Defining Ethereum Classic
Ethereum Classic is a decentralized computing platform that runs smart contracts. The network consists of the main blockchain ledger, native cryptocurrency ETC, and an ecosystem of on-chain applications and services.
Ethereum Classic was formed due to an ideological and technical divide within the Ethereum community, following the infamous DAO hack on June 17, 2016. The attack drained 11.5 million ETH worth $50 million at the time, which represented about a third of the DAO’s funds.
The DAO contained roughly 15% of all ETH, so its failure was a huge setback for the Ethereum network and its value. The price of ETH dropped from over $20 to under $13 after the news of the attack.
Ethereum stakeholders (including miners, exchanges, and node operators) agreed at the time to create a new version of the Ethereum mainnet on July 20, 2016, at block 192,000 by implementing a hard fork.
The divide within the community led to the creation of Ethereum Classic, as a smaller subset of the stakeholders chose to preserve the principle of “Code is Law.”
From a technical point of view, Ethereum Classic preserves the unaltered history of the original Ethereum chain. This means it still retains a record of the DAO hack. On the other hand, the Ethereum network implemented a one-time fix for the DAO hack when it hard forked from the original blockchain.
Ethereum Classic kept most of the original technical features and architecture of Ethereum. It also continues to use the Ethereum Virtual Machine (EVM), the smart contract execution engine.
While it stores the original ledger and uses the technology of Ethereum, Ethereum Classic differs significantly from its sister chain in principle and future vision. Due to these underlying differences, Ethereum Classic will resemble Ethereum less over time.
How Ethereum Classic Works
Upon its launch in 2016, Ethereum Classic kept most of the original Ethereum technical features and architecture. It remains an account-based blockchain, as opposed to Bitcoin's UTXO model, consisting of external accounts and contract accounts.
Ethereum Classic also continues to use the Ethereum Virtual Machine (EVM), the smart contract execution engine. Ethereum Classic node operators and miners provide the resources application developers and network users need in exchange for gas.
Like on Ethereum, executing transactions on ETC requires gas fees. The fees are paid to miners for the computational power needed to make a user’s transactions go through. The gas limit is the maximum amount of gas users are willing to spend on a transaction, whereas the gas price is the cost users are willing to pay for each gas unit.
Ethereum Classic uses EtcHash as its Proof-of-Work (PoW) algorithm. New blocks are generated every 13 seconds, on average. On December 11th, 2017, the total supply of ETC was capped at 210,700,000 ETC through the Gotham hard fork upgrade. This added a Bitcoin-inspired deflationary emission schedule that is documented in Ethereum Classic Improvement Proposal (ECIP) 1017.
The most recent upgrade to the Ethereum Classic Mainnet is the Thanos Upgrade, ECIP-1099, on November 28, 2020. Among other things, Thanos allows miners with older, obsolete GPUs to continue mining on the Ethereum Classic network.
A Hack History
As a minority chain using the Ethash mining algorithm, Ethereum Classic experienced becoming a target of multiple 51% attacks, starting in 2019.
The first attack on January 9, 2019 was a successfully-executed chain reorganization attack, meaning that transactions were reversed or displaced across the Ethereum Classic network. Such a reorganization should be impossible on a secure chain.
Coinbase initially detected a deep chain reorganization of the Ethereum Classic blockchain. The number of reorganizations eventually increased to a total of fifteen, twelve of which contained double spends, totaling 219,500 ETC (~$1.1 million).
In 2020, Ethereum Classic suffered three more 51% attacks. The first one resulted in a successful double-spend of 807,260 ETC (~$5.6 million at the time) on July 31, 2020.
The second attack occurred less than a week later on August 6, 2020.
The final third attack on August 29, 2020 resulted in a large reorg of 7,000 blocks - approximately 2 days of mining. As a possible solution, the ETC Cooperative suggested switching from the Ethash hashing algorithm to either Keccak-256 or SHA-3, which would make Ethereum Classic less susceptible to similar attacks.
Ethereum Classic Adoption
Ethereum Classic has more or less lingered on the sidelines with regard to adoption, with a fraction of the adoption and utility of Ethereum. Ethereum Classic isn't a popular platform for decentralized applications (dApps), DeFi, or non-fungible tokens (NFTs). As of July 22, 2021 there are a total of 43 registered dApps on the Ethereum Classic network according to DappDirect.net. The highest performing dApp was Document Authenticity with 2,676 transactions in 72 hours by a single user.
In September of 2018, the ETCDEV team promoted SputnikVM, a universal and embeddable virtual machine for ETH-based networks, optimized for the Internet of Things (IoT). ETCDEV focused on improving the way information and value are shared in the digital economy for IoT. In the June 2018 edition of Grayscale’s research report, Ethereum Classic was introduced as a store of value commodity that can power the IoT. However, no real use cases or adoption have materialized as of July 2021.
On November 10, 2020 Ethereum Classic Labs, the leading supporter of the Ethereum Classic blockchain, made a call for new proposals in DeFi, Digital Sovereignty, and Financial Inclusion. This announcement came a week after Ethereum Classic Labs announced its intentions to integrate DAI into the network by creating a DAI-ETC Bridge with ChainSafe Systems. While the code has been shared on Github, the DAI-ETC bridge has still not been made operational as of July 2021.
Ethereum Classic has a few things missing: dev support and security. It doesn't have the vast developer support that helps Ethereum. The network also needs to find real use cases if it aims to be adopted as a smart contract platform like Ethereum.
Unlike the Ethereum network, which seeks to provide better scalability and higher performance, Ethereum Classic seeks to provide more security as a network. However, the security of Ethereum Classic’s network has become scrutinized in recent years due to rising accounts of successful 51% attacks on its network since 2020. This pressure may be alleviated as the price of ETC increases and the cost of attack rises.
The narrative for ETC straddles between functioning as a store-of-value, like Bitcoin, and as a commodity used for decentralized computation, like Ethereum. Ethereum Classic is a mixed bag of ideology and technology, but it needs to be able to secure itself from 51% attacks to even be considered a competitor to Bitcoin or Ethereum.