Chia is about to go public: The computing power is far greater than Filecoin, but it will take a long time to recover the investment. Where will it go in the future?

Not long ago, Chia Network (XCH) announced that it had completed a financing of US$61 million. After this round of financing, Chia Network's overall valuation was US$500 million, and the project will prepare for listing this year.

At the same time, the computing power of Chia Network has steadily increased to 23.6EB, far exceeding the 6.2EB of the well-known distributed storage project filecoin, and the computing power has increased by 7 times in the past month. Since the monthly output of XCH was basically fixed in the first three years, the large-scale computing power reduced the miners' income to 0.37 XCH/PB/day. Coupled with the continuous halving of XCH prices in the secondary market, the payback period for miners has been extended indefinitely.

With huge financing, star institutions have further "increased their holdings", and an IPO is expected this year. However, the miners who support the computing power network have a long way to go to get their investment back. Behind the contradictions and magic, let's talk about the current situation of Chia.

1. Chia miners’ real income

Here, let's first simply calculate the current input-output payback cycle and shutdown price of Chia miners. According to recent market information, the cost of 1PB Chia computing power is approximately between 360,000 and 500,000 (including storage machine and P disk costs), taking the middle value of 430,000 yuan/PB, comprehensive electricity and network costs, the daily maintenance cost of 1PB computing power is about 20-50 yuan (depending on the mining farm standards and electricity prices, etc.), taking the middle value of 35 yuan/PB/day.

On June 11, the total computing power of the Chia network reached 21.3EB, with an output of approximately 0.43XCH/PB/day. As the computing power of the entire network is still growing and the growth rate varies greatly, it means that the rate of return of a single PB computing power is further reduced. Because the computing power growth rate may fluctuate greatly and have a greater impact on long-term benefits, for the convenience of rough calculation, I took several different fixed computing power growth rates to calculate the rate of return.

Based on the XCH price of $510 on Huobi on June 11 (now down to $420), Chia’s current payback period is as follows:

In addition, referring to the shutdown price commonly used in BTC-type POW mining projects, based on the operation and maintenance cost of 35 yuan/PB/day and the current network computing power (without considering the computing power growth), the Chia shutdown price is currently about 14U, which is far from the current market price.

Compared with last month, when many mining machine manufacturers promoted Chia mining machines with slogans such as "payback in 3 months" and "payback in as fast as 21 days", the income from Chia mining has seriously declined with the entry of many miners.

Wu Blockchain reminded very early on that Chia is very different from Filecoin, the hardware cost required for mining is extremely low, and the model is extremely simple, so it will reach its peak quickly, and reminded investors to participate with caution.

The trend of Chia miners being stuck and switching to other projects is becoming more and more obvious. Especially since June, many Chia miners have begun to switch to Swarm, a popular storage project in the Ethereum ecosystem, and sell Bzz nodes.

2. The mystery of Chia’s official mining pool agreement

Not long ago, the Chia team released the testnet version of the Chia official mining pool protocol, and miners with development capabilities can participate in the mining pool test. The Chia official launched the mining pool protocol to change the current trend of centralized computing power in the Chia network, making the entire network more decentralized, while upgrading the consensus algorithm to prevent double mining, and launching a simple on-chain open source mining pool protocol for miners across the network to use.

Hpool, a well-known Poc mining pool operator, launched the Chia mining pool at the beginning of the Chia network, accounting for 35% of the total computing power of the Chia network, which caused fear among the Chia official team. Unlike Filecoin, the Chia official team had almost no good communication with the miners and mining pools, so they subsequently launched a mining pool that met the official conditions.

It is reported that the design of the official version of Chia mining pool follows several principles:

• Protect the interests of miners. Miners do not need to upload private keys to join the mining pool.

• By binding the mining pool through smart contracts, miners can join and exit the mining pool at any time without a strong binding relationship

• After joining the mining pool, miners can still independently mine blocks and receive a reward of 0.25XCH/block.

• Only newly added P disk files (computing power) can be added to the official version of the mining pool

• Chia official will not create a mining pool

Chia officials hope to change the current computing power distribution pattern through the design of the official mining pool in terms of the binding relationship between miners and mining pools, computing power growth, and block production methods.

For miners, although joining or creating an official version of the mining pool means more stable mining income and greater autonomy, there are still certain resistance factors:

1) Only new computing power can join the mining pool, which means that miners with existing computing power need to re-Patch the disk to join the new mining pool, which will increase costs;

2) The current scale and price of computing power result in a long payback period for the new computing power, which affects the enthusiasm of miners to add computing power;

3) Creating and operating an official version of the mining pool may require KYC and AML, which will help Chia miners meet regulatory requirements, but will lose anonymity. However, the specific implementation still needs to be observed.

4) Miners pursue maximum profit. If the official mining pool does not significantly improve revenue, they will not be very willing to join the mining pool on a non-compulsory basis.

In addition, the old computing power can still be solo or join a mining pool that supports the old protocol. The biggest function of the new protocol is to avoid the impact of multiple mining.

In summary, there are still many uncertainties as to whether the Chia official mining pool can solve the current phenomenon of computing power monopoly in the future. However, the Chia team still has many strategies to change the status quo. How to implement them and gain community recognition will test the team's community governance capabilities.

3 With IPO imminent, can Chia pass regulatory review?

Gene Hoffman, President and COO of Chia Network, said a few days ago that the company may go public through SPAC (Special Purpose Acquisition Company). At the same time, the recent huge investment by top investment institution A16ZZ also indirectly reflects the recognition of A16ZZ and other capitals for the possibility of Chia's next IPO success.

However, facing financial regulatory agencies represented by the US SEC, the Chia project has major problems with its positioning and compliance.

First, Chia needs to explain the relationship between XCH and Chia’s operating entity, as well as XCH’s position in the Chia project and future implementation scenarios. If XCH is a security token, it will violate securities laws and will most likely face prosecution by the SEC. If it is a non-security token, XCH needs to be classified and judged using the Howey test based on the blockchain token regulatory guidelines issued by the SEC in April 2019.

Previously, projects such as EOS, Tezos, and Ripple have all bowed their heads and reached settlements with the SEC. I’m afraid XCH will be no exception.

Secondly, the Chia project is positioned to improve the global financial and payment system. If it is understood as providing payment, clearing and settlement services to banks and other financial institutions, Chia also needs to solve the license issues of various financial businesses to ensure that future businesses can be carried out in compliance. Without the corresponding licenses, the business logic is difficult to be self-consistent, and future business cooperation cannot be promoted. How can we face the recognition of US stock market investors and the SEC?

Although Chia has the support of Bram Cohen, the soul figure who founded BT, everyone has their own expertise. Bram can let Chia not worry about technology, but the subsequent preparations for listing and the promotion of future commercial implementation are not Bram's expertise.

Perhaps it was because of this that the Chia team successively invited Gene Hoffman, who had a background as a CEO of a Nasdaq-listed company, and Chuck Stoops, who had served as legal counsel for companies such as Paypal and Netflix, to join.

Chia emerged as a mining coin in the domestic mining circle and once became the top mining coin, but our understanding of it cannot be limited to mining. If it is used as a carrier of consensus, BTC is enough, and XCH is not needed. However, in order for encryption technology to upgrade and change the current financial market structure, projects such as Libra and Chia still need to continue to explore.

In any case, Chia is one of the best compliant projects at present. Although Chia faces many obstacles in its future global financial and payment business, it is still worth looking forward to.