Robert has reported for a variety of international publications including the Associated Press, The Guardian, Vice, and Decrypt. Current areas of interest include the political economy of technology, cryptocurrencies, and privacy. Robert has a Bachelor of Science from UCL, and a Master's degree from the University of Oxford's Internet Institute.
Ethereum Classic is an old version of Ethereum that, after some infighting within the Ethereum community, decided to go its own way.
Some people think that Ethereum Classic is the “true” Ethereum, while others believe that the blockchain that’s now known as Ethereum is the legitimate one. The market believes that Ethereum has trumped Ethereum Classic; as of November 15, 2021, Ethereum has a market capitalisation of $559 billion, while Ethereum Classic has a market capitalisation of just $7.3 billion.
But what’s the difference, and how can you invest in this alternative version of Ethereum? Read on to find out.Buy and Sell Bitcoin, Ethereum, and over a dozen other cryptocurrencies with Wealthsimple. Sign up and Trade here.
What is Ethereum Classic?
Ethereum Classic is the name of a blockchain. Blockchains are financial accounting ledgers that track the flow of digital, cryptographically secured coins called cryptocurrencies. These ledgers are maintained by an anonymous network of computers, known as miners or validators. Networks like Ethereum Classic, Ethereum and Bitcoin are secured by independent miners; these are powerful computers that validate transactions on the networks by solving complicated maths puzzles.
Mining, also known as proof-of-work is an energy-intensive process, and some economists argue that Bitcoin mining alone sucks up 0.5% of the world’s electricity (this figure, however, is highly contentious and difficult to prove). But mining is crucial to powering these decentralised networks; by pledging something valuable, electricity, they have shown that they have skin in the game and can be considered to be trustworthy actors.
Ethereum Classic is the original version of the Ethereum blockchain. Ethereum was created in 2015 by a team led by Vitalik Buterin, a Canadian who emigrated from Russia as a child. He learned about Bitcoin from his dad, a computer scientist called Dmitry, and set off on creating a blockchain that could do one thing Bitcoin couldn’t: host decentralized applications. These applications run on something called smart contracts; these are self-enforcing bits of computer code that can be triggered by cryptocurrencies. Ethereum also allowed for the creation of tokens: cryptocurrencies that are backed by Ethereum’s mining technology but are otherwise unaffiliated with the blockchain.
According to DeFi Pulse, Ethereum’s decentralized applications host well over $100 billion dollars, and power applications as diverse as decentralized lending protocols and non-custodial exchanges. You may have heard of a special type of smart contract popularised by Ethereum: it’s called a non-fungible token, or NFT. These are unique tokens that can represent something other than money, like art or a short video. One of these tokens bore the work of a digital artist called Beeple. It sold for $69 million in early 2021.
The thing is, most of this activity happens on what we now know as Ethereum, and not Ethereum Classic. This is because of a failed attempt to do something that is commonplace on Ethereum right now, and a topic du jour: creating a decentralised autonomous organisation. Also known as DAOs, these are essentially decentralised public companies. But true DAOs are like cooperatives: there are no leaders, and people can buy shares in the DAO (a little like buying stock in a public company) and then use those shares to vote on what the DAO should do.
These days, DAOs control hundreds of billions of dollars. All the top decentralized finance protocols delegate decisions to DAOs: Aave, Compound, Maker and Uniswap have one, and they are responsible for pretty huge decisions. A vote on Maker, a decentralised stablecoin protocol that issues cryptocurrency loans to back the value of its currency, almost collapsed in March 2020 after the coronavirus sent markets tumbling. But the community saved the day when they voted to back the currency with a larger stablecoin called USDC. Since then, Maker’s stablecoin, DAI, has grown by more than 10 times, and now has a market capitalisation of $6.4 billion. Not bad for a bunch of strangers who used magic internet currencies to coordinate on a major financial decision.
But the original DAO was such a massive failure that it sparked the rift between Ethereum and Ethereum Classic. The first DAO, simply known as The DAO, started in 2016 on Ethereum. The idea, put into practice by a German company called Slock.it, was that it would become a sort of venture capital for the Ethereum blockchain—not unlike how DAOs run today.
Investing in the DAO was quite simple: people would use their ETH coins (the native currency of the Ethereum blockchain) to buy DAO tokens. Then, they could use those tokens to vote on how the DAO should invest in other crypto projects. In the project’s own words, this would allow for “the creation of organizations in which (1) participants maintain direct real-time control of contributed funds and (2) governance rules are formalized, automated and enforced using software.”
The premise of the original DAO was so easy to understand, and its marketing so effective, that it sucked up huge amounts of ETH. According to The Economist, it held about 14% of all circulating Ethereum tokens just a month after launch, or about $150 million at the time. Crypto exchange Gemini says that 11,000 people invested in it.
But on June 17th, 2016: calamity. Hackers managed to exploit a vulnerability in the DAO’s smart contract and stole about $50 million, or a third of the tokens held within its smart contracts. This vulnerability had been well documented a while before, but the project grew too quickly and had already raised a huge amount of money before people could fix it.
This presented the Ethereum community with a massive problem: a hacker had just stolen a huge amount of the value of the network.
