Ethereum Classic is a derivative of traditional Ethereum, the backbone of numerous decentralized apps. It was created after the ill-fated hack of the Ethereum-based platform Decentralized Autonomous Organization (DAO) in 2016. How did the project appear in the first place, how has it evolved, and what state is it in now? Let’s take a look back and investigate Ethereum Classic’s painful history.
It All Started With The DAO
The DAO was one of the first Ethereum-based platforms that attracted attention and publicity back in 2016. It was a hedge fund created in order to connect decentralized applications (dApps) with interested investors and thus help them grow.
Here’s what the process looked like:
- Startups registered on the platform.
- Reputable participants of the Ethereum community reviewed their applications and white-listed those that were worth investing in.
- DAO token holders voted for their favorite projects.
- Once a startup gained at least 20% of the vote, it received access to DAO funds.
The simplicity of the fundraising process caused a frenzy among cryptocurrency enthusiasts. In the first month since its launch the DAO raised more than $150 million in Ether, almost 14% of all ETH issued to date!
How the DAO was Hacked
The feast didn’t last for long, unfortunately. A huge security breach was discovered and exploited by an unknown hacker on June 17, 2016, who withdrew $50 million from the fund. In many ways this was the first DAO derailment. After the DAO hack, the total crypto market cap dropped from $15 billion to less than $11 billion in a matter of days.
The method of getting hold of the funds was so simple it could barely be described as a hack. In order for investors to withdraw their funds all they needed to do was to file a request, and a splitting function then exchanged their DAO tokens back to Ether. A hacker injected a recursive function into the request, which allowed a repeat of the withdrawal process many times over for the same DAO tokens before the transaction was registered in the network. This function repeated again and again until one-third of the raised funds was stolen.
The Network Reversal and the Community Split
Upon the discovery of the hack the community was furious, leading Vitalik Buterin, Ethereum’s creator, to do something once thought impossible – reversing the network. He undid all the transactions that occurred since the first portion of money was stolen, creating a hard fork that saw investors get their money back and cease DAO activity.
A big question that arises is, was blockchain technology to blame for the hack? Some hold the opinion that in 2016 Ethereum was still an experimental project and that the manual interference was justified at such an early stage so that the system didn’t die under the weight of bugs and errors. However, the truth is that the blockchain technology itself had already existed for a long time – it was the smart contract technology that failed.
A New Cryptocurrency Arises
The idea to hard fork and develop a separate cryptocurrency was on the minds of several major parties just a few weeks after the hack. The parties were not acquainted with each other and had no opportunity to discuss this idea on Ethereum’s official channel as this topic was forbidden, but still the concept grew. From the very start it was a project managed totally by the community – the community created the name, the logo, the website content…everything. A week or so from the website launch, the token was added to the Poloniex exchange. Ethereum Classic was here.
— Poloniex Exchange (@Poloniex) July 24, 2016
51% Attack Reignites Questions About its Future
In January 2019, Ethereum Classic became the subject to a 51% attack proving once again the problems with the forked currency – irreversible transactions on the blockchain are great until your money gets irreversibly stolen by a hacker. While Vitalik Buterin has decided to switch Ethereum to a Proof-of-Stake model, the Ethereum Classic team have stuck resolutely with Proof-of-Work, while the last significant updates on ETC’s github repository took place in December 2018.
Ethereum Classic still has a $1 billion market cap, but it seems that it is slipping into oblivion. Will the project be revived with the next bull run or will it be buried in the annals of crypto history? Unless the project shows a serious desire to keep up with the times, 2019 could well be the year we finally say goodbye to the project.