Ethereum Classic is a decentralized, open-source platform that runs smart contracts on a blockchain. It was formed in 2016 after a hack of The DAO, a smart contract running on the Ethereum blockchain. The original blockchain was split in two, with most users opting to reverse the hack and return the stolen funds.
The Ethereum community was split on how to proceed after The DAO failed. Some people believed that the investors should suffer the consequences of investing in a flawed project, while others thought it would be best to roll back the blockchain and create a bailout. In the end, the majority of the community decided on the latter course of action.
Ethereum is a blockchain platform that, like bitcoin, can be used to record transactions. However, Ethereum’s key advantage is its ability to run self-executing smart contracts.
Smart contracts on Ethereum Classic are enforced through decentralized governance, meaning that they can be carried out without involving a third party, such as a lawyer. Smart contracts work similarly to if-then statements–if the actions required in the contract have been fulfilled, then the corresponding contract parameters would be completed. However, if the contract parameters haven’t been met, there might be penalties like fees or voiding of the initial agreement depending on what terms were established at the beginning ofthe relationship.
An example of this would be if, in a real estate transaction, the contract said an upfront deposit was due on a certain date, but the funds were not received. The smart contracts are within a distributed ledger or blockchain network. A distributed ledger is tracker for transactions and contracts that’s kept and maintained without any central authority controlling it..
The terms of an agreement between a buyer and seller are written in code, which is self-executing and does not need external monitoring.
Even though they are both after the same market and offer smart contracts, Ethereum has become more popular because it is seen as more legitimate. Also, ETH is only second to BTC in value.
The biggest issue that Ethereum Classic currently faces is scalability. The network can handle 15 transactions per second which lags significantly behind other payment networks like Visa, who processes one thousand transactions per second. There have been many software upgrades for Ethereum Classic, but the scalability of its payments systems continue to be a challenge.
Not to mention, security is prone to stay an issue with smart contracts–especially because Ethereum Classic has already had a hack where millions of dollars were stolen. These concerns have the potentiality to stop smart contracts from being used in large financial and real estate deals.
The cryptocurrency market is still developing, so it’s unclear how regulations will change Ethereum Classic and other virtual currencies. For example, the Security and Exchange Commission does not consider Ethereum or Bitcoin securities because they’re decentralized networks.
Some cryptos may not be approved as securities, which means they could have challenges being included in various financial products that contain a basket of securities, stocks, and bonds. These products include exchange traded funds and mutual funds. In the future, Ethereum Classic’s regulatory landscape is uncertain. The same goes for other blockchain networks that aren’t as popular.