‘Ethereum Classic’ is holding on for dear life.
Last week, Ethereum took the incredibly risky step of splitting its virtual currency and app platform into two competing versions. The split allowed developers to implement a code change that rescued $56 million of users' money, which had been siphoned away by an unknown hacker.
The split also created the possibility that rabble-rousers could mount some resistance and commandeer the old version of Ethereum for themselves. And now, that's what's happened.
Ethereum's big gamble has spawned a rebellion comprised of several factions: true believers in the cryptocurrency, speculative opportunists, and possibly even bitcoiners who have turned to sabotage in order to see Ethereum go down in flames.
This isn't how things were supposed to go. Hours after the split, referred to as a "hard fork," it looked like everything had gone smoothly. Ethereum inventor Vitalik Buterin announced the success, and noted that the majority of users had moved over to the new version. At this point, most expected the original Ethereum to languish and die.
But then the unexpected happened: loyalists rebranded the original Ethereum as "Ethereum Classic." The currency is being propped up under the banner of ideological consistency. The sell is that Ethereum Classic is a home for people who believe that forking Ethereum to "bail out" the victims of the hack was a betrayal of the concept of "immutability" that underlies other cryptocurrencies like bitcoin—what happens on the chain, stays on the chain.
"Ethereum represents a real threat to bitcoin, and there are some corners who have wanted to kill Ethereum since its inception"
Ethereum Classic is essentially an "altcoin"—a clone of an existing cryptocurrency that a small community has rallied around to give it value. Bitcoin has hundreds of imitators, but this is Ethereum's first.
Although Classic has far fewer users than Ethereum proper, its currency, ETC, has made price gains of more than 200 percent—peaking at about $2 per token on Wednesday—and is highly volatile. At the time of writing, ETC is trading at just over a dollar, compared to $13 per Ethereum token. ETC is trading on major exchanges such as Kraken and Poloniex.
Buterin has gone on record as saying that an alternate currency based on his code isn't necessarily a bad thing. However, it's still a dangerous situation for users, even beyond the normal concerns about get-rich-quick schemes and network insecurity that are endemic to cryptocurrencies with a small user base.
"You can very easily get into a bad situation," said Peter Vessenes, a cryptographer and former head of the nonprofit Bitcoin Foundation, which exists to promote bitcoin.
For example, users may fall victim to a "replay attack." Because the two versions of Ethereum are copies of each other, actions that take place on the main Ethereum chain can be copied onto the Classic chain. On Tuesday, just days after the fork, users rushed cryptocurrency exchange Coinbase to withdraw ether (the currency of Ethereum, also called ETH) and copy the transactions over to the Classic chain, thereby doubling their payout by receiving the amount in both currencies. Coinbase's supply of ETC was likely drained fairly quickly, Vessenes said.
The Coinbase attack wasn't all that bad, but future instances could cause a lot more chaos. "Somebody is essentially allowed to edit history, and you can't do anything because your actions are already out there," Vessenes continued.
The attack could be more damaging in the case of a two-party "smart contract," Vessenes noted. In a very simple hypothetical example, if someone were to play a game on Ethereum with a contract that pays out a small sum to the winner, and the losing party approves all the actions, then that person's approval could be copied over to the Classic chain and augmented to deal out a much larger sum.
"It's a totally new situation in computer science"
"Nobody has done any thinking about that security model yet," said Vessenes. "It's a totally new situation in computer science. We'll get some good Masters and PhD theses on this in three years, I think."
Cornell University professor and hacker Emin Gün Sirer agreed with Vessenes' assessment, although he noted that right now the issue only affects people who dabble in both Ethereum proper and Ethereum Classic's economies, on exchanges that handle both currencies.
"It's like, unbeknownst to you, there was a group out there that was using Tide detergent bottles as currency," Sirer wrote me in an email. "It doesn't affect my use of the laundry detergent at all—I would still buy it in bulk, use it at my house, and discard the bottles. The problems only manifest themselves if I decide to participate in their economy, if I decide to bridge the two worlds."
Any problems could be solved fairly easily if both Ethereum Classic and Ethereum proper decide to play nice, Vessenes suggested. Either Classic or the main chain could fork again in order to make all transaction IDs slightly different, thus eliminating replay attacks, and then both communities would be free to pursue their ideological and economic goals.
Since that hasn't happened, some in the Ethereum community have come to suspect that the Classic rebellion may have conspiratorial elements.
"Ethereum represents a real threat to bitcoin, and there are some corners who have wanted to kill Ethereum since its inception," said Stephan Tual, founder of Slock.it and one of the developers behind the DAO.
After all, Ethereum is the first cryptocurrency to really have a chance at usurping bitcoin. It's also true that while bitcoin has yet to widely implement self-executing smart contracts, which are administered by computers and exist forever on the blockchain, they're at the core of Ethereum.
"I don't believe that the reasoning behind Ethereum Classic is genuine," Tual said. "As a business model, it's basically: 'lets copy and paste this thing, and even though nobody has ownership and nobody's going to innovate on it, somewhere it has value.' It doesn't make any sense."
It does appear as though some bitcoiners are cheering for Ethereum Classic and the chaos caused by the split, at least on Reddit.
"Some number of bitcoiners are known as 'maximalists' which means they don't think any other blockchains or digital assets should exist," prominent bitcoin entrepreneur Erik Voorhees wrote me in an email. "They hate Ethereum, and they have been overjoyed by the turmoil since the fork. They can support Ethereum Classic because it perpetuates the time until this little crisis gets resolved."
Regardless of where the Classic rebellion is coming from, the software everyone expected to die is nonetheless clinging to life and getting stronger—at least for now.
"Best case for Ethereum is for the fork to be 'resolved,' meaning one of the chains falls toward zero price and hash rate," Voorhees continued. "It will happen eventually, but it's taking longer than most people thought (myself included) and longer than anyone in Ethereum would've liked."
There's no telling what will happen next, or which version of Ethereum will eventually win out. However, the smart money's on the version with a strong community of developers and a roadmap that stretches years into the future. That, in case you're wondering, is the newly forked version.
"Bitcoin has had hundreds of copycats, so it's not surprising that Ethereum has one," Sirer wrote. "In the long term, value comes from the dev team and the user community, and this overwhelmingly favors ETH."