- One view is that as Ethereum moves to proof-of-stake, miners will need to shift their mining capabilities elsewhere, such as Ethereum Classic.
- And unlike Ethereum, Classic doesn’t enjoy the wide variety of applications and development that would form a ready source of demand for the token.
Nothing quite like the taste of Classic, Ethereum Classic.
At least that’s what the market appears to be communicating with the price of the hard fork of Ethereum surging more than 80% over the past week as speculators bet that cryptocurrency miners stuck on proof-of-work will switch over.
A short history lesson is needed to understand what Ethereum Classic is.
Early in Ethereum’s development, a nefarious actor which had gained access to the private keys to digital wallets for one of the Ethereum blockchain’s first applications, a Decentralized Autonomous Organization (“DAO”), drained wallets of the DAO.
While labeled a “hack,” once the thief had access to the private keys, there was nothing that anyone could do to stop them from making off with the cryptocurrency, estimated to be worth around US$165 million at the time.
The DAO was intended as a means by which cryptocurrency investors could deposit their Ether into smart contracts that would then invest in other projects using a voting system – a sort of decentralized venture capital fund.
In the wake of the hack, Ethereum’s core developers put it to a vote as to whether or not the proceeds of the hack ought to be recognized, or whether the ill-gotten gains that had been diverted to traceable wallets should be disregarded and that Ethereum should hard fork its software to make that happen.
Ultimately the community decided to disregard the stolen proceeds, Ethereum became the world’s second most valuable blockchain and those who persisted in their belief that if the point of the blockchain is that it should be an immutable version of the truth, regardless of how harsh, went on with the old software version that became Ethereum Classic.
Classic has languished for some time now, but as Ethereum heads towards a shift to proof-of-stake, where energy-hungry mining equipment isn’t needed to secure the blockchain, some traders are speculating that legacy miners will start shifting across to Classic.
Again, the issue at hand is ideological – there remains a hardened group that believes the only legitimate way to secure the blockchain is through proof-of-work, trading energy and computing power for the rewards of securing the blockchain.
Whereas a proof-of-stake model will allow massive holders a blockchain’s cryptocurrency to stake their holdings to secure the blockchain and arguably give them outsized influence.
One view is that as Ethereum moves to proof-of-stake, miners will need to shift their mining capabilities elsewhere, such as Ethereum Classic.
While more miners on Ethereum Classic would necessarily increase the network’s security, it’s also import to remember that miners pay for their energy and equipment in dollars, not crypto.
So there would be a constant selling pressure for Classic as miners keep dumping their tokens, paying for the ever-increasing cost of both equipment and energy.
And unlike Ethereum, Classic doesn’t enjoy the wide variety of applications and development that would form a ready source of demand for the token.
Just because a blockchain is more secure doesn’t automatically make it more valuable, usage and network effect are far more prized.
