One could argue that Ethereum which was originally created is not the one we have today. That “first” Ethereum is now known as Ethereum Classic, with the “regular” Ethereum evolving beyond its original design. It wasn’t exactly a walk in the park, but luckily the key people were there to guide the network forward.
Let’s have a brief trip to the past to see how we got to where we are today…
The DAO
Ethereum’s ecosystem is designed to work on the basis of smart contracts. The DAO, which stands for the Decentralized Autonomous Organization, was a complex smart contract which promised to revolutionize (the original) Ethereum; it was designed as a decentralized venture capital fund that will be providing funds to Ethereum DAPPS. And those who wanted to vote on the matter did that with “DAO Tokens” which were sold for ether.
In order for a DAPP to be funded, it first had to be whitelisted by the curators, who are basically known figureheads in the Ethereum world. After they greenlight some DAPP, they turn to DAO token holders who vote with their money. If the proposal gets a 20% approval, it gets required funds to get started.
Things looked promising at start, with the DAO crowdsale managing to attract $150 million worth of ether. There was also the solution for those who wanted to quit at one point; for them the exit door called the “Split Function” was created that enabled users to get their ether back. This option, however, came with a caveat, requiring those users to hold on to their ether for 28 days before they could spend them. Also, the split function allowed the user to create his/her own “Child DAO.”
Some people saw this as a loophole, and what do you know — it was the reason why today we have the “regular” (more popular) Ethereum and Ethereum Classic.
The DAO attack
On June 17th, 2016 — someone exploited this loophole in the DAO and siphoned away one-third of the DAO’s funds. That’s around $50 million dollars!
The DAO exit function is designed to give the user back his/her Ether in exchange for their DAO tokens, then register the transaction in the ledger and update the internal token balance.
The hacker made a recursive function in the request, forcing the splitting function to do the following:
- Take the DAO tokens from the user and give them the Ether requested.
- Before registering the transaction on the public ledger, the recursive function made the code go back and transfer even more Ether for the same DAO tokens.
The function worked for some time until $50 million worth of ether were taken out and stored in a Child DAO.
The aftermath
The incident brought the price of ether down, with the entire Ethereum community finding itself in the middle of crisis and trying to answer the question – “what to do next?”
Some of them thought that the code is the king and they shouldn’t do anything, some thought of a soft fork, and there were also those who argued for the hard fork approach.
The middle solution (soft fork) was preferred by most users, but it brought along risks, namely Denial of Service attacks. So at the end, the majority of community opted for the hard fork, which in turn brought along a new currency — and that’s how we got Ethereum (ETH) which we have today. It coexists alongside the original and less valuable Ethereum Classic (ETC).
For what it matter, pretty much all original Ethereum heavyweights have moved to the new Ethereum, with some of them even openly bashing Ethereum Classic.
Ethereum Classic vs Ethereum
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Which one should you support?
There are no doubts here – Ethereum is the future.
Although Ethereum Classic is still being traded on many exchanges, it is nowhere close to the (new) Ethereum. Since it is older than many of the newer, and frankly more promising, cryptocurrencies – it is still worth more. But… in the long run, we can’t see it staying relevant.
While the market for cryptocurrencies is big (the entire world), at one point we will see it consolidating with only a few digital assets trading on a daily basis. We put our bets Ethereum will be one of those assets, alongside Bitcoin and few of the newer cryptocurrencies that have a clear use case.
That being said, smart traders can still make money with Ethereum Classic, but is it worth the effort knowing that you can lose it all? You be the judge.