What is Ethereum Classic (ETC)?

This article explores Ethereum Classic (ETC), a smart contract platform that predates Ethereum. Despite a turbulent past, ETC remains a significant player in the blockchain world. We will delve into its history, and technical details, and compare it to Ethereum. From the infamous DAO hack to its technical intricacies, get ready to learn about the fascinating journey of this pioneering platform.

What is Ethereum Classic (ETC)?

Ethereum Classic (ETC) is one of the oldest smart contract platforms in the market. Ethereum Classic originated from a hard fork (or split) of the Ethereum blockchain in 2016 after the infamous hack of a project called The Dao.

In response, the Ethereum community proposed a controversial solution: to perform a hard fork of the blockchain to return the stolen funds. The Ethereum community was split on whether to do a hard fork after the hack. Some chose the hard fork, while others stuck with the unforked version. This unforked blockchain continued under the name Ethereum Classic.

The native token of Ethereum Classic uses the ticker ETC. It is also called “Ether,” just like Ethereum’s native token ETH. ETC is used for paying transactions in the Ethereum Classic Network.

Here is basic information about Ethereum Classic (ETC).

You can find the up-to-date price of ETC here: Ethereum Classic price.

Like Ethereum, Ethereum Classic supports a Turing complete language on its blockchain, allowing for complex smart contracts to execute any computation defined in this language. Despite sharing many history and technical aspects, Ethereum and Ethereum Classic have evolved independently and have different development teams, communities, and goals since the fork.

The development path of Ethereum and Ethereum Classic split significantly in 2022 when Ethereum deployed The Merge update. This changed Ethereum to a Proof of Stake cryptocurrency, which means that the mining of Ethereum ended. Ethereum Classic still uses the Proof of Work consensus. This makes Ethereum Classic the biggest mineable smart contract platform in the market.

The History of Ethereum Classic

The history of Ethereum Classic begins with Ethereum. This is because Ethereum and Ethereum Classic were the same projects for the first few years. The founder of Ethereum (and Ethereum Classic) is Vitalik Buterin. He is a Russian programmer who worked for Bitcoin Magazine in the early 2010s. Buterin described the Ethereum white paper in late 2013.

He wanted to turn Bitcoin into a smart contract platform and create a programming language for Dapps. Since this plan didn’t work out, the solution was to create a new project entirely.

Ethereum was founded in early 2014. The founding group had half a dozen other members, too, besides Buterin. Cardano founder Charles Hoskinson was among them, with Polkadot founder Gavin Wood. Both Hoskinson and Wood left Ethereum early on.

The Ethereum blockchain was started in July 2015. Less than a year later, the community faced a crisis. This led to the birth of the Ethereum Classic. It was The DAO hack. The DAO was an ambitious project trying to create a crowdfunding platform. Unfortunately, there was a critical bug in The DAO program code. A hacker (or a group of hackers) managed to drain a lot of funds from it.

This event is described in detail in the next chapter. Check the video below for more information.

The DAO hack led to widespread discussion about the future of Ethereum. Should the event be erased by rolling back the blockchain? The majority (incl. Ethereum founders) supported this, but some disagreed by stating: the code is the law.

This argument led to a hard fork, splitting the Ethereum blockchain in half. Ethereum Classic is the original branch of the Ethereum Classic, while Ethereum was forked out. Ethereum Classic has The DAO hack in place, while this event is erased from the Ethereum blockchain.

The first official block of Ethereum Classic was block number 1,920,000, mined in July 2016.

The market agreed with the majority and accepted the hard fork. This can be seen by looking at Ethereum’s popularity vs Ethereum Classic. The difference between the market caps is about 40x. It has been over 100x at times.

Even if Ethereum won this event, it stained Vitalik Buterin’s armor. A blockchain roll-back is against the principles of distributed systems. The project management shouldn’t get involved with the problems of a single application.

Ethereum Classic has been mentioned rarely in the crypto media. It is also smaller regarding resources and community compared to many better-known platforms. The number of active addresses and the network hash rate decreased also in 2018-2020.

