After the DAO hack in June, Ethereum's development team decided to resolve the situation with a hard fork, creating two separate networks and cryptocurrencies. This controversial move was widely embraced by those who lost money in the attack, but strongly opposed by those who want to save Ethereum's original cryptocurency.
Ethereum quickly became the second most valuable cryptocurrency after it’s launch in 2015. While Bitcoin was designed as a Peer to Peer electronic cash system, Ethereum is a Smart Contract and Decentralized Application Platform. The technology is useful for far more than keeping track of a currency's balances, and Ethereum lets developers build applications without having to build their own blockchain.
The Decentralized Autonomous Organization (The DAO) is the most ambitious project leveraging this technology. It's an Ethereum investment fund that intends to back a series of Proposals to create products or services. The DAO Token Holders can then leverage these product or services, or charge others for using them.
The DAO was met with tremendous enthusiasm when it launched, with a crowd fund raising in excess of $150 million in Ether contributions. The project was sold on the idea that governance rules are formalized, automated and enforced using software. To the dismay of those involved, that software was flawed.
On June 17th, the co-founder of Ethereum, Vitalik Buterin, announced a vulnerability allowing an attacker to drain almost $100 million in Ether contained in the DAO. “Even if no action is taken, the attacker will not be able to withdraw any ether at least for another ~27 days,” Buterin said at the time.
While Ethereum was still safe, and the platforms developers had little to do with The DAO, Ethereum lost half its value overnight. Buterin outlined a solution that gave token holders the ability to recover their ether.
The Ethereum foundation turned to the community for the most appropriate protocol change. “The Hard Fork is a delicate topic and the way we see it, no decision is the right one,” states Jeffrey Wilke on the project Blog. “Unfortunately time limits require swift adoption before a protocol change becomes impractical.” The community used carbonvote to answer a simple question. Hard Fork, yes or no? The yes camp won the vote 7:1.
On July 20th, Buterin declared the process a success. "We would like to congratulate the Ethereum community on a successfully completed hard fork," he said. "Block 1920000 contained the execution of an irregular state change which transferred ~12 million ETH," which was roughly the amount that the DAO attacker took from that community. "The fork itself took place smoothly," he continued, "with roughly 85% of miners mining on the fork."
Coinbase and Gemini, having added Ethereum trading on their exchanges earlier this year, congratulated the Ethereum team, along with countless Ethereum users across the web. For a while, at least, everything seemed to be looking up, and the price of ETH started climbing.
However, not everyone was happy. 15 percent of Ethereum miners stayed with the original blockchain, supporting a renamed cryptocurrency, Ethereum Classic (ETC). Zsolt Felföldi, an Ethereum core developer, offered his support over the weekend. "It was a shocking experience for me to find out that some people inside the foundation actually support the idea of intervention."
"I was definitely not alone with this belief in the Go development team. As it turns out, we were wrong, people still value their sense of justice higher than immutable law of code," Felföldi stated.
A new open-source project called Ethereum Classic arose, "The main goal of the project is to ensure survival of the original Ethereum blockchain," the website reads. "We will strive to provide alternative for people who strongly disagree with DAO bailout and the direction Ethereum Foundation is taking their project. Anyone opting to remain on the original chain should have such opportunity."
"Ethereum Foundation responded to DAO debacle in the worst way possible," the site continues. "According to (diligently hidden, pro-fork) coin vote on Carbonvote, 19% of ETH holders oppose this hardfork. Also, about 22% of Ethereum miners voted against the previous 'DAO softfork' and would logically oppose hardfork as well. Such a significant minority of stakeholders should not be silenced or intimidated into submission - they should be given a clear choice."
The project also had an ace up its' sleeve. There’s a built-in incentive to embrace ETC, "Everyone who had legacy ETH in your wallet pre-fork now has an extra 'bonus': you have the same amount of classic ethers (ETC) on the same address.”
Holding onto ETC was one thing, but it couldn’t be bought and sold, until Poloniex added ETC to its exchange. Within three hours of its launch, ETC had one-tenth the market cap of ETH, and briefly reached parity with the US dollar.
As soon as the ability to sell ETC was available, another advantage opened up. Several ETH miners jumped ship in search of higher profits with ETC, and the Ethereum hash rate has been fluctuation between three and five terahashes ever since. If nothing breaks this trend, miners alone could keep ETC alive indefinitely.
With Ethereum mining rigs now dedicated to mining ETC, the new ETH network is less secure, which opens to door to a different attack. Miner and angel investor, Chandler Guo, publicly threatened to 51% attack the Classic blockchain with a large amount of Ethereum mining power.
While the ETC pool of miners now contribute far more than Guo's 98 gigahashes, making a 51% attack improbable, tempers have been running high on both sides. Ethereum reporter David Seaman went so far as to call ETC a scam, and "a lame attempt to derail the growth the Ethereum community has enjoyed lately."
Seaman points out that ETH, has utility beyond a cryptocurrency, not to mention an active development team. He compared ETC to buying a product on Ebay that only showed a picture of its packaging, and then receiving only the packaging. He also expressed his opinion that the Ethereum classic team was primarily composed of bitcoin supporters, taking advantage of Ethereum's moment of weakness in order to ensure their cryptocurrency's continued dominance.
According to the BNC Markets indices, at the time of writing :
Steem traded at $2.7597, Ethereum at $12.20 and Ethereum Classic $2.5610
The good news out of this saga is that ETH (Ethereum) holders at the time of the fork now hold an equal amount of ETC (Ethereum Classic) post fork. If Ethereum was being held in an exchange wallet, a second wallet will now be seen the same number of coins in Ethereum classic as per screenshot below.
Exchange transactions typically happen off-chain and thus the exchange handles the transitions for you, If however pre-fork Ethereum holders made use of a blockchain linked wallet, care must be taken to avoid a double spend when moving funds. Fortunately Poloniex also solved this issue, pre-fork Ethereum holders can now just transfer their ETH to their Poloniex wallet and Poloniex will take care of the double spend issue instead of having to rely on complicated CLI wallet commands. This video link shows the simplicity thereof:
Hope this is a useful time saver! Feel free to comment and vote!
Regards,
Ricardo Goncalves (BNC Steemit Community Manager)