Introduction

For Ethereum Classic, principles come first, and ETC's story begins with a phrase that most succinctly captures its core philosophy; Code is Law.

Code is Law puts the "Unstoppable" in "Build Unstoppable Applications", a philosophy lauded enthusiastically by The Ethereum Project up until The DAO Hack. But what exactly is Code is Law, and why did Etherians outside of Ethereum Classic decide to abandon it?

"Code is Law"

“Code is law” has become a catchphrase in this age where transactions of all sorts are being shifted onto blockchain platforms. Some use the term to suggest that code should replace law in many respects when it comes to these transactions. Others use it to defend against claims that they have acted wrongly and argue that they are simply using technically complex rules to outsmart others on a digital platform and obtain outcomes (like wealth) that others did not believe could or would occur.

Drawing from his 1999 book Code and Other Laws of Cyberspace, Lawrence Lessig is credited with coining the phrase “code is law,” which is the title for his 2000 Harvard Magazine article. In these writings, Lessig explores issues with the then-nascent internet, and posits that the absence of government regulation does not mean there should be the absence of any regulation. Instead, Lessig asserts that code written by software engineers will provide the rules of interaction and embody value judgments that will set rules for how broader society interacts in cyberspace

The Value of Blockchains

Upon reflection, it becomes apparent that Code is Law is the only way that Smart Contracts can be fairly or usefully interpreted. On blockchains that do not uphold Code is Law, the outcome of transactions is not governed by individual choice via contract code, but ultimately at the behest of "governance" from the legacy system, including all the drawbacks that introducing a blockchain was meant to alleviate.

For those who want to "Build Unstoppable Applications", the apparent truth is that Code is Law is the very thing that makes blockchains valuable. It is why they exist. Without Code is Law, there are much more efficient ways to "Build Stoppable Applications", such as Amazon Web Services, so why bother with a blockchain at all?

Where Code isn't Law

The concept of Code is Law is potentially provocative and disruptive to the existing global order, but it need not be reflexively rallied against. Like all powerful technologies, how and where they are applied determines who benefits from their application. Like the internet before blockchain, the genie is out of the bottle. This will undoubtedly change the existing landscape, but society will benefit by engaging with the technology positively.

How we engage depends on recognizing the boundaries of Code is Law, and understanding that, like the embers of a fire, it can only exist in unique circumstances and has to be nurtured and matured into the raging source of light it has the potential to become.

The Old World

The phrase isn't only Code is Law. The concept of Code is Law is ambivalent about how any particular local constabulary handles the unstoppability of Smart Contracts in their off-chain jurisdiction. Cryptocurrency theft, for example, is considered illegal in many places, and Code is Law proponents can consistently support the return of stolen funds while also opposing the reversing of malicious transactions.

As there are many legal jurisdictions and various approaches to policing, Code is Law blockchains recognize that to remain globally relevant and accessible, they must be neutral and follow their own contractual agreements. Off-chain concerns are outside the responsibility of the chain, whose only role is to ensure that transactions are not reversible through third party interference with the protocol.

Code is Law blockchains are opt-in systems that can have off-chain consequences that depend on how they are used. In the same way that fire can be used for both warmth and destruction, as a new technological primitive, restricting its use will only hinder the restrictor, who will be left behind as others take advantage of it. There is no question that a big challenge exists in figuring out how the world interfaces with this new tech, but that depends on cultural biases and is not necessarily within the control of technologists. In any case, please don't shoot the messenger.

History of Ethereum Classic

Initially, the Ethereum blockchain was established as a single network where transactions were facilitated by using the cryptocurrency ether or ETH. The new network quickly became popular for initial coin offerings, as different teams used the platform to launch their own tokens.

One of the most successful ICOs was The DAO, a decentralized venture fund where investors would vote on assets to invest in. The DAO quickly accumulated more than 11 million ETH, from over 18,000 investors, before unknown hackers discovered a smart contract bug allowing them to withdraw about a third of The DAO's accumulated ether.1

Due to the scale of the hack, many investors proposed reversing the Ethereum blockchain to rescue the affected investors, while others argued that doing so would set the precedent for future bailouts. After a hastily-arranged poll, 97% of the community voted to restore the lost funds through a hard fork.

As a result, the Ethereum blockchain split into two separate networks. The newer network inherited the name Ethereum and uses ETH or ether as its cryptocurrency. The older one, known as Ethereum Classic, uses ETC.

What Is Ethereum Classic (ETC)?

Ethereum Classic (ETC) is an open-source, decentralized, blockchain-based distributed cryptocurrency platform that runs smart contracts. Ethereum Classic was formed in 2016 as a result of a hack of The DAO, a smart contract operating on the Ethereum blockchain. The original blockchain was split in two, with the majority of users choosing to reverse the hack and return the stolen funds.

The split revealed philosophical divisions within the Ethereum community. Based on the principle that “Code is Law,” a small number of developers and miners believed that The DAO's investors should suffer the consequences of investing in a flawed project. However, the majority of the Ethereum community decided to roll back the blockchain, effectively creating a bailout for The DAO's investors.

Understanding Ethereum Classic (ETC)

Ethereum is a blockchain platform similar to bitcoin, with one key difference: in addition to recording transactions of value, it can also be used as a distributed computer to run self-executing smart contracts.

