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As Bitcoin is called digital gold, it could be said that Ethereum Classic is programmable digital gold.
Ethereum Classic (ETC) is a computing system like your personal computer or a remote service such as Google. In either case you are using the apps (programs), information (data) and computing power (processor) of your local device or a remote service. For example, if you are using the Microsoft Excel app installed on your computer to manage local spreadsheets, you are using a program (Excel) + data (the spreadsheets) + processor (computing power) in your device. If you are using Google Sheets, to work on sheets in your Google Drive, you are using a program (Google Sheets) + data (the sheets) + processor (computing power) in remote machines that belong to Google.
The difference is that ETC is not your device nor the machines at Google. Ethereum Classic is a network of thousands of computers around the world that are in permanent connection, and work in parallel on the same programs + data, in a monolithic way, as if they were a single processor at home or at Google. Because all the machines in the Ethereum Classic network behave as a single computing device, they provide a similar service as your personal computer or a remote computing platform.
However, the other difference between ETC and your personal devices or big tech platforms is that it is very expensive and much slower. This is because its design makes a calculated tradeoff between performance and security. In other words, ETC is very inefficient, but highly secure. In fact, much more secure than your devices or online services.
How Does It Work?
To make thousands of computers around the world work on a single, coordinated, secure system in parallel, Ethereum Classic has seven components:
1. A Ledger with Accounts and Balances
The base of the system is a database, with accounts and balances, that tracks the movements of the system’s cryptocurrency, hence the name “ledger” [1], and contains the software programs that are executed in the virtual machine. This component is the data in the analogy I made above.
2. A Cryptocurrency
The cryptocurrency in ETC is the token that is in the system which is moved between accounts within the ledger. Each unit is called “ether” or is also commonly referred to as “ETC”. For example, 5 ether or 5 ETC.
In the whole existence of ETC there will be a maximum of 210 million ETC [2]. At the time of this writing there are a total of 111,636,861 ETC in existence, and this number will grow gradually to 210 million by the end of the century.
As Bitcoin is called digital gold, it could be said that Ethereum Classic is programmable digital gold [3].
3. Programs
As mentioned in the analogy above as programs, ETC can store software programs, also known as “smart contracts” [4], in its ledger, that can be executed, for a fee, in its virtual machine.
These smart contracts can be used to power decentralized applications (dapps) on top of ETC, move large amounts of value according to certain conditions that users may determine, or for people, businesses and governments to enter into high value agreements.
4. A Virtual Machine
Just as your computer has a processor, or Google has machines that compute everything their users do, all the nodes in the ETC network have a “virtual machine” or “VM”. The VM is a part of the ETC software that is in charge of processing all the programs in the ledger using the local processors and operating systems of all the network nodes. As these computations are coordinated and are executed in parallel across the world, “the VM” is referred to in the singular and ETC works as if it were a single computer, even though it is really a decentralized system [5] of thousands of machines around the world.
5. A Programming Language
Just as the apps in your devices or on remote platforms may be programmed in different programming languages [6], ETC has its own programming language, called Solidity [7], that developers use to build decentralized applications on top of the network. This means the programming language is used to build programs that are stored in the ETC ledger and then executed to power dapps that may be hosted in your computer or remote external platforms.
6. A Gas System to pay for Computing
The key process to incentivize and coordinate all the node operators to setup their machines to work in tandem for the network is the “gas system” [8]. The term “gas” is just an analogy of the energy or computing power used by the machines in the system. All the computations in the system are divided in gas units and those units have a price in ETC. For example, an instruction to execute a program, also known as “transaction”, may use 100,000 units of computation, or 100,000 gas, and, if each unit costs 0.0000000011 ETC, then the execution will cost 100,000 x 0.0000000011 = 0.00011 ETC. At the current ETC price in dollars of $7.75, that computation will cost $0.0008525.
7. Decentralized Applications
Applications really run on top of ETC, this means that, although the programs that power them are securely stored in ETC, the dapp interfaces themselves may be on your device or on remote platforms which you may use through your browser.
Applications that run on ETC are “decentralized applications” because the underlying programs that power them on Ethereum Classic are distributed in thousands of computers around the world. That is the basis of the security model, that all the programs + data + processors are replicated and located everywhere globally, so they don’t have a single point of failure, and no one, no corporation, nor government in the world can stop them from operating.