Some people wanted to just carry on business as usual. Hacks happen, and the network would bounce back, they hoped. In any case, “code is law”, they argued, and what happened within smart contracts shouldn’t be erased by human interference. That’s why people created blockchains in the first place, after all.
Others wanted to scratch the transactions from the blockchain and sweep the hack under the rug. The network was young enough that just…moving on from the DAO was a viable solution. Ethereum’s co-founder, Vitalik Buterin, was among those who thought that rolling back the blockchain was a good idea.
The thing is, Etheruem is a decentralized network, and not even Buterin can just erase transactions from the blockchain. On Ethereum (and without a DAO!) the only way to effectively vote on something is to fork it. This entails copying the code of the Ethereum blockchain, its ledger included, and just…starting again somewhere else. Miners could back either blockchain and still mine their respective coins, and developers were free to build on whichever blockchain they agreed with.
So, the whole palaver went to this kind of vote-with-your-feet election in July 2016. The results were profound: Ethereum Classic is the name of the original, unedited blockchain, and Ethereum is the name of the fork.
Ethereum and Ethereum Classic marched on with very different communities. The next week, something called “The Flame Wars” started, when vitriolic partisans from either site trolled each other in subreddits. Shortly after, they created their own social media channels. After a couple more cyberattacks on the Ethereum Classic network, both blockchains remained resilient.
Exchanges, starting with Poloniex, began to list both of the coins. Ethereum Classic, also known as ETC, has its own coin (also called ETC), and Ethereum continued on with ETH. Coinbase listed ETC in 2018. The DAO funds were unlocked on August 31, 2016.
Ethereum Classic has since been plagued by a string of 51% attacks, where the network is briefly controlled by a single entity who manages to control over 51% of the network at one time and can thus influence the future of the blockchain. But so far, it’s still standing.
Ethereum is the larger network, and lots of changes are coming its way. Most prominent is the upgrade to Etheruem 2.0, which will switch the network to a proof-of-stake mechanism, ending the energy-intensive years of proof-of-work. It’ll also increase its scaleability and make transactions far cheaper.
How to buy Ethereum Classic
Now you know the story of Ethereum Classic, how can you invest in its coin? Well, handily it’s pretty much the same process as buying any other cryptocurrency. The easiest way to buy Ethereum Classic is on a cryptocurrency exchange. At the time of writing, Wealthsimple (technically a brokerage) does not offer it.
To buy Ethereum Classic on an exchange, you’ll have to sign up for an account with an exchange that lists it. You can find the largest markets for the coin on the ‘markets’ tab on price aggregators like CoinMarketCap and CoinGecko. According to CoinMarketCap, the largest market as of this writing is for Binance’s USDT pair, which sucked up 7.2% of volume in the past day, or $49 million. Binance is not available in Ontario, as of this writing. Other major exchanges that offer Ethereum Classic include Bithumb, Huobi Global and Coinbase. Newton, a major Canadian crypto exchange, does not list it.
To create an account to buy ETC on a regular crypto exchange, you’ll usually have to submit some form of identification, like a driving license or a passport. Once it’s all verified, you’re good to trade. To trade, you’ll first have to deposit some money or cryptocurrency onto your account. You can usually wire money onto these exchanges directly from your bank account, but note that deposits are not insured by government deposit schemes, like banks are.
You’ll then have to buy a currency that is paired against Ethereum Classic. The most common pairings for Ethereum Classic, according to CoinMarketCap, are Tether (also known as USDT, a controversial stablecoin pegged to the US dollar), the Korean Won (on Bithumb, a South Korean exchange), the US dollar (on Coinbase) and Bitcoin. Aside from the Korean Won pairing, this is standard fare for most coins. The pairings depend on the exchange; you can find out which coins are paired by Ethereum Classic by searching them on the trading page.
Once you’ve bought a sufficient amount of the cryptocurrency or fiat currency that trades against Ethereum Classic, it’s time to buy your coins. The simplest way of doing this is to execute a ‘spot’ trade, which lets you buy at the market rate on that exchange. You’ll have to pay a trading fee on the exchange, and all exchanges are different. You can also place a ‘limit’ order, which lets you buy the coin at a specific price. This is useful when you want to, say, invest in a dip or sell the coin when the market is performing well.
It’s a good idea to take your coins off the exchange once you have finished trading. This is because cryptocurrency exchanges are scarcely regulated, and might not have insurance policies in place to cover you in case they collapse. The crypto industry has had its fair share of scams and hacks, too. QuadrigaCX customers lost all their money after their founder died; it later emerged he had been misappropriating customer funds. Einstein Exchange is another example of a Canadian exchange that went bust after its founders allegedly mishandled their customers’ deposits.
Each exchange will charge a different withdrawal fee. But where to withdraw to? Well, there are two options. The first is to withdraw to a wallet that sits in your web browser or phone, like Trust Wallet. The second is to withdraw your funds to a hardware wallet. These are little sticks that plug into your computer. Unlike web wallets, they’re not connected to the internet at all times, making them slightly more secure. Popular examples of hardware wallets include Ledger and Trezor.
Note that because Ethereum Classic is different from Ethereum, you can’t use it in Ethereum’s rich network of experimental decentralized finance applications. The coin’s economy is also independent of Ethereum’s price, and a crash in Ethereum might not trigger a crash in Ethereum Classic (and vice versa).
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