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Understanding Ethereum Classic (ETC) and DAOs

Two Ethereums:

What began as an attempt to rescue investors funds in a high profile project has led to a schism that has effectively divided the community into the two longest block chains.

The division is not only psychological. Thanks to the design of public block systems, it is also technical, with competitive visions that are manifested in two very real blocks or versions of the project’s transaction history.

As of July 28, 2016 there are two groups working on two competing versions of a project called Ethereum, a platform based on a block chain designed to allow the development of decentralized applications.

If Bitcoin imagined how a distributed group of users could create and manage a currency, ethereum tried to allow a distributed group of users to create and manage a decentralized and non-objectionable application store.

However, there are now two slightly different versions of this platform available to users: ethereum, the ‘official’ version of the blockchain maintained by its original developers and ethereum classic, an ‘alternative’ blockchain maintained by a team brand new.

Both offer the same technology platforms, and according to the developers, they agree on a formal roadmap for the steps to follow. But, small differences have created two markets, both with a combined value of approximately $ 1.2 billion.

How do we get here?

Let’s start with The DAO.

The most notable project of Ethereum, the DAO, abbreviated to autonomous distributed organization, raised 150 million dollars in ether – the cryptocurrency of the Ethereum network – earlier this year during a public crowd. Taken online, anyone who had ether could participate. The idea was simple, in theory. Investors would send money to the DAO and receive voting cards, and then those who invested (and voted) would democratically decide how the DAO should disperse those funds.

Just as the votes began to be celebrated, however, the DAO was hacked, attacked or otherwise compromised, depending on their point of view. For some in the academic community, the first problems were evident and discussions about their seriousness had already begun.

But, all this was stopped when an individual or individuals used a valid action in the code to withdraw the funds to another DAO that he or she controlled. For the ethereum platform, the action was valid insofar as it could be executed according to the terms of the contract; To others who invested, it was a much more contentious action.

Leaving this behind, the Ethereum community finally held a vote, with most of the participants agreeing that they wanted to change the Ethereum code to return the funds to the investors – and away from the attacker.

Introducing Ethereum Classic

What happened next is that a small minority did not agree with this choice, and then took action.

Although most argued that block chains can and should be altered if there are enough people in agreement, other developers claimed that, to provide a solid story, a chain of blocks has to be resistant to censorship and free of manipulation.

Thus, instead of making the change when ethereum created a completely new block chain, the vocal minority continued to undermine the old version of the blockchain. Effectively, ‘ethereum classic’ is a parallel version of the chain of blocks where the funds were never returned to the ether owners who lost funds in the demise of the DAO. Ethereum, on the other hand, is a block chain that has moved those funds to another direction.

But this seemingly small disagreement had an inordinate impact.

“The Ethereum Foundation responded to the DAO debacle in the worst possible way,” reads the Ethereum Classic website, and explains more:

We believe in the original vision of Ethereum as a global computer that you can not close, executing irreversible smart contracts.

The project organizers followed a cryptographic manifesto outlining the rules that block chains were supposed to follow, including opening and, perhaps most vitally, immutability – the idea that once transactions are made , in this case a hack, Inverted

“Not all block chains are created equal,” reads.

And by staying in the unchanged version of ethereum, you are preserving these values.

Who is involved in Ethereum Classic?

The Ethereum Classic team currently has four developers, according to its main organizer, called Arvicco (it will not reveal its identity), but theoretically, anyone can join. Like Ethereum, Ethereum Classic is supported by an open source community.

A number of notable developers have also expressed interest in helping the Ethereum Classic project, including Ethereum CEO Charles Hoskinson (who left the team in 2014 on the differences detailed here).

What is important to note, however, is that the chain of blocks is not merely supported for ideological reasons. A growing number of ethereum miners have devoted computational power to the classical block chain, apparently, because they see a value in securing their transactions and earning the associated mining rewards.

At the time of launch, the hash rate of the network was 544 GH / s, or roughly 13% of the hashing power of the Ethereum network, which is possibly impressive given that the block chain has only been running for a few days.

Why is it profitable?

