What is Ethereum Classic?

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Ethereum Classic (ETC) is a prominent cryptocurrency with a fascinating history. It emerged as a result of a contentious fork within the Ethereum blockchain, creating two separate networks. In this comprehensive guide, we will explore what Ethereum Classic is, its origin, key features, and how it has established its identity in the world of cryptocurrencies.

What is Ethereum Classic?

What is Ethereum Classic

Ethereum Classic (ETC) is an open-source, decentralized, blockchain-based cryptocurrency platform that operates smart contracts. It was established in 2016 as a response to a hack of The DAO, a smart contract functioning on the Ethereum blockchain. This hack led to the division of the original blockchain, with the majority of users opting to reverse the hack and return the stolen funds.

The split exposed ideological differences within the Ethereum community. A subset of developers and miners believed in the principle that “Code is Law” and considered that The DAO’s investors should face the consequences of their investment in a flawed project. However, the broader Ethereum community chose to roll back the blockchain, effectively providing a bailout for The DAO’s investors.

Beginning of Ethereum Classic

The Ethereum Ecosystem: Ethereum, often referred to as Ethereum (ETH), was created by Vitalik Buterin and launched in 2015. It introduced smart contract functionality, enabling developers to build decentralized applications (DApps) on its blockchain. Ethereum quickly gained popularity and became a pivotal platform for blockchain-based projects.

The DAO Incident: The Ethereum ecosystem was disrupted by a critical event in 2016 known as “The DAO incident.” The DAO (Decentralized Autonomous Organization) was a complex smart contract that managed funds contributed by investors. A vulnerability in the code was exploited by a hacker, resulting in the theft of a significant amount of Ether (ETH).

The Ethereum Hard Fork: In response to The DAO incident, the Ethereum community faced a critical decision. Some members advocated for a hard fork to reverse the effects of the hack, essentially undoing the theft. Others believed that the principles of immutability and censorship resistance, fundamental to blockchain technology, should not be compromised. This division led to a contentious hard fork on July 20, 2016.

How Is Ethereum Classic Different from Ethereum?

When examining Ethereum Classic (ETC) in contrast to Ethereum (ETH), it’s evident that ETC serves as a speculative digital asset for trading. On the other hand, ETH is widely perceived as the more established and actively traded cryptocurrency. In early 2021, the Chicago Mercantile Exchange (CME) granted approval for the trading of ether futures, a privilege extended only to Bitcoin and Ether. These futures represent derivative contracts based on an underlying asset, complete with fixed prices and maturity dates.

The availability of ether futures not only facilitates speculative trading of ether but also offers a means for investors to hedge existing positions in ETH or even other cryptocurrencies and crypto-related products such as HEX.

An insightful gauge of the investment community’s sentiments regarding ETC and ETH is to assess the capital allocation to these two digital currencies. By scrutinizing their market capitalizations, the distinction in favor of ETH becomes evident. Market capitalization is calculated by multiplying the cryptocurrency’s price, usually quoted in a fiat currency like U.S. dollars, by the total quantity of coins or tokens in circulation.

Ethereum Classic boasts a circulating supply of 141.2 million coins, corresponding to a market capitalization of $2.5 billion. Conversely, Ethereum possesses approximately 120 million coins in circulation, contributing to a market capitalization exceeding $225 billion. As of May 31, 2023, ETC is trading at $18.00, whereas ETH commands a value of over $1,874 per coin.

Despite the presence of smart contracts on both networks, the potential security issues surrounding ETC are likely to steer investors toward ETH and its robust smart contract ecosystem.

Ethereum vs. Ethereum Classic

The hard fork resulted in two distinct blockchains:

  1. Ethereum (ETH): The majority of the Ethereum community and developers supported the hard fork. The new chain continued as Ethereum (ETH), with the hack effectively reversed.
  2. Ethereum Classic (ETC): Those who opposed the hard fork decided to remain on the original Ethereum blockchain, which became Ethereum Classic (ETC). This network adhered to the principles of immutability and non-interference.

