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Ethereum Hard Fork Creates Competing Currencies as Support for Ethereum Classic Rises

(@pete_rizzo_) | Published on July 24, 2016 at 21:21 GMT
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ethereum classic

The Ethereum hard fork executed last week as a means of reimbursing investors who lost funds in the collapse of a major project has resulted in the creation of a competing currency on a blockchain replicating the platform’s original consensus rules prior to the fork.

Announced last week, a project called Ethereum Classic is continuing to mine a version of the blockchain in which funds were never restored to investors in The DAO. As observed here, the Ethereum Classic blockchain is now approximately 4,000 blocks behind the ethereum blockchain supported by ethereum’s original developers and community members.

Initially dismissed due to a lack of vocal support, that narrative is now changing as digital currency exchanges and wallet providers move to extend services to those using the Ethereum Classic blockchain. The increase in institutional support has created new momentum for a project that has been active for days without support from miners, exchanges and other key components to an open blockchain ecosystem.

However, earlier today, Poloniex, long the largest exchange for ethers (ETH), the digital currency native to the ethereum blockchain (sometimes referred to now as Ethereum Core or Ethereum One), added support for the native token running on the Ethereum Classic blockchain, called classic ether (ETC).

In order to do so, Poloniex provided traders who owned ethers with a balance of classic ethers corresponding to the amount of ether they held on the exchange at the time of the fork, a move that effectively provided traders with new capital.

At press time, the event has succeeded in invoking a highly politicized debate given its implications for wider conversations across the blockchain industry.

In addition to touching on whether a blockchain network can or should be "immutable", or provide an unalterable transaction history, the effort has evoked the passions of the bitcoin community, many of whom see it as either a cautionary tale against implementing a hard fork on its network, or in contrast, as evidence such a technical feat can be achieved with limited ramifications.

In interview, Ethereum Classic project coordinator Arvicco, expanded on the goals and vision for the project, stating that he believes it can become more than a basis point for the larger philosophical debates.

The 40-year-old developer, who runs the Russian-language blockchain information portal BitNovosti.com, described his project in broader terms, positioning it as a referendum on the ethereum project itself.

Arvicco said:

"The structure and governance of ethereum created instability and preconditions [that allowed for the] violation of its blockchain characteristics. Creating the Ethereum Foundation and all the corporate trappings around ethereum was a grave mistake."

Those behind the effort state they reject the reasoning behind the ethereum hard fork, with Arvicco likening it to a "bailout" for investors in The DAO.

The hard fork was launched after a community vote that suggested support for the measure, however, it has become highly criticized for perhaps lacking a necessarily broad representation of ethereum stakeholders.

The events come more than a month after The DAO, a smart contract-based funding vehicle collapsed after raising millions of dollars worth of ether.

Exchanges add support

In order to survive, however, Ethereum Classic will need to provide liquidity for the network’s new cryptocurrency. Thus far, it seems major exchanges that offer ether trading are moving to list the new token as well.

As of about 19:00 UTC, roughly 20,000 BTC in classic ether had been transacted on the network since the launch of trading on Poloniex, with classic ethers listing for 0.001 BTC or about $0.66.

Data from the exchange indicates a 24-hour high of .01 BTC, or about $6.

Hours later, Bitfinex representatives confirmed that the Hong Kong-based exchange would list ETC as early as Wednesday. But whether other exchanges that list ETH move to add ETC trading remains to be seen.

Kraken’s pre-fork announcement suggested that it would be open to the idea of listing an alternative Ethereum blockchain, but said it had no current plans to do so. The exchange did not immediately respond to a request for comment.

As for the value proposition of classic ethers, Arvicco stated that he sees the token being supported by Ethereum Classic’s underlying ideology, which it has detailed in a blog post.

"Our value proposition is that we are committed to open, censorship-resistant, immutable blockchains," Arvicco said.

He suggested that Ethereum Classic has been approached by developers interested in building decentralized applications with these rules, and a few projects can now be seen now posting messages of support.

Network attack threatened

Complicating matters, however, is that some in the ethereum community appear to be adopting a hostile stance toward the Ethereum Classic project.

Chandler Guo, the co-founder of Bitbank, declared via WeChat this morning that his firm would use its hashing power to attack the Ethereum Classic network. At the time, Guo said that the move was in response to the listing of the spinoff cryptocurrency on Poloniex.

At press time, it’s unclear how or if that effort is moving forward.

Statements from Guo to CoinDesk indicate that he is currently seeking to coordinate with other miners in an effort to gain a majority share of the Ethereum Classic blockchain, a move that could undermine the integrity of its history via a 51% attack.

He said that he currently only had 300 GH/s in power that could be directed toward the effort, but that he is in the midst of exploring such an effort.

When asked why he was planning to mount an attack, Guo evoked Google’s mantra stating that software projects shouldn’t "do evil".

"We want to make ethereum more successful," he said.

Bitbank, which operates the BW.com ethereum and bitcoin mining pools, has since distanced itself from these statements, however.

The company later said:

"Mr Guo's comments and actions do not represent Bitbank or BW. [The company] looks forward to the Ethereum Foundation presenting measures to the community that are conducive to the interests of the majority as well as the development of ethereum."

Elsewhere, other miners seem to be joining the Ethereum Classic effort, mining its blockchain for rewards and providing an increasing amount of hashing power toward that effort.

At press time, Ether Classic hashrate was equal to about 5.7% of the hashrate for the blockchain that implemented the hard fork.

Developer support

Still, to build long-term value, Ethereum Classic’s developers will need to establish their platform as one that offers advantages to those wanted to build decentralized applications using the ethereum platform.

Arvicco said that, for now, the project intends to closely mirror the Ethereum Core or Ethereum One blockchain and its advances. Ethereum Classic plans to follow the original roadmap released by ethereum’s developers, which would include upgrading its blockchain to support future hard forks meant to provide additional functionality.

"It’s just that the blockchain will be different. Down the road, the community that forms around ETC will decide if any changes are needed," he said.

He said four developers have so far signed on to the effort, all of which are working on the project part-time.

At press time, at least one major ethereum developer appears to be supportive of the effort, or at least an open community evaluation of Ethereum Classic.

Original Ethereum CTO and its original C++ developer Gavin Wood said via Twitter that his startup Ethcore is he was working on a version of Parity that would support Ethereum Classic. Parity is designed to process blocks by performing EVM code execution, transaction checking and other features.

Other developers of ethereum, most notably ethereum creator Vitalik Buterin in the past, have indicated at least tacit support for spin-off efforts growing out of the project.

He told Backchannel in an interview earlier this year that in the event of a community split, he’d be “quite happy” for the project to adopt a different approach.

"I generally support just about every secession attempt that comes along. If in the future there is that kind of a dispute in ethereum, I’d definitely be quite happy to see ethereum A go in one direction and ethereum B go the other,” he told the publication.

At press time, Buterin could not be reached for comment.

Update: This article has been updated with new statements from BW.com and to clarify that Chandler Guo co-founded Bitbank, the parent company of BW, but does not represent the company.

Image via Ethereum Classic

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