Why Ethereum Classic Could Benefit From Ethereum’s New Validation Method

Ethereum Classic (CCC:ETC-USD) is at $45.55 as of July 13 and had a market capitalization of $5.29 billion, according to CoinMarketCap. Compare that to Ethereum (CCC:ETH-USD). It was at $1,938.36, and it has a market value of $225.73 billion on the same date.

visual representation of an ethereum classic coin

Source: Shutterstock

So, in effect, it is a cheaper way of gaining exposure to Ethereum. The reason I say this is that Ethereum Classic has many of the same features as Ethereum. It supports crypto smart contracts to be developed with its blockchain platform as well as decentralized applications (dapps).

The Original Fork

In 2016 hackers stole about $60 million of ether tokens. According to Coindesk, the Ethereum network’s code was altered to return the lost funds to investors.

But some people who ran Ethereum nodes objected to this “fork” in the technology code led by Ethereum founder Vitalik Buterin. As a result, these nodes run the pre-fork blockchain and it has become known as Ethereum Classic.

So today Ethereum Classic allows the mining of ETC tokens just like Ethereum. But when Ethereum moves to its proof-of-stake fork sometime in the next several months, miners won’t be able to mine ETH tokens anymore.

Recently some have said they will start mining ETC tokens after this change in validation methodology occurs. That will probably help ETC’s performance as it provides more supply for ETC. Supply growth is necessary for a cryptocurrency to eventually be used as means of exchange.

Ethereum Classic Performance

One thing on its side is its performance. ETC ended last year at $5.70 per token. At $45.55 today, that makes its year-to-date performance up 700%. That is much better than Ethereum, which is up 165.4% year-to-date.

Moreover, Ethereum Classic has performed about the same as Ethereum in the downturn over this last month. On June 13, it was at $59.16. That means it is off by $13.61 in the past month or down 23%. By comparison, Ethereum is off 23.6%, similar to Ethereum Classic.

So, Ethereum Classic has shown it has a better upside, similar downside volatility and is cheaper to buy than Ethereum. So far that is a winning formula for most investors. At least, it is compelling for those inclined to put up with the volatility in cryptocurrency investing.

Institutional Interest

Recently a Grayscale fund has decided to put $50 million into ETC. Actually, it is going to buy shares in a trust that holds Ethereum Classic. This will allow it to buy more Ethereum Classic tokens.

That is important since right now ETC has a market cap of $5.29 billion. That represents almost a 1% stake in the cryptocurrency. If more institutional investors take these kinds of positions then Ethereum Classic could continue to move up.

Where This Leaves Ethereum Classic

Some have speculated that miners that don’t want to mine ETC and can’t follow Ethereum in the new Ethereum proof-of-stake method, will essentially start a new “Classic” token. That would really complicate things. It is a real threat though.

And don’t forget that Ethereum has a huge $223.7 billion market cap. So, let’s say that 10% of its owners are miners that don’t want to accept the new blockchain software and decide to keep mining the Ethereum blockchain. That would mean $22.4 billion in Ether tokens would now be a third sort of pseudo-Classic Ethereum or 4 times the market value of ETC.

So things could get really interesting here in the next several months for ETC. However, some investors might find that Classic’s superior performance over Etherum is still an attractive quality.

On the date of publication, Mark R. Hake held a long position in Ethereum but not any other security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.


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