Into the Ether with Ethereum Classic www.grayscale.co The Store-of-Value Commodity to Power the Internet of Things. 1 Into the Ether with Ethereum Classic The Store-of-Value Commodity to Power the Internet of Things Matthew Beck, CFA | March 2017 In this next wave of the digital revolution, digital currencies have emerged as what many believe to be the greatest innovation since the advent of the internet. For the first time in history, value can be sent anywhere in the world at the same speed as information in a secure and trustless way. However, digital currencies are more than just payment facilitators. They offer an alternative to the economic, political, and social systems run by a handful of large institutions. Powered by millions of peers within globally distributed networks, digital currencies are democratizing information and value in incredible new ways. We believe in a future of multiple digital assets, each with unique comparative advantages that enable them to play distinct roles in driving economic growth and in diversifying investment portfolios. In light of this view, our team has been increasingly focused on the investment potential of Ethereum Classic and its associated digital token, ETC. Ethereum Classic is a next generation blockchain platform for a new internet infrastructure – one that can dramatically enhance the ways that information and value are shared in the digital economy, unlocking trillions of dollars in untapped economic surplus in the process. 1Featuring a flexible and intuitive smart contract programming platform that is powered by ETC, we believe Ethereum Classic may one day be the substrate for a global, secure, and decentralized Internet of Things (IoT). As individuals and commercial enterprises begin to appreciate the ways that Ethereum Classic can radically improve the quality of our lives, ETC may become more valuable as a scarce commodity that powers this new digital economy. In this paper, we explore: ? The origins of Ethereum one which has sold the lion’s share of their tokens, and another which still owns a significant amount. The Ethereum Foundation has liquidated 90% of their ETC holdings, tokens which they automatically received when the protocol forked. 15While they have completed a majority of their ETC sales, the remaining 10% could still impact the overall market. Furthermore, the DAO hacker still holds approximately 3.36 million ETC (roughly 4% of all ETC in circulation) in a wallet address that is identifiable on the blockchain. 16It is important for investors to remember that large blocks of ETC could be sold at any time, potentially placing downward pressure on the ETC price. Second, despite the fact that the previous charts show the current supply and inflation rates for ETC and ETH, questions remain as to how the ETH supply model will be impacted by the implementation of Casper. In various posts on Reddit, Vitalik has stated that the incentives designed to lure stakeholders towards Casper will result in a systematic slowing of ETH issuance, beginning as early as the second half of 2017. 17However, given that a concentrated group of developers and contributors (including the Ethereum Foundation) purchased 72 million of the 89.4 million ETH outstanding during the 2014 pre-sale, any slowing of ETH’s supply rate could raise significant concerns about centralization. 18This is even more alarming in the context of a proof-of-stake version of the protocol, where large stakeholders can have tremendous influence, potentially at the expense of other network participants. Protocol Development There is no doubt that talented minds are working on both projects: Vitalik Buterin and the Ethereum Foundation are driving forward the roadmap for Ethereum, while IOHK, the ETCDEV Team, and other independent community members are leading the way for Ethereum Classic. You can learn more about the individuals supporting Ethereum Classic development at: https://iohk.io/team/ https://www.etcdevteam.com/ Yet a major difference between the two projects can be seen in the structure supporting protocol development. Although Ethereum claims to be a decentralized platform, it is centrally funded by the Ethereum Foundation. The development funding (and consequently the innovation roadmap) is largely directed by a single entity and a few individuals. Within the Ethereum Classic community exists a counter-ideology; that a completely decentralized environment allows for abundant possibilities that would otherwise be hindered under the direction of a single organization. Many believe that the Ethereum Foundation’s strategy will lead Ethereum to suffer the same consequences as early instances of the internet, where walled gardens created by the likes of AOL, CompuServe and MSN were ultimately superseded by the open internet structure that exists today. Whether or not this is an accurate analogy remains to be seen. 15 Source: Cointelegraph: Ethereum Foundation Has Sold 90 Percent of ETC in Last 6 Months, January 10, 2017, Joseph Young. https://cointelegraph.com/news/ethereum-foundation-has-sold-90-percent-of-etc-in-the-last-6-months. 16 Source: GasTracker.io: https://gastracker.io/addr/0x5e8f0e63e7614c47079a41ad4c37be7def06df5a, March 2, 2017. 17 Source: https://np.reddit.com/r/ethereum/comments/5izcf5/lets_talk_about_the_projected_coin_supply_over/dbc66rd/ 18 Source: CoinDesk: What Investors Should Know Before Trading Ether, May 8, 2016, Charles Bovaird. //www.coindesk.com/what-to-know-trading-ethereum/. ?2017 Grayscale Investments, LLC Intended solely for U.S. investors. Please review Important Disclosures Other Information at the end of this presentation.