In addition to building decentralized applications and various other uses, the Ethereum platform allows users to set up and run DAOs – Decentralized Autonomous Organizations. In essence, they are entire long-standing entities that store digital assets and use them in various ways according to a fairly complex set of predefined rules. These rules are set in smart contracts written by a person or a group of people. There is an initial funding period during which users can purchase property tokens by adding funds to the DAO.

At the end of the crowdfunding period, the DAO begins work. Users can make proposals on how the DAO should spend its funds, and members who have bought tokens can vote for or against the proposal. However, it is important to note that purchased tokens do not really equate ownership. Instead, they give people the right to vote on different issues. Bitcoin was, in fact, the very first DAO ever created as it is governed by consensus between its core team and its mining network. All other DAOs were created on the Ethereum platform.

“DAO” is the name of a special DAO created by the team at Slock.it, a German startup that offered “smart locks” that let people share their things like cars, apartments, etc. Somehow, DAO managed to become the biggest crowdfunding project in the world. history, raising over $150 million from over 11,000 participants. Needless to say, this was far more money than their creators could ever hope for and were willing to spend.

Then the DAO was hacked. It is important to note that the bug used by the hacker was not found on the Ethereum network as it worked perfectly all along. All network systems are vulnerable to hacker attacks to some degree, and even the hacker himself said he just took advantage of a technical loophole in the DAO.

However, on June 17, 2016, someone started siphoning money from the DAO to a “child DAO” that copied the structure of the DAO. In the end, the hacker managed to withdraw $50 million of Ether from the DAO. The price of ether immediately fell from $20 to $13. And while the Ethereum team had nothing to do with the DAO and its hack, they were left to sort out the mess.

They managed to stop the leakage of funds and transfer them to another smart contract, but this was only a temporary measure. Due to the way the DAO code was written, there was a possibility that a hacker could still claim the funds. Some intervention was required from the Ethereum team. In the world of cryptocurrencies, such an intervention is called a “fork”. Initially, a “soft fork” was proposed, which was essentially a reset button for the decentralized network. This would mean a rollback of the entire Ethereum network, which would essentially eliminate the DAO and move all the money into a smart contract that could only refund investors.

However, this proposal raised an existential question and caused a split in the Ethereum community. One of its main and most important attributes is its decentralized nature, which means that all decision-making power belongs to the community. The solution of this problem would mean a complete undermining of this principle. What’s more, a soft offer would entail a rollback vote for most Ethereum miners, but a security breach in the voting process completely eliminated that option.

This left a “hard fork” as the only option. Basically, a completely new version of the Ethereum network was created with slightly different rules than the original one. After that, miners, exchanges, ordinary users and other large applications that were built on it had to decide whether they wanted to become part of the new version of Ethereum or stay with the original. The hard fork proposal was voted on by Ethereum holders and the vast majority of people, a whopping 89 percent, voted in favor, and the hard fork took place on July 20, 2016.

Thus, Ethereum Classic was born. Basically, it should be considered as a new cryptocurrency as it has its own blockchain and is not dependent on Ethereum. Both blockchains are identical in every way until block 1920000, when a hard fork was implemented to return funds to DAO investors. Ethereum Classic still offers the same features as Ethereum.