Cryptocurrency speculators often ask, “what is the difference between Ethereum and Ethereum Classic?”
In short, the difference lies in their respective communities, which are divided by core values. Yet this kind of brief answer rarely satisfies the curiosity of a diligent investor. To truly understand the difference, one must dive into the history of Ethereum and discover how Ethereum Classic came to be.
Smart Contracts and the DAO
One of Ethereum’s most appealing aspects is its integration of smart contracts, which allow people to code programs that execute transactions when specific conditions are met. In other words, a smart contract is computer code that facilitates the exchange of value in the form of money, property, shares, or data.
Here’s a simple example of a smart contract:
Send 5 ETH from Alice to Bob if…
** date = January 1, 2018
** Bob’s balance = 0 ETH
Smart contract functionality in Ethereum has wide-ranging applications, one of which is the construction of ‘decentralized autonomous organizations.’ Decentralized autonomous organizations (DAOs) operate according to rules encoded as computer programs, and decision-making in a DAO is usually proportionally democratic — that is, the more DAO tokens you hold, the greater your voting power.
In 2016, people used the Ethereum blockchain to create one such organization, known as The DAO, using a set of smart contracts. At its core, The DAO was an investor-directed venture capital fund. Through a massive token sale, The DAO raised more than $150mm in funding from more than 11,000 investors. By May 2016, the DAO had “attracted nearly 14% of all ether” issued to date (The Economist).
Trouble Hits the DAO
One month later, a hacker exploited a combination of vulnerabilities associated with The DAO in an attempt to steal ~$50mm. These vulnerabilities were not with the Ethereum blockchain, they were an issue with The DAO itself.
Luckily, The DAO’s smart contracts specified that any invested ether that was withdrawn would be inaccessible for a period of 28 days. In some sense, the stolen money was transferred to a different ‘account’ which was not in control of the hacker. During these 28 days, the Ethereum community discussed the theft and debated how to resolve the situation. Three solutions arose:
- Do nothing. This option adhered to the philosophy that blockchains are immutable (unalterable). Flawed code in The DAO is what made the theft possible, and many felt that ‘code is law.’ Bailing out DAO investors would involve modifying the blockchain, and doing so would create both an unacceptable precedent and a moral hazard. Although the theft was unfortunate, taking action to undo the damage might undermine one of Ethereum’s core principles.
- Soft fork. A soft fork is a backward compatible update. In this case, a soft fork would freeze the hacked funds and allow the community more time to devise a strategy to solve the situation. However, the implementation of a soft fork to lock the hacked funds would introduce an attack vector for denial of service (DoS) on Ethereum. In layman’s terms, this solution would allow for an attacker to reduce the speed and performance of Ethereum.
- Hard fork. A hard fork is a non-backward compatible update. In this instance, a hard fork would transfer the stolen money to a new contract from which investors could withdraw their funds. This bailout option was subject to great controversy in the Ethereum community because it was not aligned with the immutable property of blockchains. To many, implementing a hard fork on the Ethereum blockchain would reveal a slippery slope — if the blockchain is altered for this contract, who’s to say it will not be altered for other contracts?
Ethereum Classic is Born
Ultimately 89% of Ether holders voted for the hard fork, and investors in The DAO were bailed out. The forked blockchain introduced new rules that allowed for the bailout and required upgraded nodes on the Ethereum network.
In reaction to this decision, people that voted against the hard fork formed a new community around the original Ethereum blockchain — the blocks from non-upgraded nodes. This is the community known as Ethereum Classic, and they strongly believe that:
- The network must remain neutral. In practice this means no tampering, censorship, or modification of the blockchain.
- Transactions are final, and code is law. As stated on their website, “the core value proposition of any blockchain is immutability.”
To learn more about Ethereum Classic, one should look to their foundational document, The Ethereum Classic Declaration of Independence.