Hard drive prices are on a roller coaster, computing power is catching up with FileCoin, how long will Chia be popular?

Author | Liu Xia Editor | Zhaosheng Layout | Wenxin

After more than three years, Chia Network's Chia 1.0 mainnet was finally launched on March 19.

"Have you done Chia?" "The threshold is super low", "P-trade as soon as possible", and other words like these have swept all crypto communities for a while, and it can be said to be the top Internet celebrity project this year. Even though Chia currently only opens farming rewards (farming) and the trading function has not yet been launched, the over-the-counter price of XCH has soared from US$30 to US$150.

Behind the skyrocketing prices, there are also the rising prices of Chia mining machines and the hot speculation of many hard disks in the market….

On May 4th, Beijing time, Chia opened token transfers and has now launched its token XCH on trading platforms such as OKEx.

Chia mainnet launched and IPO started

Chia received great attention from the market when it was first launched, which is inseparable from the star founding team behind it.

Chia Network's founder is BitTorrent founder Bram Cohen, and its COO is Ryan Singer, co-founder and COO of Tradehill Inc. The founding team also includes Gene Hoffman, former founder and CEO of eMusic.com and Vindicia, and Mitch Edwards, former acting CEO of Overstock.com.

With such a star-studded founding team, it is hard for Chia not to attract attention.

Bram Cohen

In addition to the well-known founding team, the investment institutions behind Chia are also well-known. Chia Network has currently received investment from many well-known investment institutions, led by AngelList CEO Naval Ravikant, and participating investors include A16Z and Greylock.

Chia also announced the launch of its IPO process at the same time as the mainnet was launched. So far, Chia has received $16 million in financing. Chia also officially announced that it will be listed on the Nasdaq in August this year, with participation in the form of equity, with a total amount of $30 million.

Founder Cohen: Make a better "Bitcoin"

In addition to a strong team of founders and investment institutions, when mentioning Chia, the label "Green Bitcoin" is indispensable.

The so-called "green Bitcoin" is a more energy-saving and decentralized cryptocurrency compared to the "hugely wasteful and terrible" Bitcoin in the words of its founder Cohen.

The energy consumption brought by Bitcoin mining is undoubtedly huge. The electricity consumed in the current production of Bitcoin in a year can be used by 20 million people for a year, and less than one ten-thousandth of the electricity is ultimately profitable, and the rest is wasted. Labels such as high energy consumption and environmental unfriendly are always lingering around Bitcoin.

In addition, professional "mining" hardware is increasingly owned and operated by a few large entities, and the concentrated nature of Bitcoin computing power is becoming more and more obvious, which is contrary to the decentralized vision that the Bitcoin community has always advocated. But driven by capital and interests, this idealized product of vision is inherently powerless.

Cohen, one of the founders of Chia, said in a previous interview that he wanted to create a greener Bitcoin to solve the problems of energy waste and computing power centralization. This better Bitcoin is Chia, which comes with many new concepts.

New consensus: PoST

Compared with Bitcoin, Chia changes from the underlying consensus mechanism.

The proof mechanism chosen by Chia is PoST (Proof of Space and Time), which is proof of space and time. Different from the previous PoW mechanism (proof of work mechanism) of Bitcoin and Ethereum, this proof method belongs to the category of PoC (proof of capacity). PoST can be further broken down into two parts - proof of space (PoS) and proof of time (PoT).

The so-called proof of space is to prove it with the unused storage space on the hard disk. Chia users need to install software to plot the remaining space of the hard disk, that is, fill it with hash data. This process is commonly referred to as P disk in the industry. The software will generate and store the cryptographic digital collection on the disk as plots, and the users who provide storage space are called farmers. The probability of a farmer winning a block is the percentage of the space of each plot to the total space of the entire network. In other words, the more remaining space on your hard disk, the more space you participate in P disk, and the higher your probability of winning a new block. It does not take long to create a proof of space, which also leaves the potential for attackers to use a large amount of space to create alternate competitive transaction histories and futures.

Proof of time is like adding a "wall clock" to the block, which can increase security and reduce risks for the Chia network. Proof of time determines time by generating sequential storage proofs, which allows validators to check whether the storage provider has stored data within a certain period of time. Proof of time is implemented through a verifiable delay function (VDF), and its key idea is sequential calculation. This function is implemented by a VDF server (Timelord), which helps complete a block on the network and move the chain forward.

In summary, the PoST mechanism can use the remaining storage space in the storage device for mining. Chia mining does not require the computing power required by PoW, but storage space.

New blockchain programming language: Chialisp

Chia's underlying blockchain programming language, Chialisp, is also brand new.

Chialisp is an intelligent programming language based on the functional language Lisp, which integrates smart contracts and smart transactions. Chialisp pursues security and simplicity in design, is powerful, easy to audit, and secure, and supports smart contract instances for atomic swaps, authorized payees, recoverable wallets, multi-signature wallets, and price-limit wallets.

The second Filecoin?

Chia is not the first to use hard disks for mining. The recognized leader in this field is Filecoin, which was launched on the mainnet last October. According to Filfox (Filecoin blockchain browser and data service platform), as of midnight on May 6, the real storage space of the Filecoin network was 4.94 EB. At the same time, Chia's data was 2.19 EB, less than half of the former. However, Chia's network storage space growth slope is still very high.

