Ethereum is considered by some as the next big thing in blockchain technology – one that may even surpass Bitcoin at some point. But in spite of only being around for just about three years, it has already witnessed a schism which appears to threaten its long-term potential.
A controversial software upgrade of Ethereum in July led to the emergence of two variants of the digital currency which are similar almost in every respect. The original, non-forked version is now known as Ethereum Classic, while the new, forked version is simply known as Ethereum.
The forking of the cryptocurrency system was prompted by a hack in June that resulted in theft of Ethereum worth about $60 million. The upgrade was meant to erase the theft and recover the stolen funds. Most developers on the platform adopted the fork. But some others have refused to update their software, preferring instead to continue with the older Ethereum.
Ethereum is considered a notable rival to Bitcoin having risen significantly in popularity in the past one year. But the platform is not entirely similar to the more popular cryptocurrency. It is designed for automatic execution of contracts through a feature known as smart contracts. Ethereum is seen as a virtual machine that sees to the processing of all contracts through blockchain technology.
The network is powered by ether, which its co-founder Anthony Di Iorio prefers not to view as a cryptocurrency as bitcoin. He sees it as fuel need to power the platform. Ether helps to get rid of malicious code and incentivizes users.
New vs. Classic
One of the consequences of the Ethereum forking is that we have a version in which the June theft exists (Classic) and another in which it does not (new). The two are virtually the same in all other respects. The new version has been adopted by the majority. However, the non-forked variant being held by the minority is now gaining in popularity and, of course, in price. More and more trading platforms are also adopting Ethereum Classic.
The volume of Classic traded was greater than that of the new fork at the beginning of this month. This is in spite of the new Ethereum having significantly higher computing power. The price of Ethereum Classic has also been highly volatile compared to the fork. It closed at around $1.60 in the last week of July and was trading at more than $2.10 the following Monday (August 1). The new Ethereum traded at around $11.50 in the morning of that day.
“Many in the Ethereum community opposed the hard fork,” said BitMex CEO Arthur Hayes. “These traders will place ideology ahead of profits, and that is very positive for the staying power of [Classic].”
The reality that both Ethereum Classic and forked Ethereum share similar blockchain origin leaves room for potential replay attacks. Transactions or holding before the fork contain tokens for both the new and Classic. This gives room to potential losses when making transactions on their blockchains. It is therefore advised to split balances that existed before the hard fork.
But the process of splitting may appear too complicated to some. This has made the digital currency exchange Shapeshift to introduce a new tool called the Ethereum Splitter. The tool simplifies the splitting process into three simple steps: verify balances, enter wallet addresses, and send coins. The minimum amount that can be split is 0.5 ETH/ETC. There is a 0.25 percent fee for each split.
The future prospect of Ethereum depends on how fast and well the present dichotomy is addressed.
Meanwhile, the San Francisco-based exchange Coinbase has announced it would enable withdrawals of Ethereum Classic being held by it. The company has decided not to offer trading in either variants of Ethereum.