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After the merger, there will be no more mining for Ethereum (ETH).
The leading altcoin has ditched its proof-of-work consensus mechanism and switched to proof-of-stake, eliminating the need for crypto miners.
But the miners are still well equipped with expensive crypto mining rigs and are looking for a new job. One of the biggest targets for their skills is Ethereum Classic (ETC).
Let’s take a closer look at how Ethereum Classic compares to Ethereum now that the merger is complete and these two cryptos have gone their separate ways.
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What is Ethereum Classic?
One of the key attributes of cryptocurrencies is that they run on open source software.
With open source software, the community develops and maintains the code together. It’s shared publicly—and it’s not owned by any one person or company.
Contrast this ethos to the approach taken by big data giants like Google or Facebook, who develop proprietary code that cannot be shared publicly.
The open source nature of crypto leads to the possibility of a blockchain being “forked”. This is when a crypto community decides to make major changes to the codebase, resulting in the crypto’s blockchain – and its supporting community – being split in two.
Ethereum Classic was produced from a fork of the original Ethereum blockchain. Like many other blockchain forks, ETC emerged after an ideological and technical divide within the community.
After the fork, the resulting ETC and ETH blockchains contained identical blocks from the past, but they diverged into the future. Ethereum and Ethereum Classic may share a history, but they are now two separate cryptocurrencies.
Ethereum Classic and the DAO
The fork that created ETC happened in 2016 after a project called DAO – Decentralized Autonomous Organization – was launched on Ethereum.
The DAO was backed by $150 million in crowdfunding, but there was a bug in the code. Due to the bug, hackers stole $50 million from the DAO.
Due to the size of the hack, some members of the Ethereum community suggested inverting the ETH blockchain to compensate the exploited users. Others argued that this would set a worrying precedent and that blockchain should be inherently immutable.
A vote was held to resolve the disagreement and the pro-fork side received more than 85% of the vote. The ETH blockchain was forked, and the minority side kept the original, unmodified Ethereum blockchain and dubbed it Ethereum Classic.
Ethereum vs. Ethereum Classic
Ethereum and Ethereum Classic are quite similar in terms of basic functionality. Most of the main features of Ethereum are also present in Ethereum Classic.
But there are key differences between ETH and ETC. Most importantly, Ethereum Classic is not compatible with updates to the Ethereum blockchain.
This was particularly notable when the Ethereum blockchain completed its upgrade to a proof-of-stake consensus mechanism in September 2022. Ethereum Classic remained a proof-of-work system.
In the eyes of the Ethereum Classic community, the blockchain and code will always be immutable. It maintains the pre-merge proof-of-work system. And that means miners still need to validate ETC transactions.
Proponents of the merger and critics of Ethereum 2.0 argue that a proof-of-work mechanism is more secure and decentralized than proof-of-stake.
Miners are moving to Ethereum Classic after the merger
After the merger, many miners switched to Ethereum Classic and helped bring the smaller cryptocurrency into the limelight. The ETC hash rate, a measure of the total power consumed by mining, increased by 280% after the merger, underscoring the scale of miners’ migration to Ethereum Classic.
The main reason for this increase was staking pools operated by centralized companies. An Ethereum staking pool is a tool that allows multiple ETH holders to pool their tokens to access validator status. Ethereum requires 32 ETH, around $44,000 at the time of writing, to obtain a “set of validation keys.”
In August, the US Treasury Department sanctioned Tornado Cash, a virtual currency mixer that helped obfuscate the origin and destination of funds on the Ethereum blockchain. The Treasury Department accused Tornado Cash of promoting money laundering. This has further highlighted concerns about Ethereum’s proof-of-stake mechanism.
This news speaks to the ideological divergence between Ethereum and Ethereum Classic. Crypto purists favor a libertarian, censorship-resistant, decentralized model, while crypto pragmatists point to Ethereum’s more adaptable and malleable nature as the way forward.
Advantages of Ethereum over Ethereum Classic
Most of the Ethereum community has supported proof-of-stake conversion via the merge. Proponents cited some major benefits.
First, the energy impact of the move will significantly reduce blockchain energy consumption by up to 99.95% over the previous proof-of-work consensus mechanism.
This means that Ethereum Classic miners remain large consumers of energy. For comparison, bitcoin mining is said to use a lot of electricity each year, slightly more than Kazakhstan’s annual consumption.
Ethereum Classic also has disadvantages when it comes to scalability. Thanks to its less malleable code, cryptanalysts are not optimistic that ETC can overcome the scalability issues that are a major impediment to crypto’s mass adoption.
While scalability is also an issue for Ethereum, the community is working to improve the situation. With much more developer attention to Ethereum – ETC’s resistance to change – it’s easy to see why Ethereum is so much more popular.
Ethereum Classic price
Ethereum has gone from strength to strength over the years, becoming the second largest crypto by market cap after Bitcoin.
While the current market cap of ETH is $166 billion, the current market cap of Fork ETC is only $4 billion. Despite being 36 times smaller than Ethereum, ETC is still among the top 25 cryptocurrencies by market cap.
Ethereum Classic has largely traded like smaller cryptocurrencies and is closely correlated but more volatile than Bitcoin and Ethereum.
The chart below plots the price of Ethereum Classic versus Ethereum and shows that the price directions are similar, but Ethereum has always been worth significantly more.
Should you invest in Ethereum Classic?
Looking ahead, Ethereum Classic will increase in value as more people use it.
With scalability and power consumption issues, as well as Ethereum’s continued mainstream adoption, it’s hard to imagine Ethereum Classic ever taking root like Ethereum.
ETH is working to improve its downsides, while Ethereum Classic remains largely the same.
The merits of changing the code can be debated, but no matter how virtuous or immutable Ethereum Classic is, if it isn’t practical enough to be deployed on a global scale, it will never gain the kind of appeal that more eligible cryptocurrencies will.
The short-term effects after the merger and any in-house developments are more difficult to predict. ETC could easily experience short periods of outperformance.
Until ETC solves its problems or there is an unforeseen negative development in Ethereum, the chances of Ethereum Classic taking over the big stage are slim at best.
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