Since the crypto bubble, many investors have joined the markets. In 2017, we witnessed how dramatic changes can be, then the expansion continued.
Many investors believe there are a few coins like Bitcoin that haven’t leaped yet. If you could somehow find them, investing in these would create the best return.
But how do you find undervalued coins in such a volatile crypto market? There are hundreds of altcoins, all of them look promising, and very few of them break the barrier.
What Is Ethereum Classic, And Why Is It Valuable?
For years, investors have looked at Ethereum as the best candidate. Not only is it 100% functional, but it has kept decently high market prices for years.
Dapp developers consider this cryptocurrency essential for creating “unstoppable” applications. It’s an open-source, blockchain-based software to run smart contracts on distributed apps. Thus, programs can run without ever requiring human interference, or at least in theory.
Combine that with the many innovative minds who work on improving the platform(e.g., ETH 2.0.). It’s not surprising why it’s worth almost $400 per token.
But don’t confuse effective with infallible. In June 2016, we would witness a disruptive cyberattack that would divide the ETH community forever: the DAO attack.
What is the Decentralized Autonomous Organization?
At first, DAO sounded like a revolutionary smart contract. Investors could fund Dapps powered by Ethereum using DAO tokens, a decentralized venture capital fund. It proved so successful that they managed over $150 million worth of Ether within their first month. Here’s how it works:
- DAO token holders can vote for any of the approved Dapps. They will only take the funds if over 20% of the voters approve the proposal.
- A split function will opt you out of DAO and return your tokens in Ether. Investors use it when they disagree on an app that gets approved by other voters.
The problem, however, appeared in this smart contract. When receiving Ether, you have to hold it for 28 days before you can spend it. You could even turn it into “child DAO,” which has an almost identical structure (and vulnerabilities) to its parent.
When you request the split function, the platform exchanges DAO for ETH tokens and registers the transaction. But before they could register, the attack had set a recursive function to repeat the exchange non-stop. For the same DAO tokens, they had taken almost $50 million of the company’s funds.
Mind that due to their success, DAO was already holding a rough 15% of all existing Ethereum tokens. After the attack, Ethereum fell from $20 to $13.
It was clear that the system wasn’t safe, and they had to make some changes. The question is, what do you do with the stolen funds? Even though the hack succeeded, they still needed to wait 28 days before they could use Ether, which gave the founders a chance to think of solutions.
Believe it or not, some decided that the right thing to do was doing nothing. If you interfere, you would be acting against the intended purpose of smart contracts, which is to remove interference. If people see it’s possible to manipulate decentralized software, people will stop trusting them.
The Origins Of Ethereum Classic
Those who decided to keep events unchanged formed the new Ethereum Classic. They would assume the loss as their responsibility and continue with the original smart contract.
Of course, that doesn’t mean they didn’t make security adjustments. What matters is: “How can we make sure this never happens again?”
Naturally, many refused this ideology, which is why the other party took the official Ethereum name instead. The founder Vitalik Buterin and Gavin Wood chose to undo the transaction by forcing an update or “fork.”
Despite the ETC’s smart philosophy, one can never be sure that a system is 100% secure, so there’s always going to be risks of manipulation. The hack has already happened. Why not fight back?
The team found two solutions:
It started as the best update solution to lock down the stolen Ether. Users can choose whether to update or not and still interact with each other. The new features, however, won’t be visible in the older version.
Likewise, moving from the newest version back to the original causes the added features to lose. We call this a backward compatible update.
What the team found later on, unfortunately, is how vulnerable it is to DoS attacks. With the soft fork, any hacker can repeat the same trick done with DAO and generate endless requests.
By spending no money, the hacker can trick the miners by disguising a high gas price. They would work on infinite operations for no gas price.
The Hard Fork:
You can’t solve a hacking problem by creating a new one. Since soft forks presented as many problems as solutions, the team needed more direct interference.
Thus, the hard fork created two chains dividing the community: those who stack to the old rules and those who updated. This hard work separated both lines at block 1,920,000, right before the attack. ETC and ETH are born.
Today, ETC works independently with completely different updates to Ethereum. Its core principle? Code Is Law.
Who Runs Ethereum Classic?
Ethereum Classic Labs: Here’s the core group to develop the ETC platform and fund projects. ETC will continue to expand with this team as long as projects follow one principle: immutability.
Both IOHK and ECC work closely with ETC Labs, which is the primary development team.
But just as opportunities come up, so do the risks. In January 2019, their network suffered another 51% attack via double-spending. Upon such an event, everyone thought: is the network secure enough?
Atlantis: ETC’s Most Recent Update
One way to see it is that Proof-of-work models have this inherent risk: it could have happened to any coin. The difference is, ETC works with similar models to the actual Ethereum but with much smaller networks, thus making attacks easier to succeed.
The best way to prevent it is to add more nodes to secure the network. In any case, developers understood how necessary it was for a new ETC update.
Ironically, the same group who rejected the initial hard fork initiated the Atlantis Hardfork in September 2019. ETC Labs expects it to be a radical update in security and features to improve interaction with ETH developers. It also reduces the chance of 51% attacks.
So far, they’ve added over ten improvement proposals, which you can check here on Github.
ETC Or ETH?
There’s progress on ETC, especially this year. It may not have reached the level of ETH yet, but these updates facilitate cooperation among them, which increases those chances of surging.
Since the ETC-ETH battle started, Classic’s supporters have shared some concern:
Look at the division the cyberattack has caused. How can you guarantee a decentralized network? Will there be a new Hardfork every time someone cracks the code? If so, there may be multiple divisions of the ETH network.
The reason this shouldn’t worry us is, hard forks only apply in a decentralized manner, once most nodes have agreed on what to do.
ETC supports immutability as the only reason cryptocurrency works. If someone wants to undo a mistake, they must return all the rewards to the miners, but then it won’t have the same value. The best way to avoid such problem complexity is not to get involved.
By hacking the network, there is already manipulation. Founders could act as “ethical hackers” to restore it, but then it would be more centralized.
All in all, the current battle proves that there’s not a single solution to solve problems.
About ETC Performance
With the latest updates, Ethereum Classic will likely catch up with the top positions. It has consistently ranked among the top 25 for the total market cap, and its trading volume is roughly 50% lower than Ethereum.
Many of you may not have heard of ETC until recently because of how distant it looks from ETH in the market. But why is the difference so big?
Some think the reason it didn’t surge was the past 51% attacks. With the Atlantis update, combined with the so-called “progressive PoW,” that risk could become a thing of the past. If so, ETC would just be about to explode.
Now that it can cooperate with Ethereum developers, it wouldn’t surprise that this “dark horse” reaches similar prices to ETH soon. The question is, why would someone pick one and not the other?
Even though they share origins, both coins start to become different. ETC still bets on proof-of-work and byzantine protocols while Ethereum moves onto proof-of-stake. The decision will depend on your updated preference and ideology.
Although it hasn’t reached the same adoption as ETH, ETC is growing at a rate that shouldn’t be ignored.