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Why Ethereum Classic Isn't a Good Substitute for Ethereum

By Andrew Hayward - Jul 10, 2021 at 8:15AM

Key Points

  • Ethereum and Ethereum Classic parted ways years ago, and have become very different currencies.
  • Ethereum Classic's price has recently spiked amid interest from meme stock investors.
  • But unlike its similarly named sibling, Ethereum Classic suffers from several structural weaknesses that hinder its long-term promise.

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Despite the meme stock frenzy, it's not "cheaper Ethereum." Here's what you need to know.

Ethereum (CRYPTO:ETH) has had an outstanding year so far, but as new investors start to explore the sometimes strange and confusing world of cryptocurrency, there's potential for missteps. One such plausible mistake is buying Ethereum Classic (CRYPTO:ETC) when attempting to buy standard Ethereum. No, it's not "cheaper" Ethereum -- the once-unified coins have very different levels of support and roadmaps ahead. Here's what you need to know.

Coins bearing the emblem of the cryptocurrency Ethereum.

Image source: Getty Images.

The big split

Until mid-2016, there was only Ethereum. The rising cryptocurrency was building momentum as an alternative to Bitcoin (CRYPTO:BTC) thanks to its ability to run smart contracts -- automated agreements that can power decentralized finance, or DeFi, services and other apps.

In 2016, some early Ethereum enthusiasts devised a bold and inventive plan to create a decentralized autonomous organization, or DAO, that would allow users to pool their Ethereum coins and collectively decide which projects to invest in. It was simply called The DAO,  and it raised more than $150 million worth of Ethereum. Soon after, however, a fatal flaw in the code allowed an attacker to withdraw about $50 million of the funds.

The DAO was a disaster, and the Ethereum community had to reckon with the fallout. Some believed that "code is law," and that the immutable nature of the blockchain technology behind Ethereum meant that nothing could or should be done. However, a large portion of Ethereum developers and backers believed that the blockchain should be amended to reverse the hack and return the money to the original holders.

That contingent started a new blockchain called Ethereum with the hacked funds returned, and continued building from there. The original blockchain was renamed to Ethereum Classic, and the fervent "code is law" believers supported that vision instead.

Varying paths

Since then, Ethereum has become a cryptocurrency powerhouse. It's the most popular platform for developing decentralized apps and serves as the backbone for the vast majority of the burgeoning DeFi scene. The price of the coin has soared, too, reaching an all-time high of $4,357 in early May before falling to just under half that amount as of this writing.

By contrast, Ethereum Classic has more or less lingered on the sidelines. The original version of Ethereum has a fraction of the average daily trading volume of the current Ethereum, and it isn't a popular platform for decentralized apps, DeFi services, or crypto non-fungible token collectibles. In other words, it has significantly less active utility than Ethereum. 

All that said, Ethereum Classic has seen its own price surge so far in 2021. It set a new all-time high of $167 per coin in May, right around the same time that Ethereum hit its own peak, but has sunk further without strong fundamentals behind it: Ethereum Classic's price sits at about $47 per coin right now, or 72% off its peak price. Even so, it has sustained a larger price multiplier since the start of the year than standard Ethereum.

Besides piggybacking on Ethereum's own momentum, Ethereum Classic seems to have benefited from the meme coin/stock trend as investors attempt to find low-cost assets to pump. CoinDesk described recent price jumps as the result of "speculative fever." 

Ethereum Classic has a few things missing, however: support, security, and vision. It doesn't have the vast developer support that helps Ethereum power much of the surging crypto app market. Ethereum Classic fell victim to multiple attacks in 2020  which could compromise the security of the network. And while Ethereum Classic is implementing some smaller improvements, it will not transition to an energy-efficient and scaling-friendlier proof-of-stake network model, as Ethereum will with its upcoming 2.0 upgrade 

The road forward

Although they're cut from the same cloth, Ethereum and Ethereum Classic have taken much different paths over the last five years since splitting. Ethereum appears poised for continued growth and development as it enhances its network and helps more DeFi services roll out.

Ethereum Classic, on the other hand, has a novelty aspect to it -- almost like the meme-inspired Dogecoin (DOGE 13.52%) -- but that's not enough to justify a long-term investment strategy. The lower cost enables wider price swings, but as it stands, Ethereum Classic is an inferior investment that lacks standard Ethereum's road to sustained growth and improvement.

Fool contributor Andrew Hayward owns Ethereum, Bitcoin, and Dogecoin. The Motley Fool owns shares of and recommends Bitcoin. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Ethereum Stock Quote
$1,979.42 (-0.48%) $-9.45
Bitcoin Stock Quote
$24,536.14 (0.15%) $37.42
Dogecoin Stock Quote
$0.08 (13.52%) $0.01
Ethereum Classic Stock Quote
Ethereum Classic
$42.22 (-4.43%) $-1.96

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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