch that separates from the main block chain at a particular point (in this case right before the DAO attack). Up until that point (block 1,920,000) the old chain and the new chain is the same, but immediately after the hard fork, the two chains become completely different entities. The new chain was named “Ethereum” or “ETH” for short.
This hard fork was mainly formed to refund all the money that has been taken from everyone by the DAO via a refund smart contract which had the sole function of “withdraw.” So for every 100 DAO, 1 ETH will be given to the DAO token holders. This proposal caused a huge controversy in the community, and there was a split. The people who were “Anti-Hard Fork” refused to change to the new blockchain and decided to remain in the old blockchain naming it “Ethereum Classic” or “ETC.”
And this is where we come to the battle that is raging on in the Ethereum community as we speak, the battle between ETC and ETH. This battle is fascinating because it’s an ethical and an ideological one. This is the very moment that Gavin Wood, the co- founder of Ethereum, has called “the single most important moment in cryptocurrency history since the birth of Bitcoin.” So let’s put on our microscopic lenses and examine both of them in detail.
What is Ethereum Classic? Ethereum vs Ethereum Classic
People who were opposed to the hard fork decided to stick with the original chain calling it “Ethereum Classic.” As of writing Ethereum Classic stands at $17.09 per coin (according to CoinMaketCap). Let’s take a look at what the graph looks like:
The market cap for ETC currently stands at a little over $1.5 billion and is currently the 5th most expensive cryptocurrency in the world.
So, why did people stick with an old chain when all the Ethereum heavy hitters, including founders Vitalik Buterin and Gavin Wood, moved onto the new chain? Well, the answer to that is a more philosophical one. You see when Ethereum, and cryptocurrency in general, was introduced, it was supposed to be a stance against financial corruption. The reason why the blockchain was made immutable was that they wanted the system to be resilient against human whims.
This is why, to many ETC sympathizers, the hard fork is a convenient cop-out, if you are changing the entire chain by one hack then that completely defeats the purpose of Ethereum in the first place. You are proving that the blockchain can be affected by human whims. And this has resonated with a lot of “crypto-idealists.” Some pretty big hitters like Barry Silbert, the CEO of Grayscale, have gotten behind ETC.
Now all that sounds well and good, but there are some problems with Ethereum Classic which simply cannot be ignored.
The Problems with Ethereum Classic
The main problem with the ETC is the lack of backward compatibility with the Ethereum Hard Fork. All the heavyweights of the Ethereum community have moved on to the new chain, which means that anyone who is part of the ETC won’t be able to access any of the updates done by the ETH. The perfect example is ETH’s move from Proof Of Work (PoW) To Proof of Stake (PoS). ETC won’t be able to implement that because their software simply doesn’t allow the use of updates.
But more that’s not the end of it; there are far more nefarious problems with ETC some of which borders on conspiracy. Many consider ETC to be an attack against Ethereum itself. What does that mean? Post hard fork when the community was split and vulnerable, many say that the anti-Ethereum camp openly supported ETC, just to cause disruption in the community. Even more, prominent bloggers like David Seaman have reported that “Classic is an insecure orphan chain being promoted in a way that would be illegal if Ethereum were a publicly traded company, which it could eventually be.”
Ethereum Hard Fork aka ETH
ETH is the result of the hard fork and what is now considered the “new Ethereum.” As of writing, ETH stands at $260.94 (according to CoinMarketCap). Let’s check out the graph:
The market cap for ETH currently stands at a staggering $24 billion and is currently the 2nd most expensive cryptocurrency in the world behind bitcoin.
ETH is the new form of Ethereum, no matter what the detractors say. The original heavy hitters are all part of the system, and ETH also happens to be the one going through the most revolutionary changes (like the aforementioned switch from POW to POS). ETH was formed for one reason and one reason alone – to return the funds stolen by “the DAO attacker” back to the rightful owners.
ETH represents so much more than what it appears to be on the surface; it represents a victory for the Ethereum community. They came together after facing the worst hack in cryptocurrency history, stuck together and made something that is stronger than its predecessor.
But having said that, as we have mentioned before, there is one problem with ETH, and according to Pro-ETC fans, it is an ideological one.
