How ethereum was split to Ethereum (ETH) and Ethereum Classic (ETC)

The world of cryptocurrencies has taken a new turn, as more coins and virtual currencies are being developed by the day. Ethereum being one of them, has captured the hearts of many across the world. Although Ethereum maintains its position as the second most expensive cryptocurrency in the world, the cryptocurrency suffered a hit in 2016 which lead to a split. Due to this hit, Ethereum Classic was born.

 Here’s what happened.

The Ethereum developers in trying to bring about a revolution made a very costly mistake. The implementation of DAO (Decentralised Autonomous Organization), a smart contract which was focus on taking centralised venture capital fund, decentralising them to create funds for future Decentralised Applications (DAPPS), was supposed to change the face of the crypto ecosystem. However, there was a loophole and several people sorted out to exploit it.
With certain amount of Ether, DAO tokens can be bought by a Ethereum investor. With these tokens, investors would have a say on how DAPPS are funded in the future. The DAO looked like a promising investment and fans around the world bought into it, amounting to over $150 million worth of ether in a very short time.
When DAPPS proposals are dispatched, the one with a 20% vote will be funded without hesitation. However, that DAPPS might not be to an investor’s liking. Developers saw this as a possibility and they created a way to opt out of the DAO, namely the “Split Function”.

The split function allows an investor to cash out his invested ether with an option to break out with other investors to form a Child DAO. With a child DAO, these investors can start receiving tokens, however, they would have to hold on to their ether for 28 days before they become accessible according to the smart contract. This opting-out clause was the infamous loophole which lead to the crisis.

 The Crisis

The loophole being so tempting drove a hacker to greed. On the 17th of June 2016, the hacker utilised the loophole to whisk away one-third of the fund, amounting to $50 million. This shook the Ethereum community and investors started to blame Ethereum for the attack. However, there was never a problem with Ethereum, it was the DAO that had the issue and to settle the issue, several steps had to be taken by the developers.
As the price of Ether dropped from $20 to $13 and the hacker’s Child DAO was still bound by the 28days rule, the community had to act. The community had three options; to either do nothing or execute an update (the update can be done in two ways; the soft fork or the hard fork). After votes were cast, the result was in favour of the Soft Fork.

 Soft Fork

The Soft Fork is basically a chain update with backward compatibility. However, the Ethereum community decided to tweak theirs by adding options for investors. Investor can decide to update or just go with the old one, whichever, all users can still interact with themselves.
The purpose of the soft fork was to isolate blocks that contains transactions that could help the hacker move around the stolen ether. The plan seemed like a solid one, however, the Ethereum community suffered another setback. If the soft fork were to have been implemented, the community would have experienced an attack called the “Denial of Service (DoS)”. This left them no other choice than to go with the “Hard Fork”.

 Hard Fork

The hard fork is the direct opposite of the soft fork. It is not backward compatible and without the updating to the new blockchain, users will not be able to interact with other updated users or gain access to new updates. After analysis, it was discovered that for the hard fork to work, Ethereum will have to be split but users were not affected by the split since they had a chance to choose either side.

The Ethereum community finally implemented the hard fork, and two separate blockchains were created. One of the blockchain was the channel through which investors got their money back, this is now known as Ethereum (token: ETH). The second blockchain was left with the DAO transactions and this blockchain was called the Ethereum Classic (token: ETC).