ETHEREUM CLASSIC DIGITAL ASSET REPORT

by SIMETRI Research

ETHEREUM CLASSIC DIGITAL ASSET REPORT: ETC Review and Investment Grade

TABLE OF CONTENTS

Investment Grade

C+

Quick Facts

Ticker:
ETC
Current Price:
$5.63
Market Capitalization:
$655,180,310
Circulating Supply:
210,700,000 ETC
Total Supply:
116,319,790 ETC
Top 10 Addresses:
16.87%
ATH Price:
$47.77 (Dec 21, 2017)
30-Day Average Price:
$5.25
24H Volume:
$1,710,855,219
30-Day Average Volume:
$1,581,101,088

Funding Information

Public Sale Date:
N/A
Public Sale Price:
N/A
Public Sale Allocation:
N/A

Fundamental Factors

Market Opportunity 6.5
Ecosystem Development 6
Token Economics 8
Token Performance 6
Core Team 7.5
Underlying Technology 6.9
Roadmap 7

Introduction

In the spring of 2016, the first decentralized venture capital fund on Ethereum, the DAO, was hacked, which led to the most significant and controversial split in the Ethereum community by far.

Due to the vulnerability in the fund’s smart contract, the hacker almost managed to get away with $50M, a third of the money that the DAO had raised. However, the vulnerable smart contract also had a 28-day holding period, so the hacker couldn’t do anything with the money until that time had expired. This gave the community time to discuss a potential solution to the problem.

Most of the Ethereum holders and developers (that voted on the subject) supported the idea of implementing a hard fork and returning the funds back to their original owners. Nevertheless, some community members strongly opposed the idea of a hard fork since it would violate the immutability principle of the blockchain.

This resulted in a split on the Ethereum blockchain. Miners who supported the refund (the majority) began to mine the new chain, while miners who refused to adopt the hard fork continued to mine the unforked version of Ethereum. This unforked version became known as Ethereum Classic (ETC).

Since its launch in 2016, ETC has been supported by several independent development teams and some notable investors.

In fact, Grayscale Investments, the subsidiary of Digital Currency Group and one of the most influential venture capital firms in the space, is funding ETC’s development.

This support, however, has not helped the project to significantly improve its adoption. ETC has been losing the adoption race not only to Ethereum but also to projects such as EOS, TRON, and to other smaller blockchains.

The project also has faced many challenges on the technical front and the governance level, such as the 51% attack, and the ETC Cooperative (which stewards the development of Ethereum Classic) controversial board member resignation. Furthermore, the project has been struggling to differentiate itself from Ethereum and currently does not offer any significant improvements over its big brother.

Still, the project has an ambitious roadmap for 2020, decent funding, and developmental support, which could help it improve the adoption of the network in the future. To achieve this, the team will need to present a unique value proposition for the network. Otherwise, ETC risks becoming irrelevant and losing the support of its core community.


Competitive Landscape

Although ETC is a relatively old project, it was not able to attract a significant number of supporters and has been losing the adoption race to Ethereum and other big blockchains. Its transaction count numbers have been relatively stable since its launch, but are still low compared to Ethereum, EOS, and TRON.

ETC was not able to differentiate itself from Ethereum by demonstrating a significant competitive advantage. As a result, there is relatively low interest in the project from the developer community. Why build on ETC if ETH is much bigger and considerably farther ahead of ETC in terms of network development and upgrades?

Additionally, while the dApp usage and development of new dApps on Ethereum and other big blockchains has been growing, the dApp activity on Ethereum Classic has been nearly nonexistent.

According to Dapp.com, in 2019, there were a total of 1,445 new dApps launched on the six largest smart contract platforms, of which 690 are Ethereum-based, 411 are TRON-based, and 260 are EOS-based. In contrast, Dapp Direct, a registry for ETC DApps, lists only 39 different DApps. Many of them are non-active.

Transaction Count | Source: https://coinmetrics.io/charts/#assets=eth,eos,etc,trx_left=TxCnt_zoom=1430909955918.3672,1594987023673.4692

Decentralized applications are potentially one of the most vital components of blockchain adoption, and a low number of dApps and active users is a concern.

Over the past few years, the project has not been very active on the ecosystem expansion side. Although it seems that this year the situation is starting to change for ETC, it will be difficult to battle with Ethereum network effects.

At the same time, ETC has not made large-scale investments in the ecosystem, such as TRON or EOS. For example, the TRON ecosystem has been growing on the back of large strategic acquisitions. Block.one, the company behind EOS, has established major plans to invest over $1B in the EOS ecosystem.

To support the ecosystem development, ETC Labs, the accelerator behind ETC, announced a $1M commitment to investing in start-ups that are working on social impact projects. ETC Cooperative, another organization behind the project, is also working on the project’s development and investing in the ecosystem. However, the investments that have been made by both of these entities are still small compared to some of the competition.

