Key Takeaways:
- Ethereum Classic (ETC) is a blockchain-based, open-source, decentralised network used to build smart contracts and decentralised apps (dapps).
- Ethereum Classic was created after The DAO hack in 2016; it is the continuation of the original Ethereum platform built in 2015. The new hard-forked chain, named Ethereum (ETH), is maintained by the Ethereum Foundation.
- There are several key differences between Ethereum and Ethereum Classic, mainly regarding market value, mechanisms, and design philosophy.
- Ethereum might be the more popular choice, but both it and Ethereum Classic have their own features and unique positioning that cater to specific needs and use cases in the market today.
Introduction
The second-largest blockchain in the market today, Ethereum has a market cap of around US$192 billion (at the time of writing) and is one of the most trusted blockchains for developers and users alike. Its predecessor in design, Ethereum Classic, has begun generating interest since ‘The Merge’ was successfully completed in 2022. However, not everyone new to crypto is familiar with Ethereum Classic.
What Is Ethereum Classic?
Ethereum Classic (ETC) is a blockchain-based, open-source, decentralised network consisting of a blockchain ledger, native cryptocurrency, and an ecosystem of on-chain applications and services. Conceived by Vitalik Buterin and launched by Ethereum Foundation in 2015, it is a canonical chain that allows developers to build and deploy smart contracts.
Essentially, Ethereum Classic is the pre-forked version of Ethereum: a continuation of the original Ethereum built in 2015. The network we know today, referred to simply as Ethereum, is the post-fork version of the Ethereum (Classic) mainnet chain.
Ethereum Classic’s origins trace back to a multimillion-dollar exploit of The DAO, a decentralised autonomous organisation (DAO) launched by blockchain solutions company Slock.it in 2016. The DAO was one of the largest crowdfunding campaigns in crypto history, raising over US$150 million worth of ether.
Concerns were expressed about the vulnerabilities to The DAO’s code during the crowdsale, and three months after its inception, The DAO was hacked. The hack was mainly due to the flaw of ‘recursive calls’, and about 3.6 million ether (worth ~$50 million at the time) were drained as a result.
This event forced Ethereum to eventually hard fork, where the new chain rolled back the original chain prior to The DAO attack, restoring 70% of the stolen funds. The new fork was branded as Ethereum by the trademark-owning Ethereum Foundation, and the original non-fork Ethereum network was rebranded to Ethereum Classic after the hard fork.
The hard fork was controversial at that time, as blockchains were viewed to be immutable and censorship-resistant. One defining attribute of Ethereum Classic is that it upholds the concept of ‘Code is Law’. In the context of cryptocurrency, it refers to the ideology that rules and regulations of a decentralised network are enforced solely through its underlying code.
Within Ethereum Classic, it’s the founding principle stating that a smart contract’s code is the “ultimate arbiter of the outcome of an on-chain interaction, as opposed to some overriding force from outside the network.” Proponents consider it as a necessary component of a pure and truly decentralised system, which is how some draw a parallel between Ethereum Classic and Bitcoin.
How Is Ethereum Different From Ethereum Classic?
There are several differences between the two networks, including:
- Token. Since Ethereum and Ethereum Classic are two separate blockchains, each has its own native token: ETH and ETC, respectively. As the second-largest cryptocurrency in the world, ETH features a market cap of $192 billion today. Meanwhile, ETC has a much smaller market cap, standing at around $2.7 billion. (Figures current at the time of writing.)
- Supply. Ethereum has no fixed supply, while Ethereum Classic has adopted a fixed monetary policy and a limited supply of around 210 million tokens in its lifespan.
- Consensus mechanism. Ethereum Classic prioritises censorship resistance and is committed to remaining under the Proof of Work (PoW) consensus mechanism, which relies on miners to verify transactions on the blockchain; in return, they receive ETC in rewards. Ethereum, however, made its transition to the Proof of Stake (PoS) mechanism in 2022, which allows network participants — called validators — to stake their tokens in order to activate their ability to get rewards.
- Design philosophy. The hard fork that led to the creation of Ethereum Classic sparked an ideological debate within the wider crypto community. The ETC community argues that it has stayed loyal to the notion that the blockchain should remain immutable and never be changed, pointing out that Ethereum Classic contains the original blockchain showing every transaction — including the exploit. But for some, the hard fork was considered a ‘bailout’ and goes against the concept of immutability. In terms of principles, if Ethereum Classic follows ‘Code is Law’, Ethereum’s philosophy can therefore be referred to as ‘social slashing’.
Advantages and Challenges of Ethereum and Ethereum Classic
Ethereum has proven to be one of the most successful blockchains in the market, with a rich developer community and innovative developments over the years. It continues to dominate decentralised finance (DeFi) and sustains over 60% of the DeFi TVL, worth about $30 billion, with over 700 protocols as of February 2023.
Furthermore, Ethereum is the blockchain of choice amongst developers, especially for launching decentralised platforms and apps (dapps). However, this growth over time has introduced significant scalability problems, including slow network speed and high gas fees, which are some of the main challenges Ethereum faces today. The Merge, though, has set the stage for future upgrades, which will help address these issues.
The Ethereum Classic community promotes the network as ‘Bitcoin, but with smart contracts’. Ethereum Classic embodies the governance and economic principles of Bitcoin while staying committed to immutability — with the added smart contract functionality and programmability of Ethereum.
Ethereum Classic, however, also faces challenges and drawbacks. For one, security is likely to remain an issue with the network, particularly with 51% attacks that are considered a shared problem for PoW blockchains. Some developers lost confidence in Ethereum Classic following a series of 51% attacks on the network in 2020.
At the same time, the PoW consensus mechanism is considered less environmentally friendly due to the mining procedure. Additionally, as Ethereum Classic has the same origin as Ethereum, it also has scalability limitations: the network is able to handle only 12 to 15 transactions per second (tps), which can be a disadvantage in a market where speed and scalability are becoming increasingly important. The lack of users and developers supporting the platform can also make it difficult for the network to push for new updates and developments.
Moreover, the ecosystem for Ethereum Classic is significantly smaller and less vibrant, with fewer developers and a lower market cap. Its DeFi TVL is $354,000 (at the time of writing), with only five protocols. However, after The Merge, many crypto miners moved to Ethereum Classic and have helped throw the network into the limelight: Ethereum Classic hashrate jumped 280% in the aftermath of The Merge, highlighting the extent that miners have migrated to the blockchain.
Conclusion — What Is Different About Ethereum Classic?
More upcoming upgrades are awaiting Ethereum on its current roadmap. As Ethereum Classic currently has no formal executive roadmap, its future is not so clear. However, both Ethereum and Ethereum Classic have their own features and unique positioning, which can cater to specific needs and use cases in the market today.
Due Diligence and Do Your Own Research
All examples listed in this article are for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained herein shall constitute a solicitation, recommendation, endorsement, or offer by Crypto.com to invest, buy, or sell any coins, tokens, or other crypto assets. Returns on the buying and selling of crypto assets may be subject to tax, including capital gains tax, in your jurisdiction.
Past performance is not a guarantee or predictor of future performance. The value of crypto assets can increase or decrease, and you could lose all or a substantial amount of your purchase price. When assessing a crypto asset, it’s essential for you to do your research and due diligence to make the best possible judgement, as any purchases shall be your sole responsibility.
