What is ETC?

What is ETC?

ETC is short for Ethereum Classic. Compared to its famous brother, ETH, ETC may not be that prominent. So what exactly is ETC, what is the story behind the birth of ETC, what is the similarity and the difference between ETC and ETH, and what is the recent change in the price of ETC? You’ll find all the answers in this article.

The birth of ETC

If you want to thoroughly understand what ETC is, you first need to understand the history of ETC. ETC was born from an accident encountered by Ethereum, and it is also a victory for the spirit of community autonomy.

The DAO - the first DAO in human history

In 2016, a decentralized investment fund, the DAO, appeared on Ethereum. Founded by a 32-year-old theoretical physicist, Jenzsch, the DAO is the prototype of all current DAOs (Decentralized Autonomous Organizations) and is by far the largest crowdfunding project in the world.

$DAO is the native token of the DAO. It has multiple functions including a governance token and a tool to gain revenue. The DAO raises ETH from investors and pays them a corresponding amount of $DAO. Users hold $DAO, which means they also hold voting rights, which allow them to have a voice in the operation of the fund through voting, and to obtain the income and dividend of the fund according to the $DAO they held.

The DAO seems like a new form of an investment firm, without a leader in the traditional sense, but operating strictly according to code rules under the control of smart contracts. This breakthrough in concept quickly attracted a lot of popularity and funds. The DAO’s crowdfunding journey went smoothly, raising over 12 million ETH within 28 days, reaching 14% of the total market circulation at that time, and the current price was as high as $150 million.

The shocking DAO theft

The good times didn’t last long. The DAO was attacked by hackers on June 17, 2016, just 20 days after it completed its crowdfunding. Attackers exploited a recursive vulnerability in The DAO smart contract to hijack more than 3.6 million ETH (accounting for 1/3 of The DAO’s total raised) and transferred the vast majority of them to the “Child DAO” they created. According to smart contract rules, it takes 27 days for these transferred ether to be withdrawn, so the community only had four weeks to find a solution.

After the theft, the Ethereum core team represented by Vitalik proposed three solutions. The first was to maintain the independence of the smart contract and the blockchain, without intervening in the incident itself, but, in this case, the losses caused by hackers could no longer be recovered; the second was to carry out a forward-compatible soft fork which could temporarily restrict the hacker from transferring the stolen funds by modifying the consensus protocol; the third was to perform a hard fork and forcibly roll back the transaction so that Ethereum could return to the state before the theft occurred.

At first, the majority of community members supported the soft fork. However, when the soft fork upgrade was about to be completed, it was found that recovering the losses through the soft fork upgrade could lead to the paralysis of the entire network. So, community members who insisted on recovering their losses had to fall back on the last resort—hard forks.

Divided opinions in the community led to the birth of ETC

But not all community members agreed to recover their losses through a hard fork. Some community members believed in decentralization and that the blockchain is resistant to supervision and cannot be tampered with. If a major public chain as large as Ethereum modifies the records on the chain in order to recover losses, it will undoubtedly impact users’ belief in decentralization. On July 20, 2016, after the Ethereum hard fork, those community members who did not support the fork (about 10% of all members) still insisted on mining on the original chain, creating new blocks, and maintaining the blockchain. They rebranded the original blockchain to Ethereum Classic (ETC), and ETC was born.

After this hard fork upgrade, the two new blockchains have been forked several times to avoid possible replay attacks. Although The DAO was stillborn, ETC survived. The hackers later sold more than 3.6 million ETC stolen, earning about $67.4 million, which became the heavy price of maintaining the immutable characteristics of the blockchain.

After the fork: ETC vs ETH

After the Ethereum hard fork when the two chains parted ways, ETC and ETH took very different growth paths.

Compared with ETC, ETH has won more consensus and is supported by more community members. With the support of a stronger development team, ETH has gained momentum rapidly, the ecology has grown at top speed, and the token price has also been rising. The original chain before the hard fork (ie ETC) should have been abandoned after the hard fork, thus becoming a “dead chain”. However, ETC survived and gradually developed its own community and ecology because some miners insisted on not migrating to the new chain (ie ETH) for mining.