Figure: Chia network storage space and its trends

Source: Chia explorer

Both belong to the category of POC. What are the main differences between the highly-anticipated Chia and Filecoin?

There is no penalty for Chia participants even if they lose computing power due to disconnection, and there is no need to pledge tokens before participating in mining. Investors who want to participate in mining only need to configure simple equipment and download the mining applet on the official website. Filecoin has designed three penalty mechanisms - consensus penalty, storage penalty and contract penalty, and requires pledge tokens. Even honest miners may have all pledged tokens deducted due to unstable hardware or network status, which also leads to relatively high risks for Filecoin miners.

For this reason, Chia is praised by some as a cheap version of Filecoin: its low technical threshold and low equipment configuration requirements greatly reduce the entry threshold of Chia. For those investors who missed the opportunity to invest in Filecoin, placing a new bet on Chia may be another option.

In terms of application scenarios, Chia focuses on the financial field, aiming to develop functions suitable for scenarios such as banking, payment and financial applications, such as financial control, payment clearing and settlement, and management of asset issuance. Filecoin is positioned as storage, unlike Chia which stores meaningless hash data, Filecoin stores valid files.

Table: Comparison of differences between Filecoin and Chia

Is Chia Really “Green”?

One of Chia's major visions is to solve the high energy consumption problem of Bitcoin. Chia advocates the main concept of green environmental protection. Whether from the direction of technological innovation or from the various new words such as "farming" and "farmers" that come with it, we can feel Chia's efforts in environmental protection.

The gap between vision and reality: waste still exists

There is still a gap between ideal and reality. Although Chia has made a lot of efforts in green environmental protection, mining Chia is still a waste. However, mining Bitcoin costs electricity, while mining Chia costs hard disk and time.

In the P disk process before farming, a large amount of meaningless data needs to be written to the hard disk, which will greatly shorten the life of the hard disk and is as meaningless as Bitcoin's ASIC chip. In comparison, Chia's resource consumption is indeed much less than Bitcoin, but it is not as economical as the PoS mechanism adopted by ETH 2.0, and its meaningless hash data storage is not as meaningful as Filecoin's file storage.

The original intention of Chia is to hope that users can use idle hard disks, but it involves commercial interests, and the final result is generally inevitable that capital will pursue profits. There are still many ordinary players participating in mining, but almost no one really uses idle hard disks to participate in mining, so it is inevitable that high-performance hard disks will be wasted. With the development of the Chia project, if capital intervenes in a big way, the mining pattern may not be able to avoid specialization, agglomeration, and the situation where ordinary players leave. Chia is likely to face the two eternal problems of waste and centralization.

Hard disks are hotly speculated: they are both resources and consumables

As Chia became popular, the price of hard disks also went through the roof. In late March, the cost of a single TiB of hard disks for Chia mining machines was generally around 160-170 yuan, and the price of 1 TiB of Chia mining machines in the early days was mostly around 200 yuan. Now, due to the general increase in the prices of computing machines, storage machines, and hard disks, the price of 1 TiB of many Chia mining machines has been pushed up to around 600-700 yuan. Along with this, there is also the pressure and hoarding of hard disks, the monopoly of sales channels, and even various pitfalls such as selling old disks as new ones.

The sky-high price of hard drives has brought about a bubble, and the increase in entry barriers and the ever-increasing cost of participation have also made ordinary players daunting.

How much bubble is there in XCH? What is the reasonable price range of mining machines?

Before the transfer transaction was opened on May 4, the actual value of XCH could only be known through over-the-counter prices and related derivatives prices.

From the beginning of March to the end of April, the over-the-counter price of XCH has increased by about five times. As for the XCH futures price, the chart below shows that it showed a sharp upward trend before entering May, reaching a peak of RMB 12,884.3 on April 30, but began to fall continuously after entering May. On May 2 alone, it fell 54.7% from the previous day.

Figure: XCH and BTC futures price trend comparison

Source: Mytoken

Similar to the XCH futures price trend, hard disk prices also experienced a roller coaster ride in April. After a surge in early and mid-April, they began to plummet in late April.

Whether Chia mining machines are worth investing in depends not only on the over-the-counter transaction price of XCH, but also on the cost of mining XCH.

According to the data provided by Chia explorer, we can see that the daily output of TiB coins is showing a downward trend, and the farming reward has dropped from 0.0367XCH on April 13 to 0.0037XCH on May 6. The decline in farming rewards has prolonged the payback period for investors and increased risks.

Figure: Trend of daily single TiB coin production

Source: Chia explorer

Although Chia has been very popular recently and has huge traffic, the publicity of institutions is relatively conservative, and there are not many voices from top capital and media. It is not yet known how big the price risk of XCH is, and many exchanges are still in a wait-and-see state. In the long run, Chia's listing plan brings a lot of transparency, control, and regulatory guarantees to this Internet currency, and the expected risk of currency price fluctuations is also reduced.

Judging from the trading situation only three days after its launch, Chia's expected earnings are not optimistic. The launch price of Chia coin XCH was 2500USDT, and it began to plummet after its launch. As of 7:30 pm Beijing time on May 6, the coin price was 590.91UDST, a drop of more than 70%. However, the decline in XCH prices also indicates that hard disk prices will return to normal.

Figure: XCH price trend

Source: Chia explorer