The question of what gives the value of classical ethers (ETC) is still pending debate, but in summary, it has value because people believe in the project, and those interested in supporting it can invest (or speculate) in the market now that is listed in the exchange houses.

Since Ethereum Classic is essentially a clone of the digital currency, ether owners can now earn money by making an account in the Ethereum Classic version of the block chain and double their profits.

As Ethereum Classic is a replica of the original blockchain, except for some key changes with respect to DAO transaction reversals, all those who had tokens in ethereum at the time of the fork now have the same amount of chips in Ethereum Classic. For merchants, this is essentially free money.

If you owned $ 100 of ether at the time of the split (when it was worth about $ 12), you would have had around 8 ETH, which means you now have 8 ETC, or an extra $ 16. However, those who had more ether, now they have a lot more free money.

This has since caused problems for the exchanges, since, even if they do not want to list classic ether tokens, they possibly hold what could be called customer funds anyway simply own the ether at the time of the split. But the main exchanges have picked up the ethereal alternative currency, so it is now possible to negotiate ETH for ETC.

Poloniex, an Ethereum exchange house, was the first. Kraken, Shapeshift and Bitfinex followed shortly after, which means that most exchange houses that support Ethereum now support Ethereum Classic.

There has also been the opportunity to benefit by switching between currencies, and a startup founder has even wondered if this is a new way of doubling the currency, a problem that the bitcoin chain was designed to solve, since it does not require central authority .

Who is impacted?

Ethereum holders in both block chains could be affected by “repeating attacks” if they do not “separate” their addresses correctly to differentiate them in each chain of blocks, which seems a complicated process for each individual user.

Since, again, much of ethereum classic is the same as the old network, most users with a balance in one of them can use it in the other, but this theoretically could result in some funny mistakes, such as moving backgrounds involuntarily in one of the Other networks.

Poloniex has decided to automatically take precautions for its users and the creator of Ethereum Vitalik Buterin suggested that ethereum classic update its code to solve the problem.

What does this have to do with Bitcoin?

Speaking of important takeaways, what happens with Ethereum Classic is the new vision that could be used in bitcoin.

The debate over the expansion of bitcoin block size, a rising technical limit on the size of transactions that the network can support, may not seem relevant to the division, but it is.

One point that Bitcoin Core developers continued to discuss during the long debate was that contentious hard-liners are dangerous and can have unexpected consequences, such as the division of a block chain into two competing block chains.

Many in the community, for example, the co-founder and CEO of BitPay Stephen Pair, think that the sudden popularity of ethereum classic proves that these were valid concerns.

Adding to the debate is that the ethereum hard fork was immediately marked as a success by many Ethereum developers and others in the bitcoin industry. For example, Coinbase CEO Brian Armstrong tweeted that they are not “something to fear that leads to multiple currencies.”

But this analysis could have been premature, and it indicated so much in a new post of his blog.

In a strange twist, some bitcoin developers seem to support ethereum classic for this very reason, if also to demonstrate what the potential risks of switching to a new blockchain in order to update the base of the code without consensus.

What does this mean for Ethereum?

Current attention on ethereum classic may fail, or it may not. Taking bitcoin classic as an example, the bitcoin classic subreddit remains active even if it never replaced bitcoin as its engineers intended.

There are two Ethereum that could continue to develop along different paths to the future.

For the moment, one of them has the same functionality that ethereum is supposed to deliver, mainly smart contracts that help build Twitter versions that are safe from censorship and decentralized autonomous organizations. But it is cheaper and more of a hassle to use without an ecosystem of development tools built around it.

Ethereum itself is also affected as some users and miners stay in the old chain, decreasing the total number of users and the security of the network.

Now that it has happened though, and ethereum classic exists, the community has tons of questions. These include whether there would be another bifurcation of the blockchain, or rewriting the code to reverse the transactions without almost unanimous consensus, is worth the risk, and if the developers of ethereum bifurcate again to solve a similar problem, would it split? again?

Either way, it’s not clear if the rise of ethereum classic is a bad thing for technology.

The protest of the block chain gave the minority the opportunity to build their own system, and some people think it is an exciting development.


Also published on Medium.

Published inCryptocurrencies

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