Ethereum Vs Ethereum Classic: All You Need To Know

Introduction

There are more than 10 thousand cryptocurrencies in the crypto market at present. Many of these cryptocurrencies share their monikers partially or fully with each other. If an investor is not careful, they may end up investing in the wrong currency.

Therefore, the investors need to investigate the real name of the currency. Furthermore, researching the connected names can help investors learn so many new things about the crypto and blockchain ecosystem. This article is going to discuss the ETH, ETC, digital currencies, and their origin.

What is Ethereum Blockchain?

The Ethereum blockchain is the second-largest cryptocurrency project in the crypto space. This blockchain has taken its core from the Bitcoin network. However, the Ethereum blockchain is unique because it can host other decentralized applications on its network.

The Ethereum blockchain was co-founded by a team of financial and programming experts, namely Vitalik Buterin, Gavin Wood, Charles Hoskinson, Anthony Di Lorio, and Joseph Lubin.

The blockchain gained the financial aid of venture capital firms like JP Morgan and Citigroup following a series of ICOs. This blockchain made its public debut in 2017, and later on, it led to the establishment of the Ethereum Foundation.

Ethereum as a Digital Currency

Just like the Bitcoin blockchain, Ethereum has also issued a core native currency named Ethereum. This digital currency is used to secure and perform transactions on the Ethereum network.

Ethereum coin has become the second largest cryptocurrency by market cap, and it is the most popular altcoin in the world. Ethereum coin also helps the Ethereum blockchain to maintain other decentralized applications and has the ability for staking on account of its PoS compatibility.

The Ethereum blockchain has also issued standards for the digital currencies known as ERC, which is known for Ethereum Request for Comment. The first ERC rule, named ERC-20, was issued in 2015, and there are many Ethereum-based digital currencies that incorporate this standard.

How does Ethereum Work?

The Ethereum blockchain is like a consolidated DeFi ecosystem. Developers can tether their independent cryptocurrency projects to the Ethereum network. The Ethereum coin is used to administrate and participate in the Ethereum DeFi network.

The users can purchase Ethereum coins to exchange with other digital currencies. They can also stake it or use it to make transactions or lending operations.

Ethereum blockchain allows other developers to create decentralized smart contracts. Smart contracts are automated programming protocols that can enact different functions if the conditions are met.

It means that smart contracts can remain active without any supervision or manual operator. Ethereum network used the PoW consensus mechanism in the past, but last year it transitioned into the PoS consensus model to save power and become more scalable.

However, the current Ethereum blockchain is a product of technical evolution that developed through several challenges to reach its current state.

What is DAO?

DAO stands for Decentralized Autonomous Organization. The function of a DAO is to operate an independent and automatic corporation. This type of programming protocol was created by Christoph Jentzsch in 2016. A DAO can work as an unmanned digital enterprise that users can interact with to gain access to services.

Since DAOs are based on the principles of carrying out different functions based on conditions met, it does not require any human intervention. A DAO is, in essence, an organized cluster of smart contracts that are operating on a blockchain network such as the Ethereum blockchain.

DAOs can contain specific requirements and penalties for a blockchain contract. The DAO is a specialized form of smart contract that is specific to blockchain ecosystems.

How does DAO Work?

DAOs are independent and decentralized. Therefore, they are fully transparent and wholly inclusive. Furthermore, DAOs contain foundational rules that enable them to act as a whole organization and perform services such as cryptocurrency liquidity pools, lending platforms, yield farms, DEX, etc.

DAOs, as a rule, should not have any human in charges, such as state regulators or private financial enterprises. Therefore, all the decisions on a DAO regarding operations are made through community voting.

The smart contracts that make up a DAO consist of all the rules, such as voting rights grants, eligibility criteria, requirements, etc. The members of DAO can also post new proposals for voting.

The proposals that get the majority votes are automatically incorporated into the DAO. All the foundational and administrative rules on a DAO are public, transparent, and editable. The users of a DAO community are also free to vote for adding new execution rules or removing/changing the existing ones.

DAOs require funding to manage their operational and development expenses. DAOs also depend on issuing governance tokens to keep track of their community members. The DAO native tokens are stored in the DAO treasury.

Limitations of DAO

There are some major flaws that are inherent to DAOs. One of them is that DAO prevents qualified participants from making governance decisions. Rather than distributing governance votes to the users based on their competence, the DAO grants voting rights to the users based on their governance token balances.