Not even a nuclear war can stop ETC. Literally! [9]
Why Is ETC a “Blockchain”?
The “blockchain” [10] is a component of the ETC system. It is the ledger, with accounts, balances and smart contracts, that constitutes the data of the system, or more correctly the database. This database is broken up into blocks, starting from a “genesis block”, or block 1, to block 8332320 and counting at the time of this writing.
The blocks are created every 15 seconds in ETC. This happens when all the users around the world send new transactions, requests to smart contracts, or enter new smart contracts to the system. Then, a special set of nodes in the system, called “miners” as an analogy to gold mining, get these new entries and “pack” them into “blocks”, with a highly secure type of computation called “proof-of-work” [11]. Then, they stamp them, and send them to the rest of the nodes, called full nodes, to verify them and add them at the end of the database. Miners are rewarded for all this work, not only with the gas fees mentioned above, but also by issuing new ETC currency, which is currently created and paid to miners at the rate of 4 ETC per “pack”, as per the monetary policy [12].
As the “packs” are called “blocks” and form a chain, hence the database is called a “block chain” which was combined into the term “blockchain”.
Why Is ETC Highly Secure?
As I wrote above, Ethereum Classic deliberately makes a tradeoff of being very expensive and highly secure, as compared with regular personal devices and remote tech services. This is because it is designed to be like the internet, it should survive even a nuclear war.
How does ETC accomplish this? There are several technical components that make ETC secure, including cryptography [13] and the proof of work mining mechanism.
However, in laymen’s terms, the basic security assumptions [14] are:
Replication
The ETC software and blockchain (database) are replicated in thousands of computers around the world [15]. This means that if several or many nodes are knocked down, hacked or corrupted, there will always be other nodes working correctly.
Miners
A subset of the nodes are miners, who perform incredible amounts of work (computing), expending a lot of electricity, to gather new entries and pack them into blocks. This means that whoever wants to attack the database, to steal money or reorganize it, has to expend a similar amount of energy and work to do it. This is a significant barrier that provides incredible security to the network.
Full nodes
When miners do all that work to create new blocks to be included at the top of the blockchain they still face a hurdle [16]. This is that all the other nodes have to verify whether the block that they created is correctly formed. Full nodes verify whether blocks were formed with all the new transactions correctly entered. This means they have to be valid according to network rules and with the correct balances and instructions. Only then they approve them to go into the chain. This establishes what I call a “division of power” [17] between miners and full nodes within the live network.
Trust minimization
All of the above design choices, plus the technical cryptographic and non-cryptographic aspects of ETC, make it a decentralized network [18]. This means there are no banks, tech platforms, cloud services, or governments controlling or managing it. This makes ETC a global, cross border, permissionless and censorship resistant system with no central points of failure and extremely minimized vulnerabilities [19].
What Is ETC’s Transaction Capacity and Fees?
In terms of expensiveness, the example that I gave above, where a transaction costs only $0.0008525, makes it seem it is really very cheap. However, that is because, for now, ETC has excess capacity. With blocks every 15 seconds and a capacity per block of 118 transactions, the network has the ability to process approximately 680,000 transactions per day, but at the present moment it is processing an average of around 44,000 per day [20].
Regardless of the current use, the above capacity compares very well with high value systems, such as the Federal Reserve’s Fedwire that is used for wire transfers, which processes 620,000 wires a day moving $2.9 trillion [21]. But, it does not compare well with Visa, PayPal, Google, Facebook, other applications, or the cloud services who process tens of billions of transactions per day.
This means that when ETC becomes a popular secure system the demand will likely be much higher than 680,000 transactions per day. Consequently, the market will raise transaction fees to much higher levels, say, $25, $50 or even $100 per transaction, so it will be much more suitable for high value, highly secure computing and value transfers.
What Are the Use Cases of ETC?
If ETC is like a personal device or remote computing platform, but much more expensive and inefficient, but much more secure, what is it good for?
Well, if you are sending $10 to a friend or family, ETC will likely not be your best choice. But, if you are an individual or business who needs to move $100,000, $1,000,000 or more across the world, passing through several jurisdictions, if certain conditions are met, in a specific form of payment or recurring payments, then you and your counterpart will likely prefer to use a highly secure, trust minimized system.