Since the original on-chain records have not been changed, there are still many ETC fanatics who regard ETC as the “real Ethereum” and the current ETH as a forked chain. We can praise ETC for its idealistic spirit, but in terms of ecology, community size, and token price, ETH actually seems to be more representative of the “real Ethereum”. At present, the market value of ETH is around $170 billion, while the market value of ETC is $4 billion.

Source: tradingview.com

Since the two are essentially forked from the same blockchain, the technical similarities between ETC and ETH outweigh the differences. Both blockchains have good compatibility, and smart contracts or dAPPs on ETH can run normally on ETC, and vice versa. Thanks to the stronger development force of ETH, the ETH technology is updating faster, especially in recent years, the ETH community has been seeking to transform the blockchain consensus mechanism from PoW to PoS in order to make the blockchain system operate more efficiently. However, ETC is slow in its technology development, and still operates the PoW consensus mechanism which generates new blocks through computing power mining.

Both ETC and ETH use the same mining algorithm. This allows ETH miners to seamlessly migrate to the ETC ecosystem for mining. However, both have different sizes. As a result, sharing code with ETH is the source of doom for ETC. According to statistics, when the computing power of ETC is the lowest, the attacker only needs to rent 2~3% of the total computing power of ETH to carry out a 51% attack on ETC. In August 2020 alone, ETC suffered three 51% attacks, which also brought huge uncertainty to the stable development of the ETC ecosystem.

“Doomsday Chariot” or “The Return of the King”？

ETC is called the “doomsday chariot” by many people in the crypto community. When the market as a whole went down, ETC rose against the trend many times. Some people even jokingly called ETC a “contrarian indicator” of the broader market. In 2022, stimulated by the ETC halving and the ETH merger, the price of ETC witnessed two rounds of rapid climbs in March and July. The price multiplied.

Source: Coinmarketcap

ETC production reduction mechanism

ETH does not set an upper limit on the issuance of tokens, and the total amount of tokens in circulation is jointly controlled by issuance and burning. After EIP-1559 introduces the ETH burning mechanism and abandons the PoW mining mechanism, ETH may begin to deflate. ETC, on the other hand, has introduced a production reduction mechanism similar to Bitcoin halving (ECIP-1017) based on the PoW mechanism. Whenever the ETC network generates 5 million new blocks, the mining reward will be reduced by 20%, and the production of ETC will be cut about once every two years.

On December 12, 2017, ETC ushered in the first production reduction, and the block reward decreased from 5 to 4;

On March 17, 2020, ETC’s production was cut again, and the block reward decreased from 4 to 3.2;

On April 25, 2022, the third ETC production reduction was implemented, and the block reward dropped from 3.2 to 2.56.

This has also been one of the driving forces behind the doubling of ETC prices in March.

ETH computing power migration

Since the ETH merge and the adoption of PoS, the original PoW miners could not continue to mine on the chain, making the question of where the miners should go unresolved. On July 22, Vitalik expressed his opinions on miners at ETHCC, saying that ETH will not stop switching to PoS, and he said that if miners want to continue mining, ETC will be a good choice. The price of ETC rose in response soon after the speech, increasing by more than 40% in a single day.

Source: tokenview.io

Around the time when the ETH was merged on September 15, a large amount of mining power indeed moved to ETH, according to Tokenview. At present, the average daily computing power of the ETC network is around 200 TH/s. The growth of the computing power on the chain plays a positive role in the growth of the ETC chain ecology, and the ETC blockchain will also be more secure.

Conclusion

Since its birth in 2016, ETC can be regarded as a “veteran player” in the crypto space. ETC has gradually established its own community while maintaining the “immutable characteristics” and decentralized authority of the blockchain. However, ecological constraints have always hindered the further growth of ETC prices. Neither production cuts nor the influx of computing power can support the price increase in the long run. Only the diverse ecology and wide range of use cases can really back the token price.