Therefore, the majority of DAO users could be faced with making a decision that they are not educated about. Furthermore, DAO is not a sustainable organization method.

It is not fully unmanned and requires a considerable level of human input, such as incorporating updates and adding security protocols etc.

A well-known technical setback for a DAO is Spilt Function. It is a programming error that takes place when the DAO allows users to withdraw support from the network. For example, when users want to opt-out of an Ethereum DAO, they can redeem their staked Ethereum coins and create a Child DAO.

However, the users cannot access their funds for a month. This delay is to make sure that the public ledger has time to fully update and everyone has been notified about the leaving member.

This delay was incorporated on purpose to ensure the safety of all DAO members. However, it played an important role in the DAO hack incident.

What is DAO Hack Incident?

It is important to reiterate that all DAO-related discussions are done in the context of the Ethereum blockchain for this article. To this effect, the DAO Hack incident is one of the most notorious blockchain hack attacks in history.

Thus far, we learned that the first DAO was incorporated into the Ethereum blockchain by its founder. However, in 2016 Ethereum blockchain was hit by an exploit that targeted the DAO.

As a result of this hack attack, around 11.5 million ether coins with an estimated value of $50 million at the time were siphoned off the Ethereum blockchain.

Such a massive amount of digital asset robbery made up one-third of the total circulatory supply of ether coins in 2016. The hackers were able to take advantage of a blind spot in Ethereum DAO that made it refund the same DAO tokens on loop.

At the same time, these repeated glitch transactions did not get added to the main Ethereum public ledger. The hackers were able to break in via DAO smart contracts that ignored a patch for a recursive call option.

Additionally, the DAO smart contracts were designed to refund all Ether coins before updating the new token balance.

What Happened After the DAO Hack Incident on Ethereum?

A $50 million Ether coin was a big bounty for the DAO hackers. Therefore, it took the threat actors sometime before they could run away with washing all their stolen bounties.

The hackers were unable to make away with the spoils of their exploit account of the 28-day rule that prevents the DAO users from accessing their funds after the withdrawal request.

This fortunate protocol grants Ethereum developers some time to salvage the network. On the other hand, the attackers stopped draining the DAO without any explanation.

As per Cybersecurity experts, the hackers were able to invade Ethereum blockchain through an unaddressed vulnerability in the DAO.

Nevertheless, these exploits inflicted massive damage to the Ethereum blockchain credibility. Therefore, the Ethereum developers rushed to regain control of the Ethereum blockchain and find a way to reclaim the stolen Ether coins that were part of the funding for the Ethereum DeFi developers. This is an important point in the history of the Ethereum blockchain.

The matter of solving the DAO exploit was a race against time for Ethereum developers. The devs were under pressure to find a solution before the 28-day withdrawal barrier. On the other hand, there was also the question of reclaiming as many of the stolen Ether coins as possible.

To this end, there were several proposals presented to address the issue. However, some of the solutions suggested making changes to the core Ethereum blockchain. Such proposals created a rift between Ethereum community members.

Some Ethereum purists believed that the blockchain was meant to remain immutable, which entails keeping it the same as its original form. This section of the developers also suggested that to preserve the genesis code, no changes should be made to the Ethereum code, and it should continue its journey forward.

On the opposite end, the other section was in favor of incorporating the hard fork to repossess the stolen Ether coins. It all boiled down to one of the most intense voting sessions on the Ethereum blockchain.

The vote leaned in favor of the hard fork solution, and Ethereum devs were able to return the marooned Ether coins to their rightful owners. The much-anticipated hardfork transferred the stolen Ether reserves to reroute to a safe address where the original owners were able to access it.

The aftermath of the whole digital warring resulted in forking or dividing Ethereum into two parts. The purists were able to remain afloat on the old Ethereum blockchain, which is known as Ethereum Classic, ETC. Meanwhile, the innovators migrated to an updated chain called Ethereum 2.0 or ETH.

How do ETH and ETC Work?

The Ethereum Classic ETC blockchain is an immutable part of the Ethereum blockchain as a result of a hard fork. To this day, Ethereum Classic is not compatible with new hard forks and retains its original form.

Meanwhile, the ETC also does not incorporate any new updates. This part of the Ethereum blockchain issues a token named ETC or Ethereum Classic coin.

