Ethereum is one of the two most popular cryptocurrency, and it is renowned for being the blockchain solution that introduced smart contracts. But there are two forms of Ethereum in use as of now. Initially, there was only Ethereum but at a certain point – which many consider the most pivotal point in the history of cryptocurrencies – there came a fork, and Ethereum split into Ethereum Classic and Ethereum. Today, we will dispel the confusion between the two.

Why the fork took place?

Before the hard fork, there was only Ethereum, the blockchain solution that introduced smart contracts and allowed for the development of decentralized apps. Ethereum’s popularity was so high because of the use of smart contracts, which are coded digital contracts that run and are enforced automatically by the blockchain. This allowed dapp developers to trust the system and gave them a platform where they could interact with third-parties without having to trust them. The system would take care of the trust factor. With an overflow of the number of dapps, an organization by the name of DAO appeared.

The Decentralized Autonomous Organization looked to provide a way for people to vote which dapps get funding from Ethereum. People would have to buy DAO tokens using Ether, and those with DAO tokens would get voting rights. DAO holders were then supposed to vote on the dapps after the Ethereum organization whitelisted the apps. Once a dapp got more than 20% votes, it would get its share of ETH funding. The business model was so lucrative that DAO raised $150 million within a month. But there was more to DAO.

There was a provision of requesting a refund of invested DAOs in ETH and then use it for another child DAO. Investors would only have to submit a refund, and they would get their ETH back. The ledger needed to be updated with the transaction and the number of ETH available updated, and the investors had a question posed on them that they couldn’t use their Ether for 28 days after requesting the refund. But an individual or a group was able to game the system of Split Function in the DAO environment.

Infamously known as the DAO hacker, this individual or group inserted a recursive function within the refund request so that before the first transaction was registered, they had already done away with $50 million in Ether. This meant that one-third of DAO’s investment was gone instantly. There was around 14% of the total Ether available in DAO at the time, which meant that the entire blockchain felt the effects so much that the value of ETH dropped from $20 to $13.

Ethereum vs. Ethereum Classic

Once the hack happened, the community had to choose between doing nothing and trusting in the code, doing a soft fork, or doing a hard fork. A hard fork was the only solution that prevented interaction between old and new users, and the community voted in its favour to recover the lost ETH and prevent the hacker from using the stolen funds. However, there were some – around 10% of the users – who were loyal to Ethereum and didn’t want the hard fork. These are the people behind Ethereum Classic now, and the version after the hard fork is what we know as Ethereum. There are a few differences between the two now:

Ethereum Classic continues to use the same blockchain and code as before the DAO hack, while Ethereum is different now. Those choosing to hard fork were given 1 ETH for every 100 DAO they held, which enabled the community to recover the lost $50 million worth of ETH. ETC has a market cap of $1.5 billion while ETH has $15 billion. This is because ETC is only dependent on the volatility of the market and the trust in cryptocurrencies, while ETH is backed by tech giants like Microsoft as well as other organizations like JP Morgan Chase ETC is now backward compatible with ETH, which means that ETC users cannot benefit from ETH’s move from Proof of Work to Proof of Stake and other updates to improve the blockchain People are a little worried about more hard forks in ETH. Although dapp developers have the freedom to create any sort of application, they cannot all weigh in on decisions regarding the Ethereum blockchain. Some are afraid that another hard fork may take place which could make things difficult for their particular dapp.

Conclusion

Ethereum Classic is backed by those who believed in the original Ethereum code and wanted to keep things as they were, while Ethereum is backed by those who wanted to improve the blockchain and recover from the damage of the DAO hack. Both continue to function today, although ETH is the more dominant one.