The DAO hack gives rise to Ethereum Classic
The DAO hack and resulting hard fork split the Ethereum network into two separate chains: Ethereum and Ethereum Classic (ETC). The DAO was an Ethereum-based venture fund that managed to raise ~$150 million in Ether in an April 2016 initial coin offering (ICO). A few months later (July 2016), an attacker exploited a bug in one of The DAO's smart contracts, enabling the hacker to steal 3.6 million ETH of the funds collected in its ICO.
A divide in the community formed around how to resolve the issue. One camp believed reverting the chain, thus erasing the hack from the network's history, was necessary to preserve the longevity of Ethereum. The other side reasoned mutability was antithetical to the ethos of crypto networks and refused to accept a ledger rewrite. The divide led to a contentious hard fork at block 1,920,001, and the legacy chain that did not reverse its transaction history rebranded to Ethereum Classic.
Before the DAO fork split the original Ethereum chain, there was just one group of users, service providers, developers, investors, and other network participants. The hard fork or "irregular state change" split not only the protocol layer but also the social and application layers. As the legacy chain, Ethereum Classic inherited the components outlined within the Ethereum whitepaper. At the time of the fork, Ethereum Classic was still identical to Ethereum regarding these original components. However, it soon began to diverge away from Ethereum by announcing its own roadmap and vision.
Philosophy and monetary policy change
The Ethereum Classic (ETC) community stresses the core principals of censorship resistance and (most prominently) immutability. And as a continuation of the Ethereum blockchain, it features a Turing-complete smart contract language to support the development of more complex decentralized applications (dApps). The Ethereum Classic community governs the network by the motto "Code is Law," which instills the belief that ETC transactions and dApps are truly censorship-resistant and immune to any third party interference.
ETC later (March 2017) adopted a new, Bitcoin-like monetary policy fit with a fixed supply cap and disinflationary emission schedule. The proposal drastically deviated from the original Ethereum monetary policy, which remains in flux as Ethereum core devs look to establish a more concrete economic model for its future Proof of Stake (PoS) network. Instead of monetary flexibility (and some uncertainty), Ethereum Classic now features a max supply of 210,700,000 tokens and miner reward reductions every five million blocks. And unlike Ethereum, the community intends to stick with Proof of Work (PoW) as its consensus and token issuance mechanism.
Development teams and future developments
ETC's structure varies from most blockchain projects, incorporating multiple development teams (IOHK, ETC Labs, and ETC Cooperative), each with their own goals. In general, most of these teams have focused on providing sidechain scaling solutions, improving development tools (SDKs), and promoting cross-chain transactions so others can build on Ethereum Classic. Some of these efforts, including Connext's state channels and ChainSafe's bridge to Ethereum and Cosmos SDK-based chains, have already launched.
ETC is one of the few cryptocurrencies where investors can gain exposure to it through a traditional brokerage and or retirement account. Grayscale Investments created an Ethereum Classic Investment Trust (ticker ETCG) that allows investors to gain exposure to ETC without having to store or secure it directly.
As a minority chain using the Ethash mining algorithm, Ethereum Classic has been the target of multiple 51% attacks. The first attack occurred in Jan. 2019, when crypto exchange Coinbase detected a deep chain reorganization of the Ethereum Classic blockchain. The number of identified reorganizations eventually increased to a total of fifteen, twelve of which contained double spends, totaling 219,500 ETC (~$1.1 million).
In Aug. 2020, Ethereum Classic suffered three more 51% attacks. The first one resulted in a successful double-spend of 807,260 ETC (~$5.6 million at the time). The second attack occurred less than a week later and exhibited a similar reorg depth (about 4,000 blocks). The final Aug. 2020 attack resulted in a large reorg of 7,000 blocks, but there is no sign of a double-spend attempt as of yet. As for a possible solution, the ETC Cooperative would like to switch Ethereum Classic's hashing algorithm from Ethash to either Keccak-256 or SHA-3, which would mean Ethereum Classic would no longer be a minority chain and would potentially be less susceptible to similar attacks.
Ethereum Classic (ETC) kept most of the original Ethereum technical features and architecture. It remains an account-based blockchain (as opposed to Bitcoin's UTXO model) consisting of external accounts, which are controlled by a user’s private keys, and contract accounts, which are managed by contract code. External contracts can create and sign messages to send to both types of accounts, while contract accounts can only execute transactions automatically in response to a message they have received. The latter are what are known as smart contracts and enable the programmability of decentralized applications (dApps).
Ethereum Classic also continues to use the Ethereum Virtual Machine (EVM), the smart contract execution engine. It is a Turing-complete virtual machine featuring a specific language “EVM bytecode,” typically written in a higher-level language called Solidity or others such as the Python-based Vyper. Every operation on the EVM requires computational effort and memory. Ethereum Classic node operators and miners provide these resources to application developers and network users in exchange for gas.
The fee to make transactions or execute smart contract operations on ETC is (gas price) * (gas limit), and fees are paid to miners for including your transactions in a block. The gas limit is the maximum amount of gas users are willing to spend on a transaction, whereas the gas price is the cost users are willing to pay for each gas unit. A normal transaction on the network costs 21,000 gas but costs more if you are trying to execute something more complex as that requires more computational power. Users can also speed up their transactions by raising the gas price since that will incentivize miners to include the transaction(s) in the next block to receive those fees.
Ethereum Classic (ETC) uses Ethash as its Proof-of-Work (PoW) algorithm. New blocks are generated every 15 seconds, on average, and the current miner reward for each new block found is 3.2 ETC which is reduced by 20% every 5 million blocks (about 2.4 years). ETC will be mineable until around 2070 when miners will reach the soft supply cap of between 210 million and 230 million. In addition to miner rewards, ETC rewards miners for discovering “uncle blocks”. Uncle blocks are valid blocks that arrived too late, meaning another miner already solved the PoW and claimed that block height's reward. This practice aims to decrease mining centralization, reduce the chance of unintentional forks, and boost network security. Every new block can contain at most two uncle blocks. Uncle block rewards are 3.125% of the miners' reward or 0.125 ETC.