Within the ETC network, the users are unable to edit transaction history. The users on ETC can track all the transactions without compromising their identification.

On the other hand, Ethereum 2.0, or ETH, has transitioned into a popular DeFi hosting network. On ETH, devs can create decentralized applications and smart contracts for performing different use cases.

As per Ethereum Foundation statistics, there are 1,652 dApps on ETH. The ETH has recently undergone the second most important upgrade called the merge, which helped it transition from PoW to the PoS consensus model.

Devs on ETH can earn one ETH coin for every new block addition and transaction fees by smart contract users. ETH supply is not capped, but it is limited to 4.5% per annum.

Similarities Between Ethereum Classic and Ethereum

Here are some of the important tangents between Ethereum Classic and Ethereum:

Decentralization

Ethereum Classic and Ethereum are both decentralized blockchain networks. It means that neither is under the control of a single financial or government supervisor or corporation. All the decisions on the network undergo the democratic process of voting.

The users can choose to become nodes or computers for both Ethereum blockchains. In this manner, the blockchain ledger is never under the custody or control of a single enterprise and can remain rotational in terms of its presence.

Smart Contracts

Smart contracts are automation protocols that are fundamental to both Ethereum blockchains. Smart contracts allow Ethereum blockchains to perform automated functions without active manual input or supervision.

Smart contracts are coded conditions that carry out services for the users based on their required obligations. Some smart contracts are also time sensitive, while others perform a complex calculation to execute or discard a command based on on-chain or off-chain data feeds.

Pseudonymous

Ethereum Classic and Ethereum 2.0 both allow their users to maintain their pseudonymous status. Rather than operating under their legal names, the users can create pseudonymous accounts on Ethereum blockchains to perform transactions.

Both blockchains use public keys to disclose the transaction details of their users. Meanwhile, the private keys ensure s that the name and other identification details remain clandestine.

Differences Between Ethereum Classic and Ethereum

Immutability

Ethereum Classic is wholly immutable and insists on keeping the core blockchain makeup as distilled as possible. The Ethereum blockchain, however, has been able to incorporate new updates and does not adhere to its immutability as steadfastly as Ethereum Classic.

Mining

ETC has stuck to its PoW mining option that is fashioned after the Bitcoin blockchain. In this system, computing machines compete with each other to solve the cryptographic puzzle first and earn transaction fees and blockchain rewards for verification.

On the contrary, Ethereum 2.0 has recently decided to transition to the PoS consensus model, where the verifying machine is selected by the blockchain through a randomizing protocol.

Total Supply

Ethereum Classic’s total supply is capped at 230 million tokens. However, the total supply for Ethereum 2.0 is infinite. To maintain the forces of supply and demand, the Ethereum 2.0 network keeps its maximum yearly ETH issuance at 4.5 percent.

Value

The Value of the Ethereum Classic token has been left behind by several paces in comparison to the Ethereum 2.0 coin. The reason for the increasing demand for ETH is its association with the latest dApps.

On the other hand, the Ethereum classic has lost its credibility among investors on account of a series of exploits. As of 2021, the ETH market cap was estimated to be $400 billion with a per unit prices of $3,400.

On the other hand, the ETC coin market cap was valued at $7 billion with a per unit price of $55 for the same duration.

Updates

Ethereum 2.0 is set to incorporate several new updates to its network. The network has recently undergone Merging, and it is set to incorporate new changes such as Sharding, etc.

On the other hand, Ethereum Classic has decided to retain its original form and deflect any changes.

Price Momentum

Both ETC and ETH stem from the same blockchain and development background. Therefore, many investors wonder whether they should invest in Ethereum Classic or Ethereum 2.0.

There is no definitive answer to this question, but Ethereum 2.0 has remained more popular on account of its increasing use cases and association with the latest dApps, such as Polygon.

Ethereum Classic is a preserved blockchain that retains the uncontaminated core Ethereum blockchain code.

Conclusion

Ethereum and Ethereum Classic are forked blockchains that are both present in the crypto market. With time, the comparison between Ethereum Classic and Ethereum 2.0 can help the developers conduct a detailed analysis of all the changes and measure the impact of upgrades on a blockchain network.

It is up to the cryptocurrency investors to find a suitable avenue for investing in either ETH or ETC, depending on their understanding of the market.

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