Despite all this, the project keeps going forward. You will find the most important events of Ethereum Classic from the official roadmap. There are about ten fintech companies doing development work. The most important is Ethereum Classic Labs.

The previously mentioned gentleman, Charles Hoskinson, is also involved. He has supported Ethereum Classic’s development through IOHK.

Charles on giving ETC one more chance, his belief in choice, and exploring the future of the 'code is law'-space with partners.@IOHK_Charles #EthereumClassic $ETC pic.twitter.com/Q7zj8HhFss

— EyeOfTheKing (@EyeOfTheKing1) December 15, 2020

In August 2020, Ethereum Classic was all over the news for all the wrong reasons. The network suffered three 51% attacks in one month. This led to changes in the hashing algorithm, which has prevented 51% of attacks.

Ethereum Classic is surprisingly popular among institutional investors. When we look at the AUM figures of Grayscale, Ethereum Classic is the third biggest fund with a clear margin.

The DAO hack

Let’s have a deeper look at the previously mentioned The DAO hack. This is one of the biggest media events in crypto history and defines the principles of Ethereum Classic.

It all happened because of an organization called The DAO. You shouldn’t mix this with the common abbreviation DAO, a decentralized autonomous organization. There are thousands of DAOs in the world. In this case, we are talking about a specific fintech company.

The founder of The DAO was German software developer Simon Jentzsch. The DAO was established in 2016 and raised 120 million dollars in funding (eventually up to 170 million). At the time, this was a historical amount. The DAO’s fundraising was widely reported in the financial media.

This was an ICO where investors received DAO tokens in return.

The DAO was an application built on the Ethereum platform. You could compare it to the DeFi applications of today. Users funded different projects and could create their funding ideas on the platform.

All distributed apps (Dapps) are open-source programs. This means anyone can look at the code and find critical bugs.

This is prevented by using code auditions. There are specialized auditor companies performing audits on Dapps before they are launched on Mainnet. This should, in theory, remove the risk of any bugs.

Not only was there a bug in The DAO code, but the founders were even alerted several times. The vulnerability wasn’t fixed, which made it possible for a hacker to drain 3.6 million ETH from the application worth 50 million USD at the time.

Even today, this would be about 3 percent of all circulating ETH. In 2016, it was almost twice as many.

The hacker could have stolen even more funds but, for some reason, did not. The hack led to the previously described debate: should there be a rollback on the blockchain or not? As a result, the community was split in two, and Ethereum Classic was born. The identity of the hacker(s) isn’t known to date.

BitMEX has written an excellent blog post describing the event. There are also many Youtube videos about The DAO hack.

The technology behind Ethereum Classic

Ethereum Classic and Ethereum are almost identical from the tech point of view. Both are powerful smart contract platforms. Ethereum Classic has the same tools for building Dapps as any other popular platform.

Smart contracts are programmed using Solidity, which is best known from Ethereum. The virtual machine of Ethereum Classic is also EVM compatible. This means you can move Ethereum Dapps easily to Ethereum Classic.

Ethereum Classic is often titled a 2nd generation cryptocurrency. Bitcoin was the 1st gen. coin, and modern Proof of Stake platforms (Cardano, Binance Smart Chain, Zilliqa, etc.) represent the 3rd generation.

It means Ethereum Classic has a technological disadvantage compared to other popular platforms. It comes from the use of the Proof of Work consensus algorithm. Ethereum and Ethereum Classic are currently the only PoW-based platforms in the market.

Proof of Work requires physical mining devices (see the image). The hashing algorithm of Ethereum Classic is etchash. See the small but important difference to Ethereum’s ethash. The hashing algorithm of Ethereum Classic was changed in late 2020.

The reason behind this change was a 51% attack. Three 51% attacks, as mentioned in the history chapter. If a cryptocurrency uses the same hashing algorithm as another but a much bigger coin, there is a serious risk of a 51% attack. Some miners can be easily switched to mine the smaller coin for attacking purposes.