Overall, Ethereum Classic will need to figure out a strategy on how to grow its ecosystem and start to wisely allocate its resources in order to increase the number of dApps and active users. Otherwise, the current situation (with nearly nonexistent dApp activity) is highly unlikely to change.

Source: https://www.dapp.com/ru/article/dapp-com-2019-annual-dapp-market-report

Technical Developments and Upgrades

Over the course of the past few years, Ethereum Classic has implemented several protocol upgrades and improvements.

The project has changed its monetary policy, implementing a block reward reduction every five million blocks by 20%. According to the project, there are many reasons for changing the monetary policy. However, in general, the project was seeking the same goals as Bitcoin and considers Bitcoin’s monetary policy (with block reward halving) “generally accepted ideal monetary policy.”

In September of last year, and at the beginning of this year, the project has also completed two hard forks, ‘Atlantis’ and ‘Agharta’. The hard forks make ETC more interoperable with Ethereum, although the changes that have been implemented have already been active on the Ethereum mainnet.

The next upgrade that the project is planning is Phoenix, scheduled to happen in June 2020. Similar to the previous two upgrades, it will implement features that are already live on Ethereum and should improve the interoperability between the two networks.

Improving interoperability between ETH and ETC could potentially help the project improve its adoption in the future.

However, currently, Ethereum presents a much better opportunity to developers given its size, development progress, and network effects.

From a developmental perspective, the overall philosophy of ETC is to remain conservative:

“As per their history and philosophy, it can be said that Ethereum Classic is a conservatively run system, focused on security, and the upcoming Ethereum 2.0 is a progressively run system, focused on performance.“

However, in ETC’s context, there are two problems with such an approach.

First is security. Although the project is trying to prove that it will be more secure than Ethereum 2.0, it has already faced security issues, such as the 51% attack in Jan 2019, which has seriously damaged its reputation.

Second is performance. While Ethereum is actively working on solving its scalability problems, ETC is far behind in this sense. It is absolutely clear that the future of the decentralized world will belong to high-throughput networks. Having no significant developments on this site could be risky, given the competition in the space.

So, while the security of the project has been questionable, the scalability is also a major concern.

Governance and Ecosystem Progress

There are several teams that are supporting ETC development in one way or another. However, two teams, ETC Labs and ETC Cooperative, are specifically targeting the ecosystem and business development of the project.

ETC Labs is an incubator that supports innovative projects on the Ethereum Classic blockchain. It has already invested in 15 startup projects, and has recently committed to investing $1M in partnership with United Nations’ Children Fund. Its general strategy is to run three incubator programs per year, investing between $50,000 – $150,000, in exchange for 9% equity.

Still, incubated projects remain at the early stages of development, and it could take a significant amount of time before they make a difference for ETC’s ecosystem.

Also, this year, ETC Labs  partnered with Chainlink and Fantom Foundation. As with all investments, however, only time will tell before we see how the established partnerships affect the project’s ecosystem.

The ETC Cooperative is another entity that is responsible for ETC’s development and ecosystem expansion. It is supported by Grayscale Investments (a subsidiary of Digital Currency Group). Since 2017, Grayscale has donated a total of $1.1M, including $338,000 in 2019.

The fund will continue to donate one-third of the management fees from its Grayscale Ethereum Classic Trust to the ETC Cooperative each quarter through 2021. Grayscale manages around 14% of the total ETC supply and is directly interested in its success.

Project Team | Source: https://research.binance.com/projects/ethereum-classic

The ETC Cooperative mission is to steward the development of the Ethereum Classic protocol and support the growth of a mature ecosystem around that protocol. Its team has been quite active in organizing conferences, hackathons, and different kinds of marketing activities for the project.

However, the recent news regarding the organization has been rather negative. In March, one of the top-funding board members, James Wo, resigned due to “gross mismanagement”:

“I regret to say that, as a matter of principle, I must resign from the Board, effective immediately, because of gross mismanagement. I have reluctantly concluded that the executive director, Bob Summerwill, lacks the integrity and judgment needed to build the organization”.

Although Summerwill (the Executive Director of the ETC Cooperative) has refuted Wo’s allegations, the fact that one of its top funders resigned from the board is still a concern.

Nevertheless, the ETC Cooperative has a very ambitious roadmap for this year. It plans to focus on grassroots developer relations, developer support, community conferences, and hackathons.

The project is planning to establish more connections within the Ethereum ecosystem. As an example, all of the Layer-two projects will “just work” on ETC as well, and the team will be working on integrating them on ETC.

Overall, if the ETC Cooperative achieves its roadmap goals, it should help the project grow its presence in the space. However, this would certainly not be enough to create significant competition for Ethereum.

