One of the features of cryptocurrencies (at least the most popularized ones such as Bitcoin) is that they are not only volatile, but their value is also astronomical. Buying several of these coins, if any, is therefore virtually out of reach for most people. So why is Ethereum classic so cheap?
Ethereum Classic is very cheap for various reasons.These include low demand, relatively low investor interest, a smaller dApps ecosystem and minimal developer activity. Also, the crypto has low daily trading volumes and low trust due to security issues and because the blockchain is a fork.
In this article, I will talk more about the various reasons why Ethereum Classic is so cheap. I will also discuss critical questions related to Ethereum, including why Ethereum classic is cheaper than Ethereum, whether you should invest in it, and why. Read on for more.
1. Lower Demand and Low Investor Interest
One of the reasons why Ethereum Classic is so cheap, particularly relative to Etherium, is because it has lower demand. A major driver for cryptocurrency value is popularity and, in turn, demand.
As aptly summarized by Investopedia, the price of investment assets is affected by the laws of supply and demand. And in the case of cryptocurrencies, restricted supply with high demand.
Accordingly, when a cryptocurrency is popular, more people will be interested in it. This will drive up its price. However, unlike other cryptocurrencies, Ethereum Classic does not attract the same degree of demand and trades at a much lower value.
This notwithstanding, Ethereum Classic is enjoying a recent increase in demand as some traders switch from Ethereum to Ethereum Classic. The price has grown by up to 75% in a mere eight days. However, even with the price growing to $44 a token, this still pales in comparison to the price of ether or bitcoin.
2. Ethereum Classic Has a Smaller DApps Ecosystem
The difference in the size of a blockchain ecosystem also affects the value of a cryptocurrency and consequently, its price. This aspect is also related to the cryptocurrency’s popularity but not from the perspective of traders wanting to invest in it. Rather, from the number of dApps (decentralized applications) on the blockchain.
To this end, blockchain networks such as Ethereum, Bitcoin, and Litecoin simply have a larger ecosystem driven by the availability of more dApps. As elucidated by Finance Buzz, one of the reasons why Ethereum has such a high value is due to its use of decentralized finance.
Because of the above, more users rely on ether to power transactions on Ethereum as opposed to Ethereum Classic. The latter does not enjoy as large an ecosystem of decentralized applications on its blockchain.
3. Ethereum Classic Is a Hard Fork
In blockchain terms, a hard fork is a radical change in the various protocols associated with the blockchain network.This means that valid blocks or transactions become invalidated and vice versa. So how is Ethereum Classic a fork?
One of the similarities between Ethereum and Ethereum Classic is that both share a common blockchain in terms of how they emerged. However, following a hack on Ethereum in 2016, a hard fork was carried out on the Ethereum blockchain.
The hack was erased in the new version of Ethereum, and the blockchain developed further. Users who had suffered losses in the previous version were reimbursed on the new Ethereum. Ethereum Classic maintained a record of the hack and the original code without the additional developments.
Because Ethereum classic maintained the original code and a record of the hack, it is incompatible with the new Ethereum blockchain. Also, most – if not all of the upgrades on the new blockchain are not present on Ethereum Classic.
Because most users migrated to the new blockchain and the old Classic version maintained a record of the hack, many people view Ethereum Classic as an outdated version of Ethereum. This has negatively impacted its popularity and growth, especially when compared to the much more valuable and upgraded Ethereum blockchain.
4. Low Developer Activity
Compared to other platforms such as Ethereum, Bitcoin, and the likes, Ethereum Classic has much lower development activity. As explained in Chain Debrief, developer activity is one of the key metrics for determining a blockchain’s growth potential.
The total developer activity highlights which developers are behind the project, the ‘brains’ behind the project, so to speak. While other metrics such as total value locked speak volumes about the demand-side factors, developer activity is a good indicator of the supply side.
Information on developer activity and code contributions are easily accessible by the public. It is, therefore, no surprise that the platforms with the highest developer activity, such as Ethereum (with 3,920 developers in 2021), Polkadot, Cosmos, Solana, and Bitcoin, are valuable.
Ethereum Classic is simply not able to compete with the more popular blockchains in terms of developer activity. And this is reflected in its lower value and price.
5. Low Daily Trading Volume
Another reason why Ethereum Classic is cheap compared to other blockchains is its relatively lower trading volume. Ethereum Classic’s daily average is significantly lower than the more popular platforms, even with the recent surge of investor interest.
As the financial analysts at Benzinga note, Ethereum Classic’s trading volume reached over 900,000 on 19th March 2022, which was much higher than a 10-day average over the previous two weeks of just over 200,000. A key point to note is that this occurred during a surge, which means that the trading volume will be much lower than that when the market corrects.
In comparison, Ethereum features over 1.1 million daily transactions. Daily trading volume is vital because it reflects the level of investor and trader interest. Additionally, investors on the fence will typically prefer blockchains and currencies with higher daily trading volumes.
6. Security Issues
As previously discussed, Ethereum Classic is the result of a hard fork following a hack in 2016. Interestingly, the blockchain has suffered up to 51% attacks since, the latest one in August 2020. This highlights the blockchain’s ongoing security issues, an aspect that has resulted in low investor trust and interest over the years.
For instance, the August 2020 attack comprised three attacks on the blockchain in a single month. Although there seems to be rising investor interest over the past month, security issues may negatively impact the coin’s growth potential.
Granted, security experts agree that blockchains, in general, are still vulnerable. What’s more, these 51% attacks are a genuine concern even for the larger blockchains.
Still, while Ethereum Classic has demonstrated a history of attacks, larger and more valuable blockchains such as Bitcoin and Ethereum do not share the same degree of risk. This is because the costs of successfully carrying out such an attack on these networks are astronomical.
Like other blockchains, Ethereum Classic has the potential to grow in terms of both value and price. While the above factors have definitely contributed to the low cost of Ethereum Classic – especially when compared to other more popular platforms that emerged later – the future looks promising.
Ethereum Classic is much cheaper than the more popular cryptocurrencies. Even with the current spike in demand and price expected to slow down, it is evident that miners are gaining interest. As such, this blockchain is worth risking a few hundred dollars for.
- Coinbase: Ethereum Classic Price
- FinanceBuzz: Ethereum vs. Ethereum Classic: The Differences You Need to Know
- Statista: Daily Cryptocurrency Transactions 2017-2021
- Chain Debrief: Project Strength: Which Blockchain Has The Highest Developer Count
- Investopedia: Hard Fork (Blockchain)
- Investopedia: Why Do Bitcoins Have Value?
- Decrypt: Repeated 51% Hacks on Ethereum Classic