- Newcomers to the crypto space often get confused between Ethereum and Ethereum Classic, unsure why two exist
- Like Coke, they don’t realise that Ethereum Classic is actually the original
- The reason why there are two Ethereums dates back to the 2016 DAO hack
Those who know the story of Coke and Coke Classic will recognise a part of the Ethereum/Ethereum Classic divide. Launched following the hack of Ethereum’s Decentralized Autonomous Organization (DAO) in 2016, a fork in the blockchain saw the non-classic version continue to make waves while the original floundered. So how exactly 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. After the DAO hack, Ethereum’s 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. The 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.
A big question that arose following the theft was: was blockchain technology to blame ? 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.
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: reverse 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. The stolen funds were now trapped and unable to be moved.
The idea to hard fork and develop a separate cryptocurrency utilising the old chain had been on the minds of several major parties just a few weeks after the hack, but the parties were not acquainted with each other and had no opportunity to discuss this idea on Ethereum’s official channel. This was because discussions of such a topic were forbidden, but the concept grew nevertheless.
From the very start it was a project managed totally by the community, who came up with the name Ethereum Classic to reflect the fact that it reflected the original chain. A week or so from the website launch, the token was added to the Poloniex exchange, and Ethereum Classic was born.
ETC/BTC and ETC/ETH #Ethereum Classic markets added. https://t.co/EpuSKkJ207
— Poloniex Exchange (@Poloniex) July 24, 2016
An Uncertain Future
As may be obvious nine years down the line, Ethereum Classic has not fared as well as its brother. While Ethereum has maintained its place as the second biggest cryptocurrency by market cap, hitting an all-time high market cap of $295 billion in 2021, Ethereum Classic has sunk; it currently sits outside the top 50 with a market cap of less than 1% of its more illustrious namesake.
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 decided to switch Ethereum to a Proof-of-Stake model, the Ethereum Classic team have stuck resolutely with Proof-of-Work, showcasing another difference in direction.
For many, Ethereum Classic is a relic of the Wild West of crypto, a dinosaur now extinct in everything but name. Development still continues, but its role, which was once as a potential competitor to Ethereum, now seems uncertain, as does its future.
