Ethereum Classic (CCC:ETC-USD) has had a run similar to many established cryptocurrencies. The price soared thousands of percent in the 2017 boom. Then it dropped 90% down to its 2020 lows. Since then, ETC has gone wild, with the price rising as much as twenty-fold to hit new all-time highs earlier this year.
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Since that recent peak, ETC has lost roughly half its value. That’s no better or worse than many other major cryptocurrency projects. However, Ethereum Classic does differentiate itself in one big way. Rather than being its own unique concept, Ethereum Classic was born out of a contentious split in the Ethereum (CCC:ETH-USD) community back in 2016. At that time, Ethereum divided in two, with Classic becoming the minority blockchain.
Forks: A Mixed Picture
Historically, there’s been a lot of controversy around cryptocurrency forks. A fork is when part of a token’s blockchain decides to break off from the majority and implement different rules, governance, and any other changes the community or organizers want. In a way, a fork is a sort of statement of failure for a crypto project. If things had been going well, the collective probably would have reached an agreement to keep the community together. Instead, irreconcilable differences occurred.
When cryptocurrencies split up, it tends to engender incredible hatred and animosity between the two factions. Often, this bitter divide never improves. Look at the falling out between Bitcoin (CCC:BTC-USD) and Bitcoin Cash (CCC:BCH-USD) proponents, for example. You’ll rarely see a more passionate discourse than when aggrieved Bitcoin Cash holders go into a diatribe about how Bitcoin lost its way.
A lot of crypto investors tend to like forks, however. In one sense, it seems like getting something for nothing. Before the fork, an investor just held the original token. After the fork, that investor now holds both the original token and a new token of the split-off cryptocurrency. Some investors see this as a form of a dividend as well. If you sell off the forked currency, you get cash now while also holding your original position.
Despite those pluses, forks don’t have a great history. Many have gone on to largely disappear after the initial controversy around the fork fades.
Take something like Bitcoin Gold (CCC:BTG-USD) for example. Most people probably don’t even remember Bitcoin Gold. Bitcoin Gold hard forked off the main chain back in 2017 and was initially one of the largest market capitalization cryptos in the world. However, its price crashed in 2018 and never recovered. It is now ranked 67 in crypto market cap. Bitcoin Gold’s backers wanted to return the emphasis to decentralization, which they felt Bitcoin had lost sight of. However, as time went on, it became clear there were much better projects for decentralization than Bitcoin Gold, so its buzz disappeared.
Ethereum Classic’s Formation
To Ethereum Classic’s credit, it’s had a better run than forks like Bitcoin Gold. Ethereum Classic split off the main Ethereum chain back in 2016. Five years later, Ethereum Classic remains a top 25 market cap currency and still retains substantial interest and trading volume.
What caused the split? Back in 2016, hackers manipulated weaknesses in a Ethereum smart contract application called the DAO. This caused a major loss of funds. The majority of Ethereum users decided to roll back the hacked transactions, which undid the theft caused by the DAO hack. However, a sizable minority of the community rejected this fix. Those members continued to run the original Ethereum chain, which included the disputed transactions, and switched to the name Ethereum Classic to differentiate the project from the majority Ethereum chain.
Ethereum Classic: Living Off Its Past
Ethereum Classic has tried to establish its own community. It has developers and has moved in a new strategic direction, further differentiating itself from Ethereum.
The key difference now is in the form of protocol that it uses. Ethereum Classic has remained true to the original mission of Ethereum, and thus retains a proof-of-work model. This is the traditional mining model, such as is used by Bitcoin. Participants earn more coins in return for solving difficult cryptographic puzzles.
Meanwhile, the main line of Ethereum is planning to move to proof-of-stake soon. This gives up the electricity and computing-intensive proof-of-work model in return for using a participants’ own tokens as collateral with which to earn more rewards. Crypto purists claim that proof-of-stake protocols are inherently unsafe and stray from cryptocurrency’s original vision.
However, in the year 2021, the proof-of-stake side of the argument is winning. Elon Musk’s public complaints about Bitcoin’s excessive energy use have pushed crypto mining’s environmental impact into focus. This makes Ethereum’s move to a much more environmentally-friendly proof-of-stake model look brilliant. Meanwhile, Ethereum Classic is stuck using the old protocol. This looks increasingly out-of-touch with today’s preferences.
Ethereum Classic Verdict
There’s a ton of promising emerging cryptocurrencies out there. Amid the world of competition, it’s hard to get especially excited about Ethereum Classic. In fact, you can make a reasonable case that ETC is only well-known because of its origin story.
As Ethereum has risen to prominence, a related coin like Ethereum Classic can easily tag along for the ride. But make no mistake, most of the exciting things going on with decentralized finance (DeFi), non-fungible tokens (NFTs), and so on are happening with the main Ethereum currency. Ethereum Classic may continue to enjoy strong momentum thanks to its rival’s success. But, ultimately, Ethereum Classic needs to do more than share part of its name with a more successful rival to establish its own fundamental case.
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On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