While the project is trying to benefit from Ethererum’s achievements (due to the similarity of both projects), it has to present additional benefits for its potential users and developers. Otherwise, it will always remain in ‘catch up’ mode.

2020 Roadmap | Source: https://etccooperative.org/ETC-Coop-2020-Roadmap.pdf

Conclusion

All things considered, ETC has been rather slow when it comes to development and ecosystem expansion over the past few years. This has not allowed the project to significantly improve adoption and grow its user base.

While the project has money and human resources to improve its standing, the competition is fierce and is only increasing. The team will have to invest a significant effort into differentiating itself from Ethereum by presenting valuable features for growing its ecosystem.

Still, the risks that the project is facing are greater than its strengths. Therefore, ETC receives a grade of C+.

The author(s) of this report is/are invested in the following coins: ETH, BTC.

SIMETRI Research is an Internet based newsletter and publication on the Crypto Briefing site (the “Site”) and is owned by Decentral Media Inc., a Delaware Corporation (the “Company”). Neither SIMETRI Research nor the Company is registered as an investment adviser with any federal or state regulatory agency, or with any other governmental body or organization. To the extent that any portion of the Site content would need to rely upon an exemption from such registration, the Company and/or SIMETRI Research would rely upon the “publisher’s exclusion” from the definition of “investment adviser” as provided under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. To the extent reliance on the publisher’s exemption is necessary, the Site and/or SIMETRI Research is a bona fide publication of general and regular circulation offering impersonalized investment-related advice to users and/or prospective users (e.g., not tailored to the specific investment portfolio or needs of current and/or prospective users).

The Site is limited to the dissemination of impersonal and objective investment-related information [together with access to additional impersonal investment-related information and links.] The publication of the Site on the Internet and the publication of any content should not be construed by any user and/or prospective user as SIMETRI Research’s (i) solicitation to effect, or attempt to effect transactions in securities over the Internet, or (ii) provision of any investment related advice or services tailored to any particular individual’s financial situation or investment objective(s).

Users do not receive investment advisory, investment supervisory or investment management services, nor the initial or ongoing review or monitoring of the user’s individual investment portfolio or individual particular needs. Therefore, no user should assume that his/her/its use serves as a substitute for individual personalized advice from an investment professional of the user’s choosing. Rather, the Site is designed solely to provide users with a method to evaluate certain investment- related information and trading methodologies/systems.

The user maintains absolute discretion as to whether or not to follow any portion of the Site content. SIMETRI Research does not offer or provide investment implementation services, nor does it offer or provide initial or ongoing individual personalized advice (neither in person nor via the Internet). It remains the user’s exclusive responsibility to review and evaluate the content and to determine whether to accept or reject any Site content. SIMETRI Research expresses no opinion as to whether any of the Site content is appropriate for a particular user’s investment portfolio, strategy, financial situation, or investment objective(s).

It is the user’s exclusive responsibility to determine if any portion of the investment-related information and trading methodologies/ systems on the Site, if any, is suitable or appropriate for his/ her financial situation and/or investment objectives, both initially and on an ongoing basis. No current or prospective user should assume that the future performance of any specific investment, investment strategy (including the investments or trading methodologies/systems discussed on the Site) or any other Site content will be suitable or profitable for a user’s portfolio, equal historical or anticipated performance level(s), or prove to be correct.

Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a user or prospective user’s investment portfolio. Investments in cryptocurrencies or digital assets such as tokens are particularly risky and speculative investments. Users do not receive investment advisory, investment supervisory or investment management services, nor the initial or ongoing review or monitoring of the user’s individual investment portfolio or individual particular needs. Therefore, no user should assume that his/her/its use serves as a substitute for individual personalized advice from an investment professional of the user’s choosing.

The information contained on this website and in SIMETRI Research may include, or incorporate by reference, forward-looking statements, which would include any statements that are not statements of historical fact. No representations or warranties are made as to the accuracy of such forward-looking statements. Any projections, forecasts and estimates contained on this website, our reports, or newsletters are necessarily speculative in nature and are based upon certain assumptions. These forward-looking statements may turn out to be wrong and can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors, most of which are beyond our control. This may include misrepresentations by the project teams, faulty due diligence, or the vagaries and volatility of the nascent cryptocurrencies market and early use stages of blockchain technology. It can be expected that some or all of such forward-looking assumptions will not materialize or will vary significantly from actual results.

RELEASE: Each user or prospective user acknowledges and accepts the limitations of the Site and SIMETRI Research and agrees, as a condition precedent to his/her/its access to the Site, to release and hold harmless Decentral Media Inc., its members, officers, directors, owners, employees, advisors, affiliates, and agents from any and all claims and adverse consequences resulting from his/her/its use, including, but not limited to, losses resulting from the user’s implementation of any of investment-related information, recommendations and/or trading methodologies/systems.

✖