Why did Ethereum and Ethereum Classic split?
Around this time last year, an experiment on Ethereum called DAO (Decentralized Autonomous Organization) went horribly wrong and many investors lost a lot of Ether: estimated around 15% of ETH in circulation at the time. More specifically, it was hacked. The exploit was not on Ethereum, but rather the DAO which was built on top of Ethereum.
There was a fork in the road forward for Ethereum. There were two solutions:
- Blacklist the attacker from all transactions on Ethereum, so the attacker cannot cash out. The stolen Ether would basically be locked away forever.
- Reverse all the transactions related to the DAO entirely. The investors get their money back.
Which fork to take?
Option one was called a soft-fork because it was a relatively less drastic measure within the confines of the system design of Ethereum blockchain. This was implemented while the community was attempted to arrive at a consensus. Unfortunately, at the eve of the rollout, a vulnerability was discovered and the soft-fork was abandoned.
Option two was a hard-fork because it was an unprecedented proposal: split the Blockchain itself. This was and still is controversial not only because because Ethereum would be split, but Ethereum is a decentralized system governed by “code law” and this amounted to an intervention by the “1%-ers” of Ethereum in collaboration with Stiftung Ethereum (Ethereum Foundation), this arising a de facto central authority. It was a shakeup of fundamentals at the core of the “religion” of public blockchain and cryptotokens itself. It's as if the Pope converted to Islam and recommended all Catholics to also convert.
In the end, the Ethereum community voted in favour of the hard-fork. When it was implemented, the investors got their money back and that blockchain is now called Ethereum (its token is ETH). The other blockchain with the DAO transactions left alone became known as Ethereum Classic (its token is ETC).