It is very likely that consumers, families, businesses and governments will use Ethereum Classic as a highly secure system to execute programs with specific conditions for high value transfers and agreements, where they don’t want to have the obstacles, costs and risks that traditional systems like banks, legal jurisdictions and national borders impose.
These use cases may be personal or family financial planning, inheritance planning, large commercial conditional payments, agreements between enterprises and governments that require collateral and guarantees, managing large contracts and debt stocks, managing large contracts with options, derivatives and cash flows, and setting large insurance parameters with complex indemnification clauses, amongst many others.
Conclusion
Ethereum Classic is like a computer in the sense that it supports software programs that can be used as smart contracts between people and businesses, or to power decentralized applications.
However, it is a very expensive and inefficient computer!
This means that users will naturally gravitate to use ETC for highly secure, high value transactions, cash flow planning, and agreements.
These types of use cases and applications will benefit most if they take advantage of the worldwide reach of ETC, so they can trust minimize transfers and agreements across jurisdictional boundaries while minimizing trusted third party risk.
References
[1] Ledger – by Wikipedia: https://en.wikipedia.org/wiki/Ledger
[2] ECIP 1017: Monetary Policy and Final Modification to the Ethereum Classic Emission Schedule – by Matthew Mazur: http://ecips.ethereumclassic.org/ECIPs/ecip-1017
[3] Why Does Ethereum Classic Have Value? – by Donald McIntyre: https://etherplan.com/2020/04/09/why-does-ethereum-classic-have-value/10916/
[4] Smart contract – by Wikipedia: https://en.wikipedia.org/wiki/Smart_contract
[5] Replication Is Not Fragmentation – by Donald McIntyre: https://etherplan.com/2019/06/18/replication-is-not-fragmentation/7898/
[6] Programming language – by Wikipedia: https://en.wikipedia.org/wiki/Programming_language
[7] Solidity – by Wikipedia: https://en.wikipedia.org/wiki/Solidity
[8] Ethereum Classic Gas System Economics Explained – by Donald McIntyre: https://etherplan.com/2019/09/22/ethereum-classic-gas-system-economics-explained/8789/
[9] ARPANET – by Wikipedia: https://en.wikipedia.org/wiki/ARPANET#History
[10] Blockchain – by Wikipedia: https://en.wikipedia.org/wiki/Blockchain
[11] Why Proof of Work Based Nakamoto Consensus is Secure and Complete – by Donald McIntyre: https://etherplan.com/2020/03/21/why-proof-of-work-based-nakamoto-consensus-is-secure-and-complete/10509/
[12] The Ethereum Classic Monetary Policy Explained – by Donald McIntyre: https://etherplan.com/2020/02/25/the-ethereum-classic-monetary-policy-explained/10025/
[13] Cryptography – by Wikipedia: https://en.wikipedia.org/wiki/Cryptography
[14] Information security – by Wikipedia: https://en.wikipedia.org/wiki/Information_security
[15] Secure Property Titles With Owner Authority – by
Nick Szabo: https://nakamotoinstitute.org/secure-property-titles/
[16] Bitcoin Miners Beware: Invalid Blocks Need Not Apply – by Stop and Decrypt: https://hackernoon.com/bitcoin-miners-beware-invalid-blocks-need-not-apply-51c293ee278b
[17] Proof of Work Has Division of Power, Proof of Stake Does Not – by Donald McIntyre: https://etherplan.com/2019/05/18/proof-of-work-has-division-of-power-between-miners-and-full-nodes-proof-of-stake-does-not/7619/
[18] The dawn of trustworthy computing – by Nick Szabo: http://unenumerated.blogspot.com/2014/12/the-dawn-of-trustworthy-computing.html
[19] Trusted Third Parties Are Security Holes – by Nick Szabo: https://nakamotoinstitute.org/trusted-third-parties/
[20] Classic is Coming – on Twitter – Jun 30, 2019 – ETC Network 24 hr Stats: https://twitter.com/ClassicIsComing/status/1145564886359072768
[21] Fedwire Funds Service – Monthly Statistics – by The Federal Reserve: https://www.frbservices.org/resources/financial-services/wires/volume-value-stats/monthly-stats.html
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