The Problems with ETH
Like we have mentioned before, the formation of ETH goes against the idea of the immutability of the blockchain and the philosophy of “code being law.” In the eyes of anti-ETH folks, the hardfork was a cop out from Ethereum, and they should have accepted the main blockchain for what it was.
Another issue that was raised was how was anyone going to know for sure that no more hard forks were going to take place in the future subject to human whims? What if there are multiple hard forks creating different versions of Ethereum? What if there are hundreds of different versions of Ethereum running at the same time? Won’t that greatly devalue it and cryptocurrency in general? (Even though a majority vote of the Ethereum community would be required to make such monumental changes).
Let’s list out the pros and cons of both Ethereum Classic & Ethereum
- Stays true with the philosophy of the immutability of the blockchain.
- Has recently got the backing of a few big players
- Doesn’t get access to all the new updates made in the ETH chain (e.g.,. The move from POW to POS).
- All the heavyweights of the Ethereum have moved on to ETH.
- Considered an insult and an attack on the Ethereum community.
- Is know to be full of scammers.
- Is growing at an exponential pace.
- Has the majority of the original big dogs who have created Ethereum in its corner.
- Has reversed the DAO hack and given back the stolen money to its rightful owners (the DAO token holders).
- Is being constantly updated with the latest changes.
- Has a higher hash-rate than ETC.
- A powerful example of what the Ethereum community is capable of when it comes together to solve a problem.
- ETH is backed by a powerful group of over 200 corporations called the Enterprise Ethereum Alliance (EEA) which aims to use the blockchain technology to run smart contracts at Fortune 500 companies. Members include: Microsoft, JP Morgan, Toyota, ING, etc.
- Goes against the policy of immutability.
Why you should support ETH
Having examined the differences between ETC and ETC in detail and glancing over the history of Ethereum itself, which camp do you lean towards? If you want to be part of history and want to support the Ethereum community, then it goes without saying that you should be in camp ETH. There are huge holes in the arguments of the anti-ETH people, let’s examine them.
Argument #1: ETH stands against blockchain immutability
While it is true that the hard fork went against the immutability, but the circumstances around the change need to be considered. The DAO attack stole of the one-third of the DAO’s ether supply which in turn had 14% of the world’s ether. After such an attack something needed to be done to make sure that justice was carried out and that is exactly what the DAO fork achieved. Not only did it greatly devalue the amount of ether held by the attacker it also reimbursed every DAO token holder.
Argument #2: This could be the start of numerous hard forks
This doubt is simply unfounded because of one major reason: The Ethereum community is decentralized and a democracy. You cannot make major decisions like that unless the majority of the people agree to it.
Ethereum has made a spectacular comeback from an absolute disaster, and it looks like it’s going fulfill all the expectations that people had had in it when it started. More than anything, the true power of Ethereum lies in its full scope. It is not just a currency; it is a platform on which people can build projects which will dictate the future. If decentralization is indeed the future, then Ethereum is going to be in the front and center of it.
Now, this begs the question: What does this mean for ETH and ETC? ETH has all the lead developers on its side and is going to grow from strength to strength. Now with the backing of the EEA, it is only going to get better. The value of any currency comes from the trust that people has on it, and because of all these factors, the trust in ETH is only going to grow. A lot of experts are predicting that ETH will be the first cryptocurrency since Bitcoin to break the $1000 barrier.
For ETC, unfortunately, the same can’t be said. In the eyes of the people, ETC is always going to be black sheep of the Ethereum family. As of right now, ETH is nearly 15 times more valuable than ETC, and it really isn’t going to get any better. Plus, the fact that ETC is known to be full of scammers only reduces the trust that people have in it, which in turn reduces its value. Are we saying that it is going to completely disappear from the market? No. Are we saying that it doesn’t have much growth potential? Maybe, maybe not. The beautiful thing about the blockchain space is… as Milton Fridman said “Free choose”
ETC chose to keep their chain and move forward, that’s the beauty of blockchain mechanics and free capitalism.
The future is bright for ETH, and it will keep on growing. It is a living proof of what the Ethereum community is capable of. They faced a serious crisis, stuck together and came up with a truly elegant solution. ETH is the future, and if you are a supporter of Ethereum and believe in what it stands for, then you should definitely be in camp ETH.