Ethereum Classic is a decentralized smart contract-enabled network that aims to become a global payment system. Originating from the Ethereum (ETH) network, Ethereum Classic uses the Proof of Work (PoW) consensus mechanism and supports decentralized applications (dApps).
Ethereum Classic emerged after a split of the original Ethereum blockchain due to a 2016 attack on the first-ever decentralized autonomous organization (DAO), dubbed The DAO. The attacker exploited a flaw in The DAO's code and made off with $50 million worth of ETH at the time.
In the aftermath of the attack, 97 percent of the Ethereum community voted to create a hard fork to undo the malicious transactions and restore the blockchain to its pre-hack state. The hard fork, therefore, bailed out the victims of the attack.
Although a vast majority voted for the hard fork, a few community members disagreed due to philosophical and ideological differences. They argued that blockchains should be immutable, meaning that transactions cannot be reversed, upholding the "code is law" ethos.
After the hard fork, the old Ethereum chain was supposed to be phased out, but those who disagreed with the fork kept the network alive. This led to the genesis of Ethereum Classic, with ETC as its native token. Although ETH and ETC initially shared several similarities, the two networks have grown far apart regarding technological features.
Like Ethereum before its transition to Proof of Stake (PoS), Ethereum Classic utilizes the PoW consensus mechanism that Bitcoin first introduced. PoW enables a miner-based validation and emission system where participants are incentivized to confirm that new transactions do not contradict or invalidate the data existing on the blockchain.
In addition to the peer-to-peer (P2P) transactions that Ethereum Classic enables, it also offers smart contract functionality. As such, it is possible to host tokens and build dApps on the ETC blockchain. In other words, applications launched on Ethereum Classic can issue and manage their native tokens. This system is similar to the Ethereum blockchain.
ETC functions as the payment currency of the blockchain. It can be used to pay for fees, particularly when executing smart contract-enabled applications or transferring Ethereum Classic-based tokens. ETC also anchors the mining economy of the Ethereum Classic ecosystem. The network rewards miners with ETC whenever they add a block of transactions to the blockchain.
ETC price and tokenomics
Unlike most cryptocurrencies, ETC did not emerge via a public sale or other means of crypto funding. Instead, it was created due to a changing Ethereum landscape that birthed two independent blockchains.
After the split, the Ethereum Classic decided to implement some core changes in the emission system of ETC as part of the plans to solidify its status as an independent blockchain. After reaching a consensus on implementing an ETC monetary policy, the development team launched the Gotham update in December 2017. This update put a cap on the supply of ETC.
While there was no official maximum limit for ETC's total supply before the Gotham update, its implementation restricted the number of ETC that can exist to 210.7 million tokens. Also, the emission rate of ETC was modified such that the block reward reduces by 20 percent at every 5 million block intervals.
This move established ETC as a deflationary asset. The emission rate is designed to shrink over time in the hopes that its supply will gradually fall below the demand and boost the token's value.
The ETC emission reduction protocol implemented the first block reward slash on the same day the network deployed the Gotham update. As a result, the block reward awarded to miners was reduced from 5 ETC to 4 ETC.
In March 2020, the second ETC reduction event slashed block reward by another 20 percent to 3.2 ETC. In April 2022, another 20 percent block reward slashing (from 3.2ETC to 2.56 ETC) was implemented. Based on the 5 million block emission schedule, the next reward reduction event will occur in 2024.
About the founders
Ethereum Classic is the sister blockchain to Ethereum, as they both originate from the Ethereum blockchain initially launched in 2015.
In 2016, following the establishment of Ethereum's smart contract functionality, a protocol named The DAO emerged as the first-ever decentralized autonomous organization. The DAO was supposed to allow participants to pool capital and jointly decide on the projects they would support.
Due to the novelty of The DAO and the perceived viability of its use case, it raised $150 million worth of ETH during its crowdsourcing campaign. Unfortunately, there was a vulnerability in The DAO's smart contract.
Following the security incident that threatened the reputation of the original Ethereum blockchain, a majority of Ethereum developers and stakeholders opted to move to a forked or upgraded blockchain where the hack's impact would be eliminated. However, some miners and users decided to stay on the original Ethereum blockchain, which later transformed into the Ethereum Classic network.
