Investing in Ethereum Classic: What to consider
Ethereum Classic is an offshoot of Ethereum, created after members of the Ethereum community rejected a major change in the platform known as the “DAO hard fork.” This split resulted in two parallel cryptocurrencies being created: Ether (ETH) and Classic Ether (ETC). Ethereum Classic has a significantly lower market cap than that of its namesake, however, it is still a popular cryptocurrency, ranked 5th overall as of 2017 with a market cap of more than $1.5 billion.
Who should include Ethereum Classic in their portfolios?
Cryptocurrency traders: Since Ethereum Classic is a top 5 currency, it could be included as part of a well-balanced cryptocurrency portfolio.
Blockchain enthusiasts: Ethereum Classic is a prominent player in the blockchain space, with a community that is highly passionate about the underlying technology.
Currency traders: Many foreign currency traders use cryptocurrencies as a hedging tool or safe-haven for when mainstream markets are too volatile.
Day traders: Ethereum Classic is highly volatile, sometimes displaying double-digit fluctuations in a single day. Therefore, it could be a good option for short-term traders wishing to capitalize on such movements.
What drives Ethereum Classic’s price?
General cryptocurrency trends: The cryptocurrency market is quite new with many currencies constantly joining it. As such, smaller currencies are often influenced by fluctuations in larger ones, such as Bitcoin and Ethereum.
Changes to the Ethereum Classic platform: Like most software-based services, the ETC blockchain platform undergoes constant changes and upgrades. While small changes could go unnoticed, larger ones, such as those that impact liquidity or transaction times, could affect ETC value.
Currency exchanges: While most major exchanges offer Bitcoin and Ethereum trading, not all exchanges carry all currencies. Whenever a major exchange decides to offer ETC to its traders, it adds to the currency’s liquidity and could increase demand.
ICOs (Initial Coin Offerings): Like its “big brother” Ethereum, Ethereum Classic is an open-source platform, and as such, could be used for various purposes. One such purpose could be utilizing the platform to offer new cryptocurrencies, which the public will have to purchase using ETC tokens.
Mainstream acceptance: Ethereum Classic has a better reputation than some of the other major currencies, and is, therefore, increasingly becoming more popular with high-profile investors. One example is Bitcoin influencer Barry Silbert who is known to invest in ETC.
Ethereum Classic: An older, smaller brother
Despite Ethereum Classic being smaller than Ethereum and having a different name than the original, its infrastructure is actually ‘older’ than that of Ethereum. The reason for the existence of two currencies with a similar name is that a more conservative part of the Ethereum community rejected a major change to the platform, known as the DAO hard fork, and separated into a different platform in July, 2016. Therefore, the Ethereum Classic community is passionate about the underlying blockchain technology and wishes to keep it free of interference and completely decentralised. While this might be perceived as rigid or overly conservative by some, it also guarantees increased security and makes the platform less vulnerable to hacking.
Ethereum classic can be seen as a hybrid of Ethereum and Bitcoin. Like Ethereum, ETC is a blockchain, open-source platform which enables its user to design apps and create smart contracts that execute automatically. However, as opposed to Ethereum, Ethereum Classic took a page out of Bitcoin’s book, deciding to eventually put a hard limit on the amount of tokens released. The Ethereum Classic community’s aim is to terminate distribution when it reaches 210 million tokens (as of 2017, less than half of that amount is in circulation). Deciding on a finite number of tokens both protects the cryptocurrency’s value and keeps it true to the core ideals of the Ethereum blockchain.
History of Ethereum Classic
In May, 2016, the Ethereum community decided on a major feature to be introduced onto the platform, known as a Decentralised Autonomous Organisation(DAO).. This feature was created to enable Ethereum users to establish a venture capital fund, which in turn could fund other projects. While the DAO caused a lot of excitement, even raising some $150 million in Ether in advance, its execution was lacking. Shortly after it was introduced the following June, a hacker took possession of some $50 million in Ether, exploiting a loophole that was left in the code. While Ethereum Foundation members dealt with the hack and retrieved the lost funds, they still had to fix the problems created in the code.
The solution came in the form of a “hard fork” - rolling back the entire Ethereum blockchain platform to a previous state. While this was a practical solution, some Ethereum community members resented the move, saying it required the use of too much power, or in other words, centralising the otherwise decentralised platform. When the hard fork was executed, these members opted out of the of the blockchain, detailing their reasoning in The Ethereum Classic Declaration of Independence. This created a split in the blockchain network, forming a new parallel chain which replicated Ether tokens into another currency, to be called Classic Ether, and thus, the Ethereum Classic blockchain was born.
Conclusion: Ethereum Classic has the best of both worlds
Ethereum Classic is an oddity in the cryptocurrency world. On the one hand, it is relatively large, with an impressive market cap and is in high demand. On the other hand, its core members are ideological blockchain connoisseurs who seem to care about the philosophy of their platform just as much as they do about the value of their currency. However, the ETC token’s stability and gradual price increase prove that it exists in the middle ground between its founders’ ideology and the real market forces that are driving cryptocurrency prices.
*This content is for informational and educational purposes only and should not be considered investment advice or an investment recommendation.
*Past performance is not an indication of future results. All trading carries risk. Only risk capital you're prepared to lose.