Many new users are confused by the existence of coins with similar names, such as Ethereum (ETH) and Ethereum Classic (ETC). Some people find themselves asking whether one is a scam, where they originated, and why their names are so similar.
Currencies like these are not scams. Rather, they are the result of hard forks, something that happens when users of a digital currency network do not agree on the path forward or a major event occurs that requires reversal. Another example is Bitcoin versus Bitcoin Cash.
What are hard forks and why do they happen?
One major benefit of digital currency over fiat currency is decentralization. There are no governments who control digital currency, although they may attempt to regulate the use of digital currencies. Instead, votes from the community determine the path forward for any given digital currency network. A blockchain network cannot operate under two different sets of rules or with differing transaction records. Everyone on the network must be in agreement about the latest and most up-to-date block or transaction data in order to maintain network and blockchain integrity.
This need for matching transaction records is what makes digital currency much less prone to hacking than a bank server. If a hacker alters the code to say they own more digital currency than they do, the rest of the network will see this difference and subsequently throw that record out. A hacker would need to control at least 51% of the network to successfully create false transaction records, but this would be next to impossible on a major network like Ethereum or Bitcoin.
This decentralization also places community members in decision-making roles in the event of an unresolvable difference in opinion or another major issue. If the community cannot agree on a decision, then the blockchain network must split in two, creating a hard fork. The same applies if something happens that requires a rollback, such as invalidation blocks that have been made due to errors, design flaws, or hackers. It was a combination of these two things that created the split in the Ethereum network, creating Ethereum (ETH) and Ethereum Classic (ETC).
Why did the Ethereum network split?
The Ethereum network hard-forked into Ethereum and Ethereum Classic after an ethical and ideological battle related to the Decentralized Autonomous Organization (the DAO).
In theory, the DAO sounded like a great idea. It served as a decentralized venture capital fund to finance DApps (decentralized applications) wherein participants could vote to determine which DApps received funding. The DAO raised $150 million during their token sale in May 2016. Child DAOs could be created via a split function with only one stipulation—ETH had to be held for 28 days.
Unfortunately, the DAO contained a loophole that community users pointed out and voted on. Before the situation could be resolved, however, the DAO came under attack. The code flaw was exploited by attackers, who siphoned $50 million from the DAO’s funds. Many people did not fully understand digital currency technology at the time and falsely assumed this flaw within the DAO’s code was actually a flaw in Ethereum’s code, and the price of ETH plummeted. Investors fumed over such a major loss. Many people believed that the Ethereum project was done for good and opted to sell whatever they could in order to dampen the blow of the DAO hack.
Because the network itself took such a hit, the community opted to create a split in the Ethereum network—a hard fork. This hard fork restored the money that investors had lost on the new chain, essentially reversing the effects of the attack. The old network where the attack occurred became Ethereum Classic, and the new chain was simply named Ethereum. The network then grew to have the second highest market capitalization to date, second only to Bitcoin.
For some people, this split posed ethical concerns that created heated political debates within the Ethereum community. Many opponents of the hard fork were of a strict mindset that, in blockchain, “code is law.” They believed that this was an integral aspect of immutable blockchain technology and was a major benefit even if it occasionally caused negative repercussions. That is why today some users only use Ethereum Classic (ETC). However, the majority of users opted for at least a soft fork, if not a hard fork, after the DAO attack and have subsequently moved to the Ethereum network, leaving Ethereum Classic behind.
What are Ethereum and Ethereum Classic worth now?
Ethereum has gained much more widespread acceptance than ETC, and most community members agreed with the decision to split from the chain where the DAO attack occurred. Although many people still hold on to ideological views surrounding ETC, and many hold the coins themselves, there is a substantial difference between them in price and market cap.
At the time of this writing, ETH is worth ~$686 per coin and has a market cap of $68,052,035,483. ETC, on the other hand, is worth ~$22 per coin and has a market cap of $2,267,438,487. While both networks are still highly valuable, and neither party supporting either currency is necessarily right in the disagreement, it is clear which of the Ethereums the majority of the community favors.