How Blockchain Loyalists Won in the Battle for Ethereum

As Ethereum developers celebrate a successful hard fork - which changed a computer code protocol and undid a $56 million ether hack - with fork themed champagne, a burgeoning project has taken the crypto-world by surprise.

In what is perhaps the most fascinating series of events in the history of blockchain technology, Ethereum launched a public blockchain in July 2015 and a native currency. The developers sold tokens in a pre-sale and raised nearly $20 million.

Less than a year later, the team launched the DAO, designed to be a decentralized incubator for Ethereum projects. They raised $170 million, the largest crowdsale to date, according to Wikipedia.

Although purportedly based on smart contracts, which are computer protocols that blockchain proponents claim facilitate the execution of a contract’s terms, the DAO was promptly hacked for $56 million. A debate ensued: was the DAO hacked or had someone exposed a bug and received their bug bounty?

According to one version of the events that followed, vested mining and exchange interests in Ethereum elected to split its blockchain and native token in favor of a new version. This allowed developers to implement a code change that rescued $56 million of users’ money compromised by an unknown hacker. Bitcoin and ether exchange Coinbase CEO Brian Armstrong, while celebrating the success of the hard fork, admitted on Twitter that there could be more bugs other than the one which led to $56 million hack.

Amid the champagne fueled celebration by team Ethereum, a new project, Ethereum Classic, re-launched and adopted the old ethereum chain - the DAO hack and all. Ethereum Classic, swiftly adopted by multiple cryptocurrency exchanges, helped to make ETC the sixth largest crypto-currency, reaching at one time a market capitalization of more than $200 million. It’s current market capitalization is approximately $175,000,000.

In a leaked internal Ethereum Foundation Skype chat, Ethereum Foundation members discussed how Ether Classic is trading on crypto-currency exchanges.

“I don’t think the big [exchanges] will do for now,” wrote Ethereum Foundation member Peter Szilagyi in the chat. “But who knows.” Leading crypto-currency exchanges Kraken, Poloniex and Shapeshift.io have incorporated the chain. On Poloniex, ETC’s current 24 hour bitcoin volume is 19,027 ETC. In the last 24 hours, just 6,300 ether have traded hands on the San Francisco-based platform.

The group behind Ethereum Classic—self-proclaimed “crypto-decentralists”—claims the Ethereum Foundation, the board of which features Ethereum developers, responded to the DAO hack “in the worst way possible.” Also, that special interests control the Ethereum Foundation, an organization comprised of Ethereum developers and proponents to educate about Ethereum technology, and they pushed for a hard fork “against principled opposition of a significant economic minority of Ethereum stakeholders.”

Ethereum Classic promotes decentralized, censorship-resistant, permissionless blockchain: “We believe in a strong separation of concerns, where system forks are only possible in order to correct actual platform bugs, not to bail out failed contracts and special interests. We believe in censorship-resistant platform that can be actually trusted—by anyone.”

On the Ethereum blog, the Ethereum project acknowledged Ethereum Classic. "...We recognize that the Ethereum code can be used to instantiate other blockchains with the same consensus rules, including testnets, consortium and private chains, clones and spinoffs, and have never been opposed to such instantiations,” Vitalik Buterin, Ethereum co-founder and lead developer, posted.

In a Crypto Decentralists Manifesto posted to Medium July 11, crypto-decentralists underscored their thoughts on the then forthcoming Ethereum hard fork.

“...Any change to the system’s rules that not all participants freely agree to creates a network split, diminishing network value for everyone,” they wrote. Crypto Decentralists believe the three key characteristics all blockchain technology must have are openness, neutrality and immutability.

Arvicco, Ethereum Classic Project Coordinator, expresses surprise that crypto-decentralism has caught on. “Interest in ETC and investor demand proved Ethereum wrong [on the hard fork].

The English language spokesperson for ETC sees the project as proof crypto-decentralism works. “Not theoretically,” he told Motherboard over text chat. “In practice. Through experimentation and market action.”

Crypto-decentralism posits decentralization as the most important metric in assessing any change.

“I hope from now on people in crypto space will take key blockchain characteristics seriously,” Arvicco said. “Maintainers of blockchain systems need to be damn sure their actions don’t violate these characteristics. And they need to be very sure that the hard-forks they plan for their systems are non-contentious.”

If a public blockchain fails to exercise caution, the project’s legitimacy will be questioned and threatened, Arvicco said, suggesting that’s exactly what’s happening now between ETH and ETC.

“Part of the community realized their right to exit, based on principles and values,” he explicated. “And the network effect and capitalization of the Ethereum Foundation-controlled chain suffered as a result.”

Ultimately, the market may decide that the forked chain is nothing but a forgery, and Ethereum Classic is the real Ethereum, Arvicco says. The ETC representative admits not all Ethereum Classic supporters are staunch crypto-decentralists. “Some were just pissed off at the Ethereum Foundation and their DAO bailout fork.”

Either way, it appears radical crypto-decentralists are here to stay.

“The Crypto decentralist philosophy needs to expand on the exact ways for blockchain to provide mechanisms for scaling voluntary social and economic cooperation to a global level,” Arvicco pronounced. “Thus providing a working alternative to existing hierarchical economic mechanisms and power structures.”