Profiling the Elevatyr Core 12: The Story of Ethereum Classic
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Ethereum (ETH) and Ethereum Classic (ETC) are for all intent and purposes identical.
On a technical level, Ethereum is a hard fork of Ethereum Classic, which split after a hack on “The DAO” in 2016.
The DAO
A DAO, Decentralized Autonomous Organization, is a business built entirely with smart contracts that runs on its own with input from users, and no central authority.
“The DAO” is the name a particular DAO, which raised over 150 million dollars in June of 2016, the largest crowdfunding in history at the time. Developed by a dedicated team of blockchain entrepreneurs, the goal of The DAO was to create a large crowd-sourced fund of Ethereum that would be used to invest in new decentralized applications. Participants in the crowd-funding, the community, had voting power to play a role in deciding what companies and projects The DAO would support.
The Hack
As participants in the sale patiently waited for the new DApps to cast their votes, The DAO was attacked by a lone hacker. They exploited a recursive call bug in the code, draining the DAO of 3.6 million Ethereum, around 15% of the all the Ethereum in the world at the time.
To be clear, The DAO’s code was targeted by the hack, not the Ethereum blockchain itself, which has never been breached, as of publishing, and which is designed with numerous safeguards to prevent such a vulnerability.
The only way the hacker could retrieve his funds was by funneling them into a “child DAO”, an identical copy of The DAO where he was in charge. The DAO team had a waiting period before any of the funds could be accessed, and this waiting period was copied over to the child DAO.
With only 28 days before the hacker would be able to access his funds, per the smart contract’s specifications, the Ethereum Foundation and The DAO team met up to find a solution.
The Options
There were two options; a soft fork, which was a one-time fix, would freeze the funds in the attackers account and continue using the same chain with a smaller supply of Ether (Ethereum), or a hard fork that would would return all funds to those invested in The DAO without needing miners to go back and change transactions in individual blocks, effectively hitting the reset button, but needing a new chain.
Forks are changes to the open source code of a project. A hard fork is a change where the new version will not be compatible with the old version and a soft fork is one where it will. Thus, both choices were controversial, with many community members especially concerned about the hard fork option.
The debate split the Ethereum community into two separate factions; those who were for the hard forking of the currency in order to return the stolen funds and those who believed that undoing transactions defeats the purpose and integrity of an immutable blockchain.
It is here where we can see the beginning of the divergence between the Ethereum Classic and Ethereum communities.
The Response
Days before the soft fork was to be implemented there was an exploitable bug found in the code and implementation was halted for security reasons. With only days left before the attacker would be able to access his stolen funds and sell them, the Ethereum Foundation put the hard fork to a community vote where ETH holders could all vote on the future of the currency.
An overwhelming majority (89%) voted to hard fork the currency and all of the stolen funds were returned.
The Divide
The Hard Fork split the chains of blocks being processed, and now the community members on the new chain use the second largest platform for smart contracts and decentralized applications, known as Ethereum with currency ETH.
The minority who voted against the forking of the currency continue to use the old chain and have rebranded the currency as Ethereum Classic, currency ETC. The old system continues to run even though the market cap of ETC is only 1/50 that of Ethereum at this time.
The Argument
The argument for deciding which currency is the “true” Ethereum is one of Philosophy Vs. Practicality.
As mentioned in our earlier Ethereum article about the fundamental technology behind the platform, a smart contract is supposed to represent a real life contract, once both parties “sign”, it is a legally binding agreement. In the case of this hack, the coder took advantage of a smart contract that did not execute as intended, but did work according to the code contained within. Some in the community believed that the hard fork workaround essentially negated the smart contract, undermining the fundamental philosophy of a trustless system and the inherent value of smart contacts. Ethereum smart contracts are executed by their protocol and are supposed to be trustless, but in this case they weren’t.
ETC
To this point, the community behind ETC believed that there were problems with how this situation was handled.
A case can be made that the “hacker” and The DAO both willingly signed a contract, and The DAO essentially neglected to read the fine print.
ETC holders widely believe that the purpose for using immutable ledger technology for transactions is that they can’t be undone. The blockchain should make you fully responsible for your funds and what you do with them.
Part of their philosophy is that digital actions are supposed to have real world consequences, and when you sign a contract in the real world with a loophole that gives the other party all of your money, you don’t have the luxury of deciding not to pay.
A lot of community members have lost faith in the Ethereum Foundation because they stepped in to made changes to their source code to fix a problem in a scenario where Ethereum itself was not compromised, and many Ethereum holders weren’t effected.
Ethereum supporters argue that the platform’s commitment to decentralization was upheld by allowing the community to make the final decision on the fork via the vote. Empowering the community to vote removed the responsibility of the decision from the Ethereum Foundation, diluting it across the entire network.
However, not everyone was in favor of the choice to put the issue to a vote, arguing that it set a dangerous precedent that could lead to future interference into the working of smart contracts. In their view, the community could in theory invalidate any smart contract, providing a simple majority consensus was reached. This means a relatively small, but well organized group of actors in the network could initiate future hard forks and other platform changes, exploiting this arguable vulnerability.
ETH
From the Ethereum Foundation’s point of a view, adapt or die. And regardless of either, let the community decide.
The cryptocurrency world is not all roses. There are hacks happening or being attempted 24/7, and there is no safety net. If you’re currency is compromised or the public loses trust in your ability to operate as you currently are, then it will be almost impossible to gain that trust back.
The attacker in question took about 15% of the total Ethereum supply. Not enough to destroy the project, but a huge issue to a currency still in its infancy and a red flag for any developers in the space looking to get involved.
It is very possible that if nothing was done, the attacker would have slowly sold off his Ethereum back into the ecosystem and gotten away with his money. Then again, it also very possible that in the same situation the attacker could have used his funds to maliciously affect the ecosystem, undermining the system as a whole.
Regardless of which side is right or wrong, the blockchain community seems to be focused on the intertwining of the digital of physical worlds. Tokenizing assets, writing smart contracts, using digital currency for real purchases.
While, Ethereum putting the hard fork to a vote, and violating the trustworthy element involved in connecting the two worlds, may not have been ethically right, the decision cleared the path for a massive amount of innovation that might not have occurred without the survival of the Ethereum platform. Only time will tell if ETH or ETC prove to be the “real” Ethereum. Either way, the world stands to benefit greatly from this powerful new techonology.
Ethereum Classic and Ethereum can be traded on select cryptocurrency exchanges, and will be available for trading via Elevatyr, which will be entering an early access period in July. Visit https://www.elevatyr.io/ to sign up for the closed beta waitlist, and to learn more about how Elevatyr is the simplest way to intelligently trade cryptocurrencies.
For those interested in learning more about Ethereum Classic, you may visit Ethereum Classic’s website at https://ethereumclassic.org/
Disclosure: This article does not represent an endorsement of the Ethereum Classic or Ethereum cryptocurrencies as an investment, and is for informational purposes only. Trading decisions should be made on an individual basis, and be informed by independent research. Elevatyr makes no recommendation as to trading behavior that should or should not be taken. The author of this article owns a small stake of Ethereum Classic and Ethereum cryptocurrencies.
