● Intermediate Crypto Basics

Ethereum vs. Ethereum Classic: What's the difference?

8 minutes 2 years ago

Since Bitcoin began the blockchain-based cryptocurrency revolution back in 2009, there have been many attempts to create other forms of cryptocurrency - some seeing success, some not. Arguably leading this charge is Ethereum which is second only to Bitcoin in market capitalisation. Since the initial creation of Ethereum, much has transpired. This changed its projection and spawned a forked blockchain, which drove the creation of Ethereum Classic. In this article we'll explore how Ethereum began, the events that lead to a hard fork creation of a second Ethereum blockchain and how each coin differs from one another.

Ethereum - a worthy contender

In 2015 a group of blockchain enthusiasts created Ethereum with the intention of offering the security and tamper-proof nature of a blockchain-based platform to developers. This allowed them to create smart contracts and applications without the need for a third party. This is differentiated from Bitcoin which was developed simply as a way to trade currency.

Smart contracts are terms of a transaction written directly into code. This allows for these transactions to take place between anonymous parties completely decentralised and independent of a third party. These smart contracts are actioned automatically once the terms of the contract are met.

A fork in the road

Things were going well for the creators of Ethereum and the blockchain-based platform seemed to be going from strength to strength. This was until 2016, when a cyber-criminal managed to exploit a weakness in the smart contracts being used for a crowdfunding campaign.

A promising idea was developed to resolve this exploit, whereby a decentralised autonomous organisation (DAO) would be born to allow investors to essentially vote on which apps and projects should be developed on the Ethereum platform. In order to allow investors to withdraw their support from certain projects, there had to be a way to return their Ether. Because of this a weakness was built into the platform and in-turn exploited and millions of dollars worth of Ether was withdrawn from the DAO. Whilst there was a second protection that stopped the cyber-criminals from being able to access the Ether and the weakness was within the DAO blockchain and not the Ethereum platform itself - the damage was done.

It was determined that the best way to separate from this reputation-damaging incident was to create a hard fork which created a new blockchain to continue as Ethereum (ETH) and invalidate the old blockchain which would now be known as Ethereum Classic (ETC).

The differences between Ethereum and Ethereum Classic

Both remain popular, with supporters of Ethereum Classic maintaining that the purpose of cryptocurrency is to ensure that outside intervention will not manipulate the currency and therefore it should not be changed. However, since the hard fork, Ethereum has excelled and continues to follow on the original projected path. Currently it holds the position as the second highest value cryptocurrency and there are plans to scale in the coming years which will involve another name change to Ethereum 2.0.

So what are the differences between Ethereum Classic and Ethereum 2.0?
Both are cryptocurrencies and operate using smart contracts, but otherwise they are quite dissimilar.

  • Consensus mechanism - Ethereum Classic uses the Proof of Work consensus mechanism to verify transactions. This means that miners are rewarded for verifying transactions and adding to the blockchain with Ether. This system raises issues with scalability and also uses a lot of computer power and is therefore considered to be less environmentally friendly. Ethereum 2.0 uses the Proof of Stake consensus mechanism which operates in a similar way, however rewards are based on how much crypto each staker has staked in that particular blockchain protocol. Operating this way allows for faster transactions and lower fees. It also uses far less computing power, which makes it a far more environmentally-friendly validation method.
  • Monetary policy - Similar to Bitcoin, Ethereum Classic has a cap of approximately 210 million Ether that can be created, where-as Ethereum 2.0 is uncapped. It was originally thought that having a fixed monetary policy would protect against inflation. This may also cause crypto with a cap to become more like a store of value than a currency.
  • Database - Ethereum Classic is replicated whereas Ethereum 2.0 is fragmented. Operating off a replicated database essentially means that data is centralised and the integrity of the information is maintained whilst fragmentation has the potential to lead to centralisation.

Based on these key differences, it's safe to surmise that Ethereum Classic opts to protect the integrity of its blockchain whereas Ethereum 2.0 prioritises scalability and performance.

Now you hopefully know a little more about Ethereum and Ethereum Classic, if you want to take the next step you can sign up for a CoinSpot wallet for free and start buying and trading Ethereum.

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