Have you ever accidentally bought the wrong Bitcoin or the wrong Ethereum? To an untrained eye, it’s an easy mistake to make. Surely one must think, why would anyone go for Ethereum Classic when they can go for the Ethereum?
Both Ethereum (ETH) and Ethereum Classic (ETC) are open-source software platforms. They execute smart contracts and allow the building of decentralized applications on them.
- Also learn about: How to buy Ethereum (ETH)
The most significant difference between the two is that Ethereum Classic has a fixed supply. In comparison, Ethereum comes with no maximum supply limit and is more prevalent among the two. Both these blockchains came from the same source and were divided in 2016.
To understand the significant difference, we need to revisit Ethereum’s history and what caused Ethereum vs. Ethereum Classic.
History of Ethereum vs. Ethereum Classic
The history of both coins began with Vitalik Buterin. It’s common knowledge now that Buterin founded Ethereum in 2013, along with a small team of eight members. This member group consisted of Cardano founder Charles Hoskinson and Polkadot founder Gavin Wood.
Buterin acted as the project’s chief architect, while Wood coded the first functional version of Ethereum. Hoskinson was involved in developing a roadmap and governance.
According to Hoskinson, Ethereum founders were divided into two significant philosophies about the best way to develop cryptocurrencies.
Group 1, who believed in the “Code of Law”
- This group wanted Ethereum to be immutable or could not be changed.
- They argued that if blockchain change were possible, it would constantly change laws case by case.
- They persisted on what happens in the blockchain stays in the blockchain.
Group 2, who put innovation above immutability
- The other group advocated for mutability as innovation and technology improve.
- They also wanted to have a stopgap solution. If something terrible happens on Ethereum, then steps should be readily available to fix the problem.
- They argued for the edge cases or the circumstances when it’s necessary to change blockchain and improve.
The Event Which Caused Ethereum vs. Ethereum Classic
Less than a year after Ethereum was launched, its developer community started discussing the possibility of creating the first ever Decentralized Autonomous Organization or DAO. The idea was simple. People would put their Ethereum coins in the smart contracts. In exchange, they will get voting rights on how DAO should spend the pooled money.
The DAO could use the money for activities like funding Decentralized Applications or dApps, building new cryptocurrencies on the Ethereum blockchain, or marketing campaigns.
The first DAO was created by a German startup named SLOC in 2016. Within a month of launching, investors deposited over $150 million worth of Ethereum in the DAO smart contract.
The SLOC DAO developers created a Split Function for DAO Smart Contract. The developers added the function since it was likely that there would not be a clear majority in voting on how DAO should spend the Ethereum.
The Split Function allowed anyone to give up their voting rights in exchange for Ethereum. The exchanged Ethereum could be deposited in a personal wallet or used for another DAO (called a Child DAO). These Child DAOs are a version of crowdfunded Ethereum project. In both cases, the reclaimed Ethereum would be locked for 28 days, making it unspendable.
Shortly before the launch of SLOC DAO, developers noticed a bug in the Split Function. Hackers could exploit this bug to steal the Ethereum locked in any DAO Smart contract. But due to the pressure of the upcoming launch, the developers did not make this discovery open. They insisted that there was no risk present.
On 17th June 2016, an anonymous hacker drained out $50 million worth of Ethereum from the DAO Smart Contracts. The drained amount was about 5% of the total Ethereum in circulation at the time.
The hacker exploited the Split Function to claim more Ethereum by repeatedly using the same voting rights. Interestingly, the hacker could have drained all the funds available in the system but stopped at a particular amount.
Ethereum developers discovered this hack. They had 28 days to make the Ethereum stored to make it spendable. They debated whether they should modify the blockchain or not.
The majority, including Buterin and Wood, voted for the Ethereum blockchain hard fork. This change would reverse the hack and restore the blockchain before the drain.
A small minority argued against the change. They appealed for the ‘Code of Law.’ They argued that the change would be similar to the government bailing out banks during the 2008 financial crisis, opposite Satoshi Nakamoto’s philosophy for creating Bitcoin.
The anonymous hacker even wrote an open letter. They said they rightfully owned Ethereum because they used the Split Function’s faulty code.
So, on 20th July, 2016, Ethereum was forked, and two separate blockchains were created. One on which the DAO hack never happened and the other where the Ethereum remains stolen.
Ethereum vs. Ethereum Classic – the Difference
Apart from the hacking history, Ethereum and Ethereum Classic are almost identical, apart from some minor details.
Ethereum Classic (ETC)
- Ethereum Classic is committed to immutability.
- Ethereum Classic has different tokenomics because it rewards 20 tokens for every 5 million blocks until the maximum supply of 210,700,000 (expected to be completed by 2042).
- It runs on the mechanism of Proof-of-Work, making it compatible with only other Proof-of-Work blockchains.
- Compared to Ethereum, it’s much more centralized, with almost 70% of mining being done by just two mining pools. It makes Ethereum Classic more susceptible to hacks.
- Ethereum Classic developers have implemented a modification called MESSy (actually proposed by Vitalik Buterin himself in 2014) to prevent hacking attacks.
- Ethereum Classic is being developed by ten software companies based in San Francisco. They also aim to fund 20% to 25% of new projects annually.
- Interestingly, another company that actively works on Ethereum Classic is IOHK, the developer of the Cardano blockchain. Charles Hoskinson maintains his belief in the Code of Law and has spent more than $1.5 million on Ethereum Classic development.
Ethereum (ETH)
- In contrast, Ethereum has a steady inflation rate with no maximum supply limit.
- Since the release of ETH-1559, Ethereum has transitioned to Proof-of-Stake.
- Ethereum is not just focused on digital assets and Defi. They also venture to create NFTs.
- Ethereum is more privacy-conscious. One can access the Ethereum blockchain with personal wallets without giving their private data.
The Bottom Line
The ‘Code of Law’ philosophy divided the blockchains. Ethereum Classic community believes in it. There can be many circumstances where changing the cryptocurrency’s code is necessary.
Even after the DAO hack and division, many developers from the Ethereum community occasionally help the other side. Ethereum Classic’s adamant about change makes it hard to improve and adapt to other projects. It strengthens the argument against the Code of Law.
Ethereum Classic development has also shown a history of disorganized development since the division. But with help from Cardano’s Charles Hoskinson, things are slowly coming back on track.
Ethereum Classic has performed very well in the crypto bull run of 2021-22, and it seems its best days are yet to come. The only hurdle standing in its way is the Code of Law zealots who caused the original fork.
Like all things in life, the answer to the Code of Law lies in the middle. No crypto code is perfect. Ethereum has shown the power of change and is leading the crypto market behind the original Bitcoin. Ethereum Classic needs to find the balance between code and law, and it will join Ethereum at the top.