Tinderbox: Ethereum Classic, Insider Trading, and Social Justice

overviews
25.07.2016

The drama around Ethereum hard fork originating from the attack on The DAO is still ongoing. Some miners, supported by some community members, refused to support the hard fork and carried on working in the old system. Thus, Ethereum Classic advented.

As a reminder, after the attack on The DAO, Ethereum developers proposed a hard fork seeking to restore the trust in investors. The hard fork in question would allow all The DAO investors to have their money back, thus mitigating the attack’s aftermath.

However, even in the first days after the attack, the community had an alternate opinion that the hard fork or any other attempt to freeze or bring back the stolen money would undermine the trust towards Ethereum, and would  generally contradict the original principles underlying the cryptocommunity.

Then an unknown person known as The Attacker opposed the hard fork stating that their exploitation of the company’s smart contract was fairly legitimate.

Ethereum Classic vs Ethereum

Ethereum Classic is just the Ethereum before the hard fork. The project is currently supported by several mining pools, some industry players, and Poloniex exchange. Notably, users who stored their money in their wallets received both ETC and ETH coins. Poloniex also converted all user ETH in ETC.

ETC capitalization on the first day at Poloniex exceeded $70 million, with average day trading volume comprising around $15 million at the time of writing.

There are three mining pools supporting Ethereum Classic at the moment:

  • http://ethc.epool.io
  • https://ethc.coin-miners.info
  • http://pool.ethereumclassic.com

In Ethereum Classic’s subreddit, a post urging users to support the project lists the following as the ways to do so: to mine Ethereum Classic, to run a full node, to assist in the development, to trade ETC, or to spread the word about the project.

The rumor has it that Ethereum Classic was originated by the same people that attacked The DAO. Moreover, some users believe that the attacker has already withdrawn ETC tokens to the exchange and started buying ETH coins.

Meanwhile, in Ethereum network after the hard fork, the Dark DAO’s balance reads zero, just as planned.

Addition to Poloniex and Reaction from Other Exchanges

ETC’s to addition to one of the biggest cryptoexchanges has caused panic and misunderstanding. All the exchange’s customers having ETH at their balances, had the tokens replaced with ETC coins to the rate of 1:1, i.e. the amount of ETC coins exactly equal to that of ETH at the moment of the hard fork.

Still, the absence of any earlier announces from Poloniex in this regard also gives rise to some questions. Generally, any exchange announces any addition of a new coin in advance. The key problem is that only a small group of people was aware of that and thus had a chance to sell their ETH coins, while the others, in fact, sustained some losses.

The main question now troubling industry players, and traders, in particular, is whether other major exchanges add ETC. According to some preliminary statements, Bitfinex is willing to add ETC in case its hash rate reaches at least 20% of Ethereum’s. Currently, the parameter stands at 5.6%.

Kraken is not ready to issue any statement in ETC’s regard.

Remarkably, the ETC network produces 200 blocks per hour more than the ETH.

What Is Good, and What Is Bad

In early June, just a few days before the attack on the DAO, Vitalik Buterin told Backchannel:

“I generally support just about every secession attempt that comes along,” he says. “If in the future there is that kind of a dispute in Ethereum, I’d definitely be quite happy to see Ethereum A go in one direction and Ethereum B go the other.”

Well, that’s exactly what is happening now. A refusal to support the hard fork would hardly remain an initiative from a group of individuals. It’s also futile to gainsay that the trust for Ethereum is undermined. Ethereum Classic is a climax of mistrust for the way things are going in the industry.

Developer Gavin Wood has already supported Ethereum Classic and promised to provide Parity client to the new project.

The way other miners act is just as important. If Ethereum Classic’s power continues growing, this would automatically legitimize it not just across exchanges, but also as a platform for development of decentralized apps.

According to latest assessments, mining ETC would be way more profitable, which transfers the matter of choice in purely ideological paradigm: it’s a choice between supporting a conventional social justice for the DAO’s investors, or keeping up with the rules of an unregulated and free market.

Further actions by cryptocurrency exchanges is also very important. As every exchange holds a full Ethereum node, there’s nothing preventing it from running a full Ethereum Classic node in parallel, and send the tokens to a different exchange. It would be pretty reasonable for customers of Bitfinex, Kraken, and other exchanges to demand those ETC tokens to be given to them in case the project doesn’t fail in short-term. Such failure, as we may assume now, is very unlikely.

The very fact that a part of the community refused to support the hard fork, and even managed to launch Ethereum Classic to fit their understanding of decentralization, is a token of the industry’s maturity. However, the situation is yet another challenge that the community had never faced before.

Apart from a being an additional speculative tool, ETC partially washes away ETH’s value, and inevitably attracts both a part of trade volumes and a part of its market cap.

Only time will tell what happens to Ethereum Classic. Still, if people behind the project really value the system’s openness, blockchain’s immutability and cryptoanarchism’s underlying principles, they will have to do their best to avoid the mistakes made by Ethereum Foundation. It deals with publicity of basic developers and direct/indirect impact of their statements on opinions of the rest of the community.

Using Ethereum functionality with lesser financial load is a significant bonus for the developers. Therefore, it’s quite reasonable to suggest that the project will garner support not only from cryptoanarchists to the bone but also from more pragmatic industry players.

by Toly Kaplan

 

Found a typo? Highlight text and press CTRL+ENTER

Subscribe to our Newsletter

<

Related posts

Tags: ,