Key Features of Ethereum Classic

  1. Immutability and Censorship Resistance: Ethereum Classic prioritizes transaction finality, meaning that once a transaction is confirmed, it cannot be altered or reversed. The network is designed to resist censorship and external control, enabling trustless, permissionless transactions.
  2. Compatibility with Ethereum: Ethereum Classic is compatible with Ethereum in terms of smart contracts, allowing developers to port their DApps between the two networks with minimal effort.
  3. Decentralization: Ethereum Classic places a strong emphasis on decentralization, with the goal of preventing any single entity from exerting excessive control over the network.
  4. Classic Consensus Mechanism: Ethereum Classic uses a proof-of-work (PoW) consensus mechanism, similar to Ethereum. Miners solve complex mathematical puzzles to validate transactions and secure the network.

The Resilience of Ethereum Classic

Ethereum Classic’s journey has not been without challenges. Initially, it faced skepticism and a lower market valuation compared to Ethereum (ETH). However, ETC has demonstrated remarkable resilience and has gradually gained recognition. Several factors have contributed to its enduring presence:

  1. Adherence to Principles: Ethereum Classic has remained true to its commitment to immutability and decentralization, attracting individuals who value these principles.
  2. Developer Activity: Despite its smaller developer community compared to Ethereum, Ethereum Classic has seen increased development activity, with new projects and DApps being built on the network.
  3. Growing Ecosystem: The ETC ecosystem has expanded, encompassing wallets, exchanges, and infrastructure projects that support its development and adoption.
  4. Security and Network Stability: Ethereum Classic’s PoW mechanism, similar to Bitcoin, offers robust security, and the network has consistently maintained stability.
  5. Network Upgrades: Ethereum Classic has undergone successful network upgrades, improving its functionality and compatibility.

What are the Concerns of Ethereum Classic?

Ethereum and Ethereum Classic, both offering smart contracts and competing for a similar market, have witnessed contrasting levels of success. Ethereum, in particular, has emerged as the more widely accepted network, with its cryptocurrency, ETH, being the second most valuable in the world, following only Bitcoin.

A significant concern for Ethereum Classic revolves around its scalability limitations. The network’s transaction processing capacity is capped at around 15 transactions per second, a far cry from payment giants like Visa, which handle over a thousand transactions per second. Despite multiple software upgrades, enhancing payment system scalability remains one of the most pressing challenges for Ethereum Classic’s future prospects.

Moreover, security remains a critical issue, especially in the realm of smart contracts. Ethereum Classic has already been a victim of a major hack resulting in the theft of millions of dollars. These security concerns could potentially hinder the adoption of Ethereum Classic for significant financial and real estate transactions.

The cryptocurrency market’s regulatory landscape is continually evolving, which may have implications for Ethereum Classic and other blockchain networks. For instance, the U.S. Securities and Exchange Commission (SEC) has categorized Ethereum and Bitcoin as non-securities due to their decentralized nature.

However, this lack of classification as a security can present challenges for some cryptocurrencies seeking approval for inclusion in financial products like exchange-traded funds (ETFs) and mutual funds, which often consist of a mix of securities, stocks, and bonds. The future of Ethereum Classic and other lesser-known blockchain networks may be influenced by the evolving regulatory environment, creating a degree of uncertainty in their operations.

The Future of Ethereum Classic

The future of Ethereum Classic remains dynamic and uncertain. It is clear that ETC has established its identity as a blockchain network that values immutability and decentralization. It is likely to continue growing as developers and users who align with these principles find value in the network.

Ethereum Classic’s journey, from a contentious hard fork to its evolution as an independent and resilient blockchain, exemplifies the complex and evolving nature of the cryptocurrency space. It serves as a testament to the enduring importance of immutability and censorship resistance in the world of blockchain technology.

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