Ethereum Classic facilitates smart contracts by offering the benefit of decentralized governance. In other words, the contracts can be enforced without a third party involved, such as a lawyer. Smart contracts are similar to if-then statements, meaning if the actions required within the contract have been fulfilled, then the responding contract parameters would be completed. If the contract parameters have not been fulfilled, then there might be a penalty, a fee, or the contract might be voided, depending on the terms established at the onset of the contract.

For example, in a real estate transaction, if the contract stated that an upfront deposit was to be paid on a certain date, and the funds were not received, then the contract could be voided. The smart contracts are contained within a distributed ledger or blockchain network. A distributed ledger is a ledger of transactions and contracts, which are kept and maintained in a decentralized manner across various locations.

The agreement between a buyer and seller is written in lines of code within the smart contract, which is self-executing, depending on the terms within the contract. As a result, there is no need for external monitoring or censoring by a central authority since the code controls the execution of the contract.

How Is Ethereum Classic Different from Ethereum?

Although Ethereum Classic's ETC has value as a speculative digital asset that investors can trade, Ethereum's ETH is considered the more legitimate and widely traded. In early 2021, the Chicago Mercantile Exchange (CME) approved the trading of ether futures. Only Bitcoin and Ether have been approved for such transactions. The futures are derivative contracts on an underlying security with a fixed price and maturity date.6 Ether futures allow investors to trade ether for speculation but also to hedge an outstanding position in ETH or perhaps other cryptos.7

We can determine how the investment community views ETC versus ETH by analyzing how much capital or investment dollars are being committed to the two currencies. When comparing the two market capitalizations of the two cryptos, ETH is the clear winner. The market cap of a cryptocurrency is calculated by multiplying the currency's price—based on a fiat currency such as U.S. dollars—by the outstanding coins or tokens in circulation.

ETC has 133.9 million coins in circulation with a market capitalization of $6.1 billion while ETH has approximately 120 million in circulation and a market cap of more than $417 billion. ETC trades at $46.00, while ETH trades for more than $3,475 per coin as of April 2, 2022.8

Although both networks offer smart contracts, the potential for the aforementioned security concerns surrounding ETC will likely push investors to invest in ETH and adopt Ethereum's smart contracts versus those of Ethereum's Classic.

Concerns of Ethereum Classic

Although both Ethereum and Ethereum Classic offer smart contracts and are after the same market, Ethereum has gained in popularity as the more legitimate of the two networks. Also, Ethereum's ETH is second only to Bitcoin as the most valuable cryptocurrency network in the world.3

One of the chief concerns of Ethereum Classic is the potential limitations when it comes to scalability. Typically, the network can handle 15 transactions per second, but that number is far less than payment networks such as Visa, which handles more than one thousand transactions per second. Although Ethereum Classic has gone through many software upgrades, the scalability of its payment systems remains to be one of its biggest challenges going forward.4

Also, security is likely to remain an issue with smart contracts, particularly since Ethereum Classic has already experienced a hack and theft of millions of dollars. These concerns could potentially prevent smart contracts via Ethereum Classic from being used in major financial and real estate transactions.

Regulations of the cryptocurrency market continue to develop, which may or may not change how Ethereum Classic—and other networks—operate. For example, the Security and Exchange Commission (SEC) does not consider Ethereum or Bitcoin securities due to their decentralized networks.5

Without being considered a security, some cryptos may have challenges getting approved for inclusion in various financial products that contain a basket of securities, stocks, and bonds such as exchange traded funds and mutual funds. Going forward, uncertainty remains surrounding the regulatory landscape for Ethereum Classic as well as other, less popular blockchain networks.

A Vision for the Future

Many who think deeply about the potential of blockchain technology have a "eureka" moment, where it all clicks, and the wild valuations of the cryptocurrency space suddenly feel a little meager. They realize a future can exist where all agreements between people are ultimately governed not by corruptible institutions but by the cold hard logic of Smart Contract code.

In this future, individuals decide for themselves which contracts they wish to engage with, rather than by the roll of the dice via the geographical monopolies they happen to be born into. There are no middlemen as rent-seeking in all areas is replaced by disintermediation, market competition, and price optimization. This reality is fairer, cheaper, interoperable, and global. It becomes a universal solvent that lubricates the ossified machinery of old.

A new era of human flourishing is unleashed, as society is unshackled from the inefficiency and opacity of corruption. It will be nothing short of a new renaissance, a beaming ray of hope in the face of darker alternatives, and to top it off, it is achievable within our lifetimes.

Future of Ethereum Classic

The future of Ethereum Classic looks less bright than Ethereum since Ethereum is considered the more legitimate of the two networks, especially with the security concerns of Ethereum Classic.

Investors have lost confidence in ETC over the years due to hacks into the system, and until ETC can redevelop its code and software to prevent future hacks, Ethereum Classic may have challenges ahead. However, it remains to be seen how the smart contracts will be developed within the Ethereum Classic project and whether they can be adopted for widespread use.

KEY TAKEAWAYS

Ethereum Classic (ETC) is an open-source, decentralized, blockchain-based distributed cryptocurrency platform that runs smart contracts.
Ethereum Classic was originally known as Ethereum. It was conceived by Vitalik Buterin and the Ethereum Foundation and launched in 2015.
Ethereum Classic was created after The DAO hack in 2016.
The dispute caused a split in the Ethereum community, with the majority choosing to reverse the hack. Ethereum Classic is the name of the original, smaller blockchain.