At this point, I’m going to assume that everyone knows what Ethereum is, like practically the largest cryptocurrency after the original Bitcoin. Did you know that Ethereum was actually tampered with? That’s why the thumbnail of this video includes roots… Ethereum Classic is an alternative to Ethereum with much deeper roots. I’ll explain in a bit, but first...
Let’s dig right in to the creation of Ethereum.
You can choose to believe this or not, but the original Etheruem was created by a 19 year old Russian kid named Vitalik Buterin. In 2013, he wrote what is called a whitepaper, which is basically a roadmap that looks like a college thesis which outlines an idea. This whitepaper would go out to be the foundation of the beginning of Ethereum.
In his own words, from the whitepaper, Ethereum is a “next-generation smart contract and decentralized application platform”. If you don’t know what a smart contract is, it’s basically an agreement written in code that has a set of rules to be followed. Using these smart contracts, we can write whole programs and applications, called “Decentralized Applications” or dApps. dApps are useful because they can literally replace any tool that a financial institution has. For example, you can send and receive ethereum. You can lend ethereum for an interest rate. You can even borrow ethereum. You can create margin trades for Ethereum. You can even write a smart contract that acts as an insurance payout. Smart contracts are the building blocks that allow us to essentially copy banks and insurance corporations and other financial businesses… and then just put them on the blockchain for everyone to use.
So now that we have a brief overview of what ethereum is and how it got started...
There is this organization on the blockchain called The DAO. The DAO was essentially a group of crowdfunded investors that got together and threw a bunch of money into a protocol. That money was then to be used to grow things, which would return a profit and then be given back to the investors. When I say a “bunch of money”, I am meaning like $150,000,000 from around 11,000 investors.
Now, onto the important part. The DAO got hacked. Someone found a bug in the code and literally just anonymously stole $50,000,000 worth of Ethereum. Before we move further, let me explain one of the HUGE advantages to using a blockchain.
See, a blockchain is composed of a bunch of blocks. Each block starts with quite literally a summary of allll the past blocks, with most of the data in the block being new information added. In the case of Ethereum, the new information was transactions and smart contract interactions. So each time a new block is added, there’s a new summary of the blockchain. The advantage of this, is that you can never go back and change the blockchain… because if you do all the summaries in the future will be wrong and you’ll be able to see it immediately. These summaries are really mathematical hashes, but I want to explain this idea as simply as possible.
So one of the advantages of a blockchain is quite literally that you cannot change anything in the past. This is literally where it all got started.
Vitalik, the creator of Ethereum, saw that $50,000,000 was hacked and got a little upset. At first he was like “let’s add a snippet of code into the blockchain that won’t let the hacker spend his ethereum”. If most of the people on the network agreed, they could literally add this to the code, however a lot of people had to agree. If you’re this far in to this video, we hope that you agree our videos are kinda cool. If you want to reward our hard work, consider clicking the like button below and subscribing, as it takes a lot of time and effort to create these videos and your few seconds of action go a long way in rewarding our work!
So not being able to change the blockchain is one big advantage, another big advantage is decentralization. Decentralization is a fancy word that means no one single person can control the blockchain and make changes. Unlike the US Government, where a president can do lots of things without consulting with anyone… changes on the blockchain require a ton of people to agree… the power is not centralized… the power is decentralized.
Naturally, people didn’t like the idea that Vitalik could offer to change the blockchain so quickly… The attacker even wrote a letter explaining that he did nothing wrong. In his opinion, he just used a smart contract as it was written, he just used the code someone else wrote and it allowed him to do something that benefited him. Isn’t this what we are all doing? Ethereum Classic proponents say that you can’t do anything immoral on a blockchain… that the onus of responsibility is for those who write the code to make sure that there are no flaws. One of the famous sayings is “Code Is Law”, which is a way of saying the code sets the foundation for what is right and wrong. If you don’t want someone to do something with your code, you should’ve thought about it and prevented it.
What happened next?
Instead of writing a snippet of code, Vitalik then proposed that they ‘roll back’ the blockchain and reverse the hack, so that the attacker no longer had his funds and that the bug was fixed. This proposal got approved, the blockchain was changed, and this is exactly how Ethereum Classic was started.
So the changed blockchain, the one where the funds were given back to the DAO… this is the regular mainstream Ethereum we hear about today.
The people who didn’t like Vitalik changing the blockchain… the people who really believed in decentralization and the finality of the blockchain… they stuck around and grouped together. They quite literally just kept adding new blocks to the original blockchain.
So now we have 2 blockchains. The original, unchanged one called Ethereum Classic… and the new one that we just call Ethereum. We call this a fork.
Soft vs Hard Forks
There are two types of forks, soft forks and hard forks. Soft forks require no action from the users to make a change to the network, this was Vitaliks first idea to solve the solution. Hard forks are when people in the network must update their software. We have a whole video about soft and hard forks that you should check out if you want to learn more. Moving on, there’s one big question you might have.
Were coins duplicated?
Technically, if you had any ethereum before the DAO hack, you now have coins on both the Ethereum chain and the Ethereum Classic chain. Since they both have value, you could say you actually made money from this fork. Even though Ethereum Classic has a much lower price, the community behind it is quite passionate. Let’s talk about something they are passionate about...
So right now, you can still mine the mainstream Ethereum. One day though, they will change from Proof of Work to Proof of Stake when they upgrade to Ethereum 2.0. We have videos explaining PoS and PoW if you’re new to them, but the big change is that to mine coins, instead of buying computer parts, you have to buy the coin.
Ethereum Classic has always been Proof of Work, and intends to stay that way because they believe that PoW is much more decentralized. Lots of people have computers and lots of people can mine. Also, Proof of Stake requires a set amount of 32 Ethereum to become a staker, which inherently makes it more centralized because heck, I don’t have $100,000 laying around. Ethereum Classic is also quite profitable to mine, it usually floats around the 2nd to 10th most profitable coin depending on market prices and how many miners there are competing.
Upgrades since original fork
Now, it is worth mentioning that there have been a few 51% attacks on Ethereum Classic, which mean someone controlled over half the network and was able to make fake transactions to double spend their money. This first happened around January 2019, then happened again a few times in July and August 2020. They fixed this with an upgrade called the Thanos Upgrade that changed the mining algorithm a bit and it hasn’t happened since.
Oh, by the way, if you enjoyed this video and want to learn more about cryptocurrencies and the magical world of DeFi, check out our website WhiteboardCrypto.com for a totally free guide to making money with DeFi, it’s fresh off the press with some new methods not many people know about.
Thanks so much for watching, we hope you liked this historical video about Ethereum Classic, we really hope you learned something, and most of all… we hope to see you in our next video!