Ethereum vs Ethereum Classic? What’s the difference?
If you’re relatively new to the world of Cryptocurrencies, you might have come across coins with similar names.
Coins like Bitcoin (BTC) vs Bitcoin Cash (BCH), Zcash (ZEC) vs Zclassic (ZCL), but the one we want to look at in this article is Ethereum (ETH) vs Ethereum Classic (ETC).
You might be wondering –
- why are there two such similar names?
- Do they serve the same function?
- Why does two have to exist when one would work?
COINS AND HARD FORKS
While many coins may have reasons to name their coins similar to another, Ethereum Classic and Ethereum are hard forks of one another. This means that up till a certain point, they had the same blockchain.
On the 20 July 2016 on block 1920000, Ethereum Classic forked off the Ethereum chain (or vice versa, as some would argue) and then started having its own blockchain independent of Ethereum.
It also meant that current existing holders of Ethereum at that point also received the equivalent share of Ethereum Classic.
To learn more about hard forks, check out this article.
WHY DID THE FORK HAPPEN IN THE FIRST PLACE?
A fork happens when there is a disagreement in the mining community about what should be done with a particular coin going forward.
In this case, this was due to a hack in the DAO (Decentralized Autonomous Organization).
The DAO is a dApp that was programmed for a decentralised venture capital fund to be run on the Ethereum blockchain.
People who held DAO were able to vote on the projects they wanted to support. Like in crowdfunding platforms like Indigogo or Kickstarter, if the developers raised enough funds, they would receive these funds to start developing their projects.
The investors of these developer projects would then get rewarded through the dividends or increase in the value of these projects.
What was interesting about DAO was that it was decentralised and stateless. i.e. no one country would control this organisation. Also, its code was open-sourced, which meant that anyone could inspect or audit the code.
THE POPULARITY OF THE PROJECT
The fundraising for the project turned out to be a huge success. The crowdfunding effort for the DAO was launched on 30 April 2016 with a website and 28 days to raise funds for the organisation.
The sale was hot.
In less than a month, the crowdsale raised more than US$150 million from 11,000 investors. At the end of the crowdfunding period, the DAO team held 14% of all ether tokens issued to date.
In less than a month on 28 May 2016, the DAO was already trading on major cryptocurrency exchanges like Poloniex, Kraken and Bittrex.
TOO FAST TOO FURIOUS?
However, the chinks in the armour were seen very quickly by developers with a sharp eye. Some developers who examined the code of the DAO warned that there were major security vulnerabilities.
It advised investors not to invest in projects on the DAO until the team would resolve these critical issues.
Nonetheless, the right people did not heed the warning. The project went ahead, and people were actively trading DAO on the major exchanges. In fact, on 29 May 2016 itself, about 9,000 Bitcoins worth of DAO were traded.
Almost on cue on the 17 June 2016, just a few days after the warnings, the DAO experienced a major hack.
Hackers managed to hack through the software code of the DAO and stolen over 1/3 of the ether or 3.6 million ether.
This project that seemed like a bright shining star that showcased the capabilities of Ethereum now became the very thing that would cause its downfall.
A CONTROVERSIAL REACTION
Vitalik Buterin, the founder of Ethereum, was forced to get involved in this together with the DAO team.
By right, it was none of his business. He created Ethereum, but he did not have to guarantee the security of every application built on the Ethereum platform.
However, the hack constituted such a big amount of Ether that it would threaten the very survival of Ethereum itself. Investors, especially those who invested, would have lost trust not just in the DAO but Ether too.
Eventually, the proposed solution would be to create a software update to return the lost Ether to their rightful owners. This software update is also known as a hard fork of the Ethereum blockchain.
There is a problem though.
The spirit of the blockchain was that it was immutable. i.e. when something is recorded in the blockchain, it cannot change forever.
By doing what Buterin and the DAO team proposed, it would be going against the whole very idea of the blockchain immutability. What’s more, it was not the decentralised community voting on this, but a few developers are deciding for the many.
Buterin and team faced the dilemma:
- Do we let the hackers win and take the stolen ether and not violate the spirit of the immutable blockchain?
- Do we violate the spirit of the blockchain and take back the money from the hackers?
Though a difficult position, Buterin decided, against many in the community, that a hard fork would be done to take the money back from the hackers.
He contended that Ethereum was still young and this hack would have threatened its survival anyway.
THE HARD FORK
So, the hard fork happened.
Ethereum forked into Ethereum Classic.
Think of it like two realities (now existing on two separate chains)
In the Ethereum chain, the hacked was reversed as if it never happened.
In the Ethereum classic chain, the hack happened, but the blockchain immutability was preserved.
The community was divided. But at the end of it all, it was a relatively successful (debatable) fork and now both Ethereum and Ethereum Classic both exist as separate coins with separate destinies.
As of 18 March 2016, Ethereum Classic is about 3% the value of Ethereum.
So now, the website on Ethereum Classic states that it is a “continuation of the original Ethereum blockchain – the classic version preserving untampered history; free from external interference and subjective tampering of transactions.”
It continues to have its own blockchain, though sharing one with Ethereum until 20 July 2016. Their destinies are now separate, with different Dapps building on either one or the other.
WHAT DO YOU BELIEVE? DID BUTERIN DO THE RIGHT THING?
Do you believe that Buterin and team did the right thing? Or should he have claimed neutrality and let Ethereum continue to run despite the hack?