About this Summary
Coinut Canada Ltd. (“Coinut” or “we”) believes that our users should understand the crypto assets that they are able to trade using our crypto trading platform (the “Platform”). One of the crypto assets we offer on the Platform is Ethereum Classic (“ETC”). We created this summary to help you understand the basics of ETC as well as some of the risks involved in trading it. While we tried to describe the key features of ETC here, this summary isn’t meant to tell you everything you’d want to know before investing in ETC. You should also do your own research on ETC to make sure you are comfortable investing in it.
Description of ETC
ETC is the native token of the Ethereum Classic Network. The Ethereum Classic Network records all transactions on a decentralized, transparent and immutable public ledger, known as a “blockchain”. The open-source Ethereum Classic Network software code includes the protocol that governs the creation of ETC and the cryptographic operations that verify and secure ETC transactions. In contrast to the Bitcoin Network, the Ethereum Classic Network goes beyond a peer-to-peer money system as it supports peer-to-peer contracts, known as smart contracts, as well as decentralized applications.
The Ethereum Classic Network and ETC should not be confused with the Ethereum Network and its native token, Ether. Due to a hard fork of the Ethereum Classic Network in 2016, the Ethereum Classic Network and the Ethereum Network are distinct blockchain platforms. The hard fork was prompted by an attack that is often referred to as the “DAO Attack”. The DAO Attack occurred in 2016 when an attacker stole millions of dollars worth of ETH from a major third-party project that was being run on the Ethereum Classic Network (then known as the “Ethereum Network”). After much deliberation within the Ethereum community, the Ethereum Foundation (a dedicated non-profit organization which supports the ongoing development of the Ethereum Network) implemented a hard fork and created an altered version of the original Ethereum blockchain which essentially erased the DAO Attack. Not everyone within the Ethereum community was on board with this altered version of the blockchain, as many believed that erasing the DAO Attack violated important principles underlying the network. As a result of these differing opinions within the Ethereum community, two separate Ethereum blockchains remained in use after the hard fork. Many users adopted the new Ethereum blockchain which erased the DAO Attack (which is the Ethereum Network) and, for those who did not approve of the hard fork and the altered blockchain, the original and unaltered Ethereum blockchain carried on and was renamed Ethereum Classic.
ETC can be purchased on crypto asset trading platforms and can also be earned through mining. Like Bitcoin (and unlike ETH), there is a cap on the total supply of ETC (210,700,000 ETC). Also, like Bitcoin, Ethereum Classic runs a “proof-of-work” (“PoW”) algorithm, whereby miners complete difficult computational tasks and are rewarded with ETC. While there is a possibility that the Ethereum Classic Network will move from its current PoW algorithm to a “proof-of-stake” algorithm, whereby miners settle and validate transactions according to the amount of coin they lock within the system, the Ethereum Classic Network appears to be committed to remaining with its PoW algorithm. So, while ETH may be more widely used and well-known than ETC, many find ETC’s limited supply and Ethereum Classic’s commitment to the PoW algorithm attractive.
Like other crypto assets, there are some general risks associated with investing in ETC. We describe many of these general risks in the risk statement we publish on our website, including risks relating to: (i) volatility; (ii) access, loss or theft, (iii) control of processing power; (iv) settlement of transactions on crypto asset networks; (v) momentum pricing; (vi) private keys; (vii) internet disruptions; (viii) faulty code; (ix) network development and support; (x) regulatory risk; (xi) network forks; (xii) air drops; (xiii) voting rights; (xiv) cybersecurity incidents and other systems and technology problems; and (xv) unforeseeable risks. We also point out some risks that are specific to ETC below. While we tried to describe the key risks associated with ETC here and in our risk statement, these aren’t all of the risks associated with trading in ETC. You should also do your own research on ETC to make sure you are comfortable investing in it.
Increased Risk of 51% Attacks
In recent years, the Ethereum Classic Network has been the victim of several “51% attacks”. These attacks have resulted in the theft of millions of dollars worth of ETC. Although steps have been taken to lessen the risk of future attacks, the history of the Ethereum Classic Network may indicate an increased likelihood of 51% attacks occurring. There is no guarantee that more 51% attacks will not occur in the future.
As the use of Ethereum Network increases, transaction times can increase significantly. Decreased transaction speeds could preclude certain use cases for the Ethereum Classic Network and can reduce the demand for and price of ETC. If transaction times do significantly increase, there is no guarantee that an appropriate mechanism will be put in place to reduce transaction times.
Significant Energy Consumption
Because of the significant computing power required to mine ETC, the Ethereum Classic Network’s energy consumption may ultimately be deemed to be or indeed become unsustainable. This potential unsustainability could pose a risk to broader acceptance of ETC.
How Coinut Decides to List Crypto Assets
Coinut reviews crypto assets before making them available for trading on the Platform. In making our decision to list a new crypto asset, we consider publicly-available information about the crypto asset, including (among other things) its creation, design, governance, usage, supply, demand, maturity, utility, liquidity, material technical risks and legal and regulatory risks. Our review process is fulsome and flexible, and we don’t prioritize any one factor over another. You should review the risk statement published on our website for more information about our procedures for determining whether to make a crypto asset available for trading on the Platform.
Coinut is offering crypto contracts to purchase and sell ETC in reliance on a prospectus exemption contained in the exemptive relief decision Re Coinut Canada Ltd. The statutory rights of action for damages and the right of rescission in section 130.1 of the Securities Act (Ontario) and similar legislation in the other provinces and territories of Canada would not apply in respect of a misrepresentation in this statement.
No Canadian securities regulatory authority has expressed an opinion about ETC, including an opinion that ETC is not itself a security and/or derivative.
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