ETC production reduction is finally here, but the dream of halving is broken

ETC production reduction is finally here, but the dream of halving is broken

At 02:07 pm on March 17, Ethereum Classic (ETC) experienced a production cut at block height 10,000,000, with the block reward reduced from 4 to 3.2 ETC (a 20% reduction).

Author: Li Xiaoping

At 02:07 pm on March 17, Ethereum Classic (ETC) experienced a production cut at block height 10,000,000, with the block reward reduced from 4 to 3.2 ETC (a 20% reduction).

This is the second halving of ETC. The first halving occurred on December 12, 2017, when ETC reduced its block reward from 5 ETC to 4 ETC at block height 5,000,000. The third halving is expected to take place in two years and four months, when the block reward will be reduced to 2.56 ETC.

As of press time, QKL123 market data shows that ETC is currently trading at $4.62, with a 24-hour increase of 13.60%. The current ETC circulation is 117 million (total 210 million), with a market value of $558 million, accounting for 0.38% of the total market value of the digital currency market.

Production reduction

A reduction in production means a reduction in the number of mining rewards, which in turn increases the mining cost. In theory, this will drive up prices to offset the mining cost. From historical experience, price fluctuations may start in advance and gradually emerge after the halving. This was the case with ETC’s first reduction in production.

In December 2017, after the first ETC production cut, the price doubled within 20 days, and then fell rapidly. Xu Kang, head of ETC Asia Pacific, said in an interview with Babbitt,

“The design of ETC’s monetary policy is similar to that of Bitcoin, so the rules of the production cut market are also similar. After the first production cut of ETC, it reached a high in January 2018, and then fell with the market. In general, the market after the production cut will be more volatile than before the production cut.”

As the first mainstream coin to be reduced in 2020, the price changes of ETC during the reduction cycle are naturally the focus of investors. According to the QKL123 market data, ETC rose from a low of $3.36 on December 18, 2019 to a high of $13.23 on February 6, 2020, with a maximum increase of 74.60%, and then fell all the way.

Unlike 2017, black swans frequently appeared in 2020, and the global financial market experienced severe shocks, and the digital currency market was not immune. During this shock, on the darkest days of March 12 and 13, the price of ETC plummeted from a high of $6.80 to a low of $3.01, with the maximum drop of 55.73%. After that, the market showed a small and steady rise.

Although the production cut has arrived, the current performance of ETC in the production cut cycle is not as good as people expected. This may be a microcosm of this year's halving market.

Regarding the market trend after the ETC production cut, Xu Kang told Babbitt that short-term investors (speculators) will pay special attention to the production cut, while medium- and long-term investors will focus on the value of the digital currency itself. He said,

"From last year to now, the value of ETC has been greatly improved. First, institutions have entered the market. Some large institutions use ETC as a way of asset allocation. Second, industry applications. UNICEF uses ETC as the underlying technology, and some physical stores use ETC for payment. Third, the ETC Core development team, three fork upgrades and other technological innovations. All these have given investors confidence."

Hashrate Changes

In fact, the people who are most sensitive to the reduction in production are miners. According to QKL123 data, the current ETC network computing power is 12.71 (TH/s) and the mining difficulty is 158.21 (T).

At present, more than half of the total computing power of the graphics card market is in ETH. In addition to the "ETC mining reward reduction of 20%", ETH 2.0 will switch to PoS consensus this year. The superposition of these two events has made the computing power distribution between ETC and ETH the focus of miners.

As can be seen from the figure below, most of ETC's computing power comes from abroad, and only a few mainstream mining pools in China support ETC.

Figure: ETC mining pool computing power distribution

Alina, head of the OKEx mining pool, told Babbitt that ETC computing power can be understood as the heavy asset support behind ETC, and it has only increased by about 2 times since the same period. Such growth is certainly due to the rise in coin prices and overall bullish expectations, but computing power is the indicator we should focus on, and any growth above it can be regarded as a premium.

Looking back at the ETC network computing power in the past month, it has dropped from the highest point of 16.8TH/S to the current 10.8TH/S. During this period, there have been many waterfalls. The computing power has dropped but not halved, but the price has dropped from $9 to $4.5. Alina believes that this phenomenon can be simply understood as the de-bubble behavior of the coin price relative to the computing power. Because for mining coins, there is always a computing power cost, and the computing power cost can indeed be regarded as the basic support of a project.

Will ETC's computing power flee if mining incentives are reduced? If ETH2.0 is released, it is expected that the original ETH miners will directly switch to ETC mining, and its computing power will also increase significantly. Can ETC take over this computing power?

Alina said,

“As can be seen from the figure below, ETC has indeed obtained the support of multiple computing powers to ensure a smooth transition in the production reduction process. Therefore, the current income of miners from mining ETC has decreased, but they have not given up supporting the future development of ETC. I believe that ETC may still be the chosen one to take over the computing power after ETH switches to PoS as the public institutions believe.”

Xu Kang expressed the same view. He believes that after the ETC production reduction, there will be a small amount of computing power fleeing, but it will not have a big impact. Because some miners are more familiar with the ETC ecosystem and have a certain belief in it, they are more willing to make arrangements in advance, rather than waiting for ETH2.0 to switch to PoS before making a choice.

“It mainly depends on the mining input-output table given to miners by major mining pools. At present, the input-output of ETC and ETH are comparable. Miners will consider switching computing power based on their own benefits and technical feasibility.”

Basic Introduction

The emergence of ETC originated in June 2016, when Ethereum's popular project The DAO was hacked. In order to recover investors' losses, Ethereum implemented a hard fork plan at the 1920000th block height on July 20, 2016, and eventually split into two chains: one is the forked chain "Ethereum", and the other is the original chain "Ethereum Classic", and its tokens are ETH and ETC respectively.

In October 2016, Ethereum Classic issued the Declaration of Independence, declaring its independence;

In February 2017, the ETC long-term contributors and volunteer team was renamed the ETCDEV team;

In December 2017, Ethereum Classic proposed a new monetary policy, which reduced block rewards by 20% every 5 million blocks.

In September 2019, ETC implemented the Atlantis hard fork to make it compatible with Ethereum’s Byzantium upgrade;

In January 2020, ETC implemented the Agharta hard fork to make it compatible with Ethereum's Constantinople upgrade;

After March 2020, ETC will undergo a Phoenix hard fork to make it compatible with Ethereum’s Istanbul upgrade.

Although ETC and ETH have many differences, they have many similarities at the technical level. The hard fork upgrades in the past year are all aimed at making ETC and ETH more compatible and interoperable, so as to enrich application scenarios and jointly build an ecosystem.