The information contained in this Crypto Asset Statement was last updated on August 15, 2022.
No securities regulatory authority in Canada has expressed an opinion about Ethereum Classic or any of the other Crypto Contracts or Crypto Assets made available through Newton Crypto Ltd. (Newton) on the Newton Platform, including an opinion that Ethereum Classic itself is not a security and/or derivative. Changes to applicable law may adversely affect the use, transfer, exchange, or value of any of your crypto assets, and such changes may be sudden and without notice.
Newton is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Newton Crypto Ltd. dated August 15, 2022. 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 Crypto Asset Statement or the Newton Platform Risk Statement.
This overview provides a summary of certain risks associated with Ethereum Classic and is not an exhaustive description or summary of these risks and, in addition, does not take into account an individual’s particular situation or risk tolerance. Investors are encouraged to conduct their own research prior to trading any crypto asset.
Newton users should read the Newton Platform Risk Statement for additional discussion of general risks associated with crypto assets made available through the Newton platform. A copy of the Newton Platform Risk Statement acknowledged by you is available in your account in the “Statements & Reports” section.
Token Description & Project Background
Ethereum Classic is a “fork” of Ethereum, which is an open-source platform with smart contract functionality that is used to create and run decentralized applications (dApps). Ethereum was founded in 2013 by Vitalik Buterin and developed together with Mihai Alisie, Anthony Di Iorio, Amir Chetrit, Charles Hoskinson, Gavin Wood, Jeffrey Wilcke, and Joseph Lubin.
In 2016, Ethereum suffered a hack known as the DAO hack. The DAO was a “decentralized autonomous organization” which functioned like a regular company, but was decentralized and governed by computer programming. The code of the DAO had a flaw which caused ~$50M USD worth of Ether tokens to be stolen. At the time, that represented about 15% of the entire supply of ether, and according to some of the founders of Ethereum, allowing such a large amount of ether to be lost would have been devastating to Ethereum since the project was only 1 year old at the time. Thus the decision was made to “fork” Ethereum and forcibly reverse the hack as if it never happened.
However, this decision was controversial, as one of the founding principles of crypto is to respect the code and immutability of the blockchain. The attacker had even published an open letter claiming that they were rightfully entitled to the funds since they simply exploited a flaw in the code which was badly written and contained a bug.
Those who supported the forked version of Ethereum where the hack never happened went on to support what we now call Ethereum, and those who opposed this change remained on the original blockchain which we now call Ethereum Classic.
Ether Classic (ETC) is the Ethereum Classic platform’s native token and is used to power the protocol and pay transaction fees on the platform. Ethereum Classic is expected to remain on the Proof of Work (PoW) consensus mechanism for the foreseeable future, which is in contrast to Ethereum which is still in the process of moving to a Proof-of-Stake (PoS) consensus mechanism as of July 2022.
Risks of Ethereum Classic
Like an investment in other crypto assets, an investment in Ethereum Classic includes the following general risks: (i) volatility risk and liquidity risk, (ii) short history risk, (iii) demand risk, (iv) forking risk, (v) code defects, (vi) regulatory risk, (vii) electronic trading risk, and (viii) cyber security risk.
For additional information of general risks associated with crypto assets, you may refer to the Newton Platform Risk Statement. In terms of specific risks, as Ethereum Classic is one of the longest-standing crypto assets and its community base is widely decentralized, there is no central working group or authority to disclose material information to the public regarding Ethereum Classic.
Please note that these risks and the associated summaries or overviews provided for each herein are not intended to be an exhaustive discussion pertaining to all such risks and, in addition, there may be other risks that come with exposure to Ethereum Classic. We encourage all Newton users to perform their own due diligence to assess the risks associated with Ethereum Classic and to determine whether this level of risk is acceptable to them. Neither Ethereum Classic nor Newton guarantees the value of Ethereum Classic, and holders of Ethereum Classic will not have any recourse to Ethereum Classic or Newton if the value of Ethereum Classic declines for any reason whatsoever.
Newton’s Evaluation Process
Newton has reviewed and assessed Ethereum Classic prior to making it available on the Newton Platform and has concluded that Ethereum Classic is not a security or derivative under Canadian securities legislation; however, there is a risk that this conclusion could change in the future and that, in such event, Newton will be required to halt, suspend, and then remove Ethereum Classic from its platform as described in the Newton Platform Risk Statement.
Further, as indicated above, no Canadian securities regulatory authority has expressed an opinion about Ethereum Classic, including an opinion that Ethereum Classic is not itself a security and/or derivative.
Based on publicly available information Newton has reviewed Ethereum Classic, including, but not limited to, a review of the following:
- The creation, governance, usage, and design of Ethereum Classic, including the source code, security, and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that created Ethereum Classic.
- The supply, demand, maturity, utility, and liquidity of Ethereum Classic.
- Material technical risks associated with Ethereum Classic, including any code defects, security breaches and other threats concerning Ethereum Classic and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them.
- Legal and regulatory risks associated with Ethereum Classic, including (i) any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of Ethereum Classic, and (ii) statements made by any securities regulatory authorities in Canada, other regulators in IOSCO-member jurisdictions, or the regulator with the most significant connection to Ethereum Classic about whether Ethereum Classic, or generally about whether the type of crypto asset, is a security and/or derivative.
A link to the Ethereum Classic White Paper is available at the following link.