Most recent update: [June 26, 2023]
What is Ethereum Classic (ETC)?
Ethereum Classic (ETC) is an open-sourced, decentralized, blockchain-based distributed cryptocurrency platform that is programmed to run smart contracts. The ETC network is permissionless, meaning that anyone can join and execute transactions, so long as they have a compatible crypto wallet. Fully decentralized, the network runs smart contracts contained within a distributed ledger offering completely decentralized governance.
Origins
With smart contracts, a decentralized autonomous organization (DAO) can be created, meaning that the governance and decision-making is codified, free from the need of any human intervention. In 2016, German startup Slock.it launched its DAO project on Ethereum, originally known simply as “The DAO.” While the project raised over US$150 million in crowdfunding, hackers were able to exploit a loophole in its smart contract. This led to a theft of 3.6 million ETH (worth around US$50 million in 2016); at the time, there were about 72 million ETH in circulation, meaning that the hackers had stolen 5% of the total ETH in existence.
To restore the funds, most Ethereum users – including founders Vitalik Buterin and Gavin Wood – supported implementing a hard fork, which would reverse the hack and return the funds to their owners. The newly created ledger would become the “main” Ethereum blockchain (ETH) and the original version of the ledger, which still contained all the data from the hack, was renamed Ethereum Classic (ETC). The legacy branch was not compatible with the main ETH chain.
Despite the noble intentions behind the hard fork, there was a vocal section of the community that were proponents behind the tenet “code is law,” asserting that blockchains, for the sake of decentralization, should not be bent to the whims of an authority. This ideological divide was the driving reason behind the split, as many believed that the hard fork essentially went against what Ethereum had stood for in the first place.
Since Ethereum Classic was born out of a divide in the community, there is no single creator behind the protocol. It can be said, however, that Barry Silbert (CEO of Digital Currency Group) and Cardano creator Charles Hoskinson were two early driving forces behind Ethereum Classic following the split. Because Ethereum Classic is completely open-sourced, there is no official team attached to the project, and its global development community is a permissionless “do-ocracy,” where any developer can contribute to the project.
How does it work? Functionally, Ethereum and Ethereum Classic are the same. Developers use the open-source code to develop and run their decentralized applications (dApps), while also being able to create ERC-20 tokens for their applications. The two chains are identical up to block 1,920,000 (when the hack occurred), and it is only after this block where they diverge. To understand how Ethereum and smart contracts work, check out our article here.
Consequently, the prevailing differentiator between the two protocols is that any significant updates to the Ethereum platform do not reflect Ethereum Classic and vice versa.
There are, however, some upgrades that may have users see some value in ETC over its newer, more popular counterpart. For example, where there is no hard cap on the amount of ETH in circulation, ETC executed several changes to shift its monetary policy to a deflationary one, meaning that the number of tokens in circulation decreases over time. In theory, this makes ETC more important as a store of value because of its scarcity. It is important to note that this decision was made based on user voting through the network’s DAO.
Supply and incentive model
Because it is an untampered version of the original Ethereum blockchain, ETC retains the same proof-of-work model that ETH originally utilized. This means that ETC users must mine blocks to receive rewards; Ethereum is in the process of migrating to a proof-of-stake model for consensus.
As mentioned above, because ETC is deflationary, it functions much like Bitcoin where the block rewards decline after a certain amount has been mined. ETC’s supply is hard capped at 210.7 million and block rewards are programmed to be reduced by 20% every 5 million blocks – roughly every two-and-half years.
Drawbacks One of the defining drawbacks of the original Ethereum protocol (and by extension ETC) was its scalability. The network can typically handle 15 transactions per second which pale in comparison to traditional payments processors like Visa who can handle thousands of transactions per second. For comparison, the new Ethereum 2.0 upgrade promises 100,000 transactions per second. Furthermore, Ethereum was notorious for being prone to network overload due to high usage, meaning that this extends to ETC as well.
As Ethereum Classic is not subject to the same upgrades that the mainstream Ethereum platform has received, there is also the issue behind its security. As a minority chain, ETC has unfortunately been subject to several regular attacks itself. These include several 51% attacks to gain control of mining hash rates, execution of spurious transactions, and the generation of double spend coins; the most recent attack occurred in August of 2020. One of these attacks also included a hack and theft of millions of dollars, and these concerns have questioned the viability of ETC in the long run.
Futureplans Despite the community being adamant on differentiating between ETC and ETH for ideological purposes, several recent protocol upgrades have suggested that Ethereum Classic may be undergoing a change of heart. Many of these additions have aimed at making ETC interoperable with Ethereum. Two recent ETC protocol upgrades, including Atlantis in 2019 and Agharta in 2020, signal the ETC community’s intent to build technological bridges between themselves and other communities, including ETH. Ironically, these upgrades were carried out through mandatory hard forks, requiring Ethereum Classic users to upgrade their software to comply with the updated guidelines of the ETC network.
While the two chains were built on opposing ideologies, there are some in the community that believe that hard forks allow both blockchains to develop democratically as their respective communities see fit.
Further Reading If you would like to learn more about Ethereum Classic and its history, check out these resources below:
Ethereum Classic on Investopedia: https://www.investopedia.com/terms/e/ethereum-classic.asp
Ethereum Classic on BitFlyer: https://blog-eu.bitflyer.com/what-is-ethereum-classic/
Ethereum Classic on Gemini: https://www.gemini.com/cryptopedia/ethereum-classic-etc-vs-eth#section-structure-of-ethereum-classic
Ethereum Classic on CoinDesk: https://www.coindesk.com/price/ethereum-classic/
Ethereum Classic on CoinMarketCap: https://coinmarketcap.com/currencies/ethereum-classic/
Due Diligence Prior to listing Ethereum Classic on the VirgoCX Platform, VirgoCX performed due diligence on Ethereum Classic and determined that Ethereum Classic is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis including reviewing publicly available information on the following:
- The creation, governance, and location of Ethereum Classic and/or its primary development team;
- The supply, demand, maturity and liquidity of Ethereum Classic; and
- Legal and regulatory risks associated with Ethereum Classic.
Statutory Rights under Securities Legislation
VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30, 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada, do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.
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