What Is Ethereum Classic? – Forbes Advisor Australia

After the merge, there will be no more mining for Ethereum (ETH).

The leading altcoin has done away with its proof-of-work consensus mechanism and switched to proof of stake, so it no longer requires crypto miners.

But the miners are still well stocked with expensive crypto mining rigs, and they’re looking for a new gig. One of the biggest destinations for their skills is Ethereum Classic (ETC).

Let’s take a closer look at how Ethereum Classic compares with Ethereum now that the merge is complete and these two cryptos have gone their separate ways.

What Is Ethereum Classic?

One of the key attributes of cryptocurrencies is that they run on open-source software.

With open-source software, the community collaboratively develops and maintains the code. It’s shared publicly—and it’s not the property of any single person or company.

Contrast this ethos with the approach of Big Data giants like Google or Facebook, which develop proprietary code that cannot be publicly shared.

The open-source nature of crypto gives rise to the possibility that a blockchain may be “forked.” This is when a crypto community decides to make major changes to the codebase, which leads to the crypto’s blockchain—and its supporting community—being split in two.

Ethereum Classic was produced by a fork of the original Ethereum blockchain. Like many other blockchain forks, ETC was created following an ideological and technical divide within the community.

After the fork, the resulting ETC and ETH blockchains included identical past blocks, but they diverged going forward. Ethereum and Ethereum Classic may share a common past, but they are now two separate cryptocurrencies.

Ethereum Classic and the DAO

The fork that produced ETC took place in 2016 after a project known as the DAO—decentralized autonomous organization—launched on Ethereum.

The DAO was backed by $US150 million in crowdfunding, but there was a flaw in the code. Because of the flaw, hackers stole $US50 million from the DAO.

Due to the size of the hack, some in the Ethereum community proposed that the ETH blockchain should be reversed to compensate the exploited users. Others argued that this would set a worrying precedent and that blockchain should be immutable by its very nature.

A vote was held to settle the disagreement, and the pro-fork side received more than 85% of the votes. The ETH blockchain was forked, and the minority side maintained the original, unaltered Ethereum blockchain, christening it Ethereum Classic.

Ethereum vs Ethereum Classic

Ethereum and Ethereum Classic are pretty similar when it comes to basic functionality. Most of Ethereum’s major features are also present on Ethereum Classic.

But there are vital differences between ETH and ETC. Most importantly, Ethereum Classic is incompatible with updates to the Ethereum blockchain.

This was especially notable when the Ethereum blockchain completed its upgrade to a proof-of-stake consensus mechanism in September 2022. Ethereum Classic remained a proof-of-work system.

In the eyes of the Ethereum Classic community, the blockchain and code will always be immutable. It preserves the pre-merge, proof-of-work system. And that means miners are still required to validate ETC transactions.

Proponents of the merge and detractors of Ethereum 2.0 argue that a proof-of-work mechanism is more secure and decentralized than proof of stake.

Miners Move to Ethereum Classic after the Merge

After the merge, many miners have moved to Ethereum Classic, helping throw the smaller crypto into the limelight. The ETC hash rate, a measure of the total power being used by mining, jumped 280% in the aftermath of the merge, highlighting the extent miners have migrated to Ethereum Classic.

The main driver of this spike has been staking pools run by centralized companies. An Ethereum staking pool is a tool that allows multiple ETH holders to pool their tokens together to access validator status. Ethereum requires 32 ETH, roughly $44,000 at the time of this writing, to obtain a “set of validator keys.”

In August, the U.S. Treasury sanctioned Tornado Cash, a virtual currency mixer that helped obfuscate the origin and destination of funds on the Ethereum blockchain. The Treasury accused Tornado Cash of facilitating money laundering. This has shed further light on the concern with Ethereum’s proof-of-stake mechanism.

This news speaks to the ideological divergence between Ethereum and Ethereum Classic. Crypto purists favor a libertarian, censorship-resistant, decentralized model, whereas crypto pragmatists point toward the more adaptable and malleable nature of Ethereum as the way to go.

Advantages of Ethereum vs. Ethereum Classic

Most of the Ethereum community has backed the proof-of-stake conversion via the merge. Proponents cited a few big advantages.

First, the energy impact of the move will significantly reduce the blockchain’s energy consumption by as much as 99.95% from the previous proof-of-work consensus mechanism.

That means Ethereum Classic miners remain huge energy consumers. To put into perspective, Bitcoin mining is said to consume a quantity of electricity every year, slightly greater than Kazakhstan’s annual consumption.

Ethereum Classic also has disadvantages when it comes to scalability. Thanks to its less malleable code, crypto analyst are not optimistic that ETC can overcome the scalability issues, which are a big stumbling block to mass crypto adoption.

While scalability is also a problem for Ethereum, the community is working to improve the situation. Thanks to the much greater attention on Ethereum from developers—ETC’s resistance to change—it’s easy to see why Ethereum is so much more popular.

Ethereum Classic Price

Ethereum has moved from strength to strength over the years, becoming the second largest crypto by market capitalization after Bitcoin.

While ETH’s current market cap is $166 billion, forked ETC’s current market cap is a mere $4 billion. Yet despite being 36 times smaller than Ethereum, ETC still places in the top 25 cryptocurrencies by market cap.

Ethereum Classic has largely traded like smaller cryptocurrencies, and it’s tightly correlated but more volatile than Bitcoin and Ethereum.

The chart below plots Ethereum Classic’s price against Ethereum, showing that the price directions are similar, but Ethereum has always been worth significantly more.

This article is not an endorsement of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency as an investment class. 

FAQs

What is the value of Ethereum Classic?

Ethereum Classic has performed in the same vein of smaller cryptos and is widely regarded as more tightly correlated but more volatile than Bitcoin and Ethereum. As of September 2022, it enjoyed a market capitalisation of $3.8 billion.

Should I Invest in Ethereum Classic?

Given issues concerning scalability and energy consumption, as well as the continued mainstream adoption of Ethereum, it’s difficult to imagine Ethereum Classic ever gaining a foothold like Ethereum.

ETH is working to improve its drawbacks, while Ethereum Classic is staying largely the same.

The virtues of altering the code can be debated, but no matter how virtuous or immutable Ethereum Classic is, if it is not practical enough to be used on a global stage, it won’t ever gain the kind of traction that more suitable cryptocurrencies will.

The short-term effects in the aftermath of the merge and any idiosyncratic developments are harder to predict. ETC could easily go through short periods of outperformance.

In the long term, unless ETC solves more of its problems or there is an unforeseen negative development with Ethereum, the prospects for Ethereum Classic taking over the big stage is remote at best.

Of course, it’s up to you whether you invest or not.