Ethereum Classic 's ability to gain a somewhat sizeable market share in terms of price and network hashrate has been surprising to many in the digital currency ecosystem, but the darling of blockchain immutability may soon face an issue with new coins coming onto the market from those who may not have that particular blockchain's best interests at heart.

Over the course of the next week, two things will happen. First, roughly 4.1 million ETC will be made available for withdrawal this morning , August 30, from the so-called " White Hat DAO ," which is a child DAO created by a group of individuals working to protect DAO token holders from bad code that allowed an attacker to partially drain The DAO of its ETH (and now ETC) holdings. The DAO token holders who receive these funds will be able to sell the ETC for ETH or any other asset on the open market for the first time since the Ethereum hard fork. The process of allowing DAO token holders to withdraw their ETC has been taken over by Switzerland-based digital currency exchange Bity .

In addition to the White Hat DAO withdrawals, the attacker who originally drained The DAO of some of its ether holdings will also finally be in full control of those funds on the ETC chain on September 2nd. According to Bity Legal Manager, Alexis Roussel , the attacker has access to one child DAO, which holds roughly 5 percent of all ETC in circulation.

Problems With the White Hat DAO

Although DAO token holders will soon have access to some of their ETC holdings, the White Hat Group originally had control of about 7.2 million ETC. The plan was to convert the salvaged ETC to ETH in order to do what the White Hat Group thought was in the best interest of DAO token holders. Articulated reasons for taking this course of action included threat of replay attacks on the ETH chain, a lack of block explorers and other necessary tools on the ETC chain and potential hashpower or speculator-based attacks on the ETC chain.

Some have argued that this attempt to convert the White Hat DAO's ETC to ETH amounts to an attack on ETC.

Roughly 14 percent of the ETC controlled by the White Hat Group has been converted to ETH and other currencies, but Poloniex and Kraken froze the White Hat Group's accounts before allowing them to continue with their plan. Representatives from Bity have reached out to Kraken and Poloniex on multiple occasions, but the exchanges have not responded with any sort of reasoning as to why the accounts have been frozen.

Roussel added that Bity is a regular user of Kraken and they have always responded to their inquiries in the past. An email from Bitcoin Magazine to Kraken CEO Jesse Powell was not returned, but Powell recently commented on the matter via Reddit. His comments appear to indicate that an investigation into the White Hat Group's actions may be the reasoning behind the freezing of the accounts.

"Unfortunately, we're not the only ones who thought the bizarre actions of the 'white hat' group warranted additional scrutiny," said Powell. "We're presently seeking approval from other interested parties to let the funds go out to the withdraw contract.

"When we can't say what's going on, you can probably guess what's going on," continued Powell in another comment . "I wish I could say more. It's our goal to get the coins back to their rightful owners. [The White Hat Group's] earlier antics drew a lot of attention that has substantially complicated the matter."

At this point, 28 percent of the White Hat DAO's funds are held by Poloniex and 16 percent are held by Kraken.

The Effect on the ETC Price

When the initially available White Hat DAO funds are combined with The DAO attacker's holdings, the result is that nearly 10 percent of the entire ETC supply is going to be able to be sold for the first time by September 2nd. This could potentially have a significant and negative impact on the ETC price and market cap. "I cannot speculate as to what the DAO attacker will do, but supply and demand calls for a price drop," Brave New Coin Head of Research, Tone Vays , told Bitcoin Magazine .

When asked for his opinion on what DAO token holders will do when they gain access to their ETC for the first time, Roussel told Bitcoin Magazine , "I have no clue."

"The market is a mechanism to allocate scarce resources in the most efficient way," said Ethereum Classic Project spokesperson, Arvicco . "If there is indeed 'a massive dump' as many people fear (or hope), it will just serve to re-allocate the ETC from people who do not understand Ethereum Classic's value proposition to those who do. Just as a much much bigger initial dump of ETC tokens upon introduction of exchange trading did."

"I don't see a lot of potential for a massive dump." Arvicco added.

The ETC price has been on a steady decline throughout the month of August.

Thank you to Bity Legal Manager Alexis Roussel for his assistance with this article.

Image by Anthony via Flickr

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.