The transaction capacity of Ethereum Classic is 15 TPS, which is identical to Ethereum. It’s 2x more compared to Bitcoin. The average block time is 14 seconds.

Ethereum Classic vs Ethereum

What are the differences between Ethereum Classic and Ethereum, then?

We described the technology and some of the shared features in the previous chapter. When writing this article (5/2021), there aren’t many differences in the “engine rooms.” There is one major change coming up, though.

Ethereum is moving fast towards Ethereum 2.0. See the video below for more information.

Ethereum is changing the Proof of Work consensus to Proof of Stake, also used by other modern platforms. The blockchain of Ethereum 2.0, titled Beacon Chain, was launched in December 2020.

The 2.0 version will be ready sometime in 2022 or 2023. This will change Ethereum’s transaction capacity significantly. Estimates are between 50x and 100x.

This is where these Ethereum versions will differ. Ethereum Classic is not going to switch to Proof of Stake consensus. It will remain a Proof of Work platform. It’s interesting to see if this will increase its popularity.

Before the Ethereum 2.0 version is fully launched, there weren’t many technical differences. However, popularity is a whole other contest. Ethereum dominates the Dapp market, whereas Ethereum Classic is more like a side note.

There is one major difference in tokenomics. ETC has a hard cap set in December 2017 in the Gotham hard fork.

The token issuance was changed after 5 million blocks (11.12.2017). The block reward dropped 20% from 5 ETC to 4 ETC. A 20% cut will be done after every 5 million blocks until the hard cap of 210,700,00 tokens is reached.

At the time this article is written, there were 116 million ETC tokens in circulation.

An Overview of Ethereum Classic

The price development of Ethereum Classic has been slow. ETC didn’t show signs of life even during the bull markets of 2019 and 2020.

Then came the April of 2021. The price of ETC skyrocketed more than 1000% in a matter of weeks. This moved Ethereum Classic to the top 20 in the cryptocurrency rankings. It’s hard to see ETC keep this high status, but the move shows the project is far from dead.

The numbers from Grayscale are also very impressive. The AUM value in the Ethereum Classic trust is higher than smaller altcoins have combined.

05/20/21 UPDATE: Net Assets Under Management, Holdings per Share, and Market Price per Share for our Investment Products.

Total AUM: $35.8 billion$BTC $BCH $ETH $ETC $ZEN $LTC $XLM $ZEC $BAT $LINK $MANA $FIL $LPT pic.twitter.com/uHqZhVpvdW

— Grayscale (@Grayscale) May 20, 2021

We have also seen a rise in the number of active addresses. Is this just a short-term boom, or does Ethereum Classic have a significant boost?

When Ethereum moves to the 2.0 version, it means abandoning the Proof of Work consensus algorithm. This will put thousands of Ethereum miners out of work. Ethereum Classic has become the number one PoW platform in the market.

ETC might benefit from this significantly. Many investors like PoW consensus and the principles the Ethereum Classic community cherishes.

What about IOHK and Charles Hoskinson? The Cardano founder has invested more than a million dollars in Ethereum Classic for philosophical reasons. IOHK has also become a bigger player in ETC development.

To have a good overview of Ethereum Classic, check the video below.

The fact remains that Ethereum Classic is technically inferior compared to most smart contract platforms. It’s difficult to see this project ever becoming a popular Dapp platform.

Ethereum Classic will probably be the choice for those investors who appreciate Proof of Work and the hard cap in tokenomics. Bitcoin fans have heavily criticized Proof of Stake. Maybe some of them might invest in Ethereum Classic in the future.

We don’t see Ethereum Classic as a great investment right now. The platform race is so competitive, even if you would have the market-leading technology. The valuation is also extremely high after the April-May 2021 pump.

We’ll likely see Ethereum Classic go forward and remain one of the top 50 cryptocurrencies. There will always be Proof of Work fans in the crypto universe.