As the heat wave hits, what is the value of Chia investment?

Recently, Chia has become extremely popular, and there are endless topics surrounding Chia, such as the soaring hard disk prices, the founder of BitTorrent is the founder of Chia, the similarities and differences between Filecoin and Chia, the growth of Chia computing power, etc.

However, behind the "fire", the controversy surrounding Chia has never stopped. Is it a potential target or just a hot spot for speculation? Is it worth investing in?

In this issue of "Hi, Boss!", co-founder and editor-in-chief of Lieyun Finance, Wang Xuejing, specially invited four guests, including Wan Liyuan, CEO of Shunru Big Data, Jia Xudong, co-founder of KeyPool, Dou Erdun, founder and CEO of Doujin Computing Power, and Max Hu, assistant general manager of Computing Power 360, to discuss things related to Chia.

The following is the sharing record (edited):

Wang Xuejing: Our Lieyun Finance was established in early 2018. It is a vertical blockchain media under Lieyun Group. It is deeply involved in the blockchain field and focuses on digital mining, DeFi, NFT, etc. It has many popular brand columns, such as "Hi, Boss!", "Friends in the Mining Circle", "Online Classroom", etc. Now, please let the guests briefly introduce themselves.

Wan Liyuan: I am a veteran BTC and ETH miner, and I just started mining Chia a month ago. I am very happy to discuss this project with you.

Jia Xudong: I am Jia Xudong from Keypool. I got involved in Bitcoin in 2018 due to hydropower. Currently, we mainly mine Filecoin and have just started to get involved in Chia.

Dou Erdun: I am the founder and CEO of Doujin Computing. Doujin Computing was founded in early 2019. We are a company that focuses on blockchain mining research and data-based research on digital currency quantitative factors. At the same time, we conduct in-depth research on projects such as FIL, XCH, and CRU.

Max Hu: I am Max Hu, assistant general manager of 360 Computing Power. We are a long-established cloud mining platform that has been engaged in self-operated mining since 2015, mainly focusing on BTC and ETH in the early days. In 2019, we became the world's first cloud mining platform with 1:1 anchoring of physical mining machines. Now 360 Computing Power manages more than 100,000 Bitcoin and graphics card mining machines, and the scale of mining farm management exceeds 800,000 kilowatts, mainly located in Sichuan (consumption of industrial park electricity), Xinjiang (State Grid electricity), Yunnan and Guizhou (Southern Grid electricity), and overseas cooperative mining farms are located in Norway and North America.

01The threshold for Filecoin mining is much higher than Chia mining

Wang Xuejing: Both are PoC mining, what is the difference between Chia and Filecoin?

Jia Xudong: The two have only one thing in common, that is, both use hard drives for mining. Apart from that, the two projects are very different.

First of all, the original intentions of the two projects are different. Filecoin is a distributed storage project, which provides the industry with the possibility of storing blockchain native data in the blockchain storage network. Currently, infrastructure construction and ecological development are being promoted simultaneously. Chia's slogan is green Bitcoin, which is not aimed at storage itself, but only uses the consensus mechanism of storage. Bitcoin's proof of work mechanism consumes a lot of electricity, while Chia's POC mechanism consumes much less electricity.

Secondly, in terms of mining, the difference between the two is also very large. The threshold for Filecoin mining is much higher than that for Chia mining.

First, Filecoin has very high requirements for mining hardware, while Chia has very low requirements. For example, the hard disks involved in mining in both require computing to mine, but the computing logic and configuration requirements for the equipment are different.

Filecoin computing power packaging requires complex calculations such as P1, P2, C1, and C2, and requires high-end CPUs and GPUs to participate in the calculations. Chia hardware requirements are relatively low. Chia computing power needs to be calculated through Plot, commonly known as P disk. P disk has certain requirements for CPU, memory, and SSD. The characteristic is that the computing power cost of the P disk is very low.

Recently, I learned that many machines that cannot meet the Filecoin mining configuration requirements have started mining Chia.

Second, Filecoin’s current cluster mining has a very high degree of algorithm optimization. Chia can use the official algorithm for DIY mining, but some companies are currently working on optimizing the Chia algorithm.

Third, Filecoin mining has a pre-staking mechanism and a lock-up release mechanism. Chia mining currently has no staking or lock-up.

Fourth, Filecoin mining has a penalty mechanism. If miners cannot provide stable commercial storage services, the network will generate penalties. The entire mining has very high requirements for the mining farm, and the mainstream in the industry chooses to deploy in data centers above t3+ level. Chia mining is similar to Bitcoin mining. After the computing power is offline, there is no income at most, and there is no penalty mechanism, so miners can choose to build their own computer room, which is relatively low cost.

It can be seen that the two are very different. Overall, Chia currently has a lower participation threshold and higher popularity, and its computing power growth rate exceeds that of FIL (Filecoin has recently increased by 30P+ per day). However, the funds behind the growth rate are completely different. The investment per P in Chia is 300,000 or 400,000, while the investment per P in Fil is nearly 20 million.

02Chia consensus algorithm empowers decentralized networks

Wang Xuejing: Why is Chia so popular? What is its value?

Max Hu: First, the mining profits of BTC and ETH have fallen into a certain stagnation period, that is, there are no machines in the market and the payback period has been lengthened.

The total computing power of BTC is now increasing at an average rate of 3% per month, and may exceed the 200Eh/s mark by the end of the year. The current daily income of a single T is around 0.000006 BTC, and by then it may be less than 0.000005 BTC, and the payback period is around 350-400 days.

ETH mining also faces similar problems. The payback period is already around 300 days, and there are machines with greater computing power coming into the market. For example, Bitmain is about to launch a mining machine model with about 3G computing power.

The mining income of mainstream currencies has narrowed, leading the market to actively look for new mining targets, such as POC mining currencies, Chia, Crust, Phala, etc.

Second, a large number of Filecoin users have begun to switch, and users who missed Filecoin hope that Chia will become "Filecoin 2.0".

After last year's concentrated outbreak, Filecoin has a very large user base. In any digital mining conference in Shenzhen, there may be no less than 50 Filecoin mining machine manufacturers. However, Filecoin mining has high technical barriers, high operation and maintenance costs, and needs to be optimized. Filecoin also has a "hard nut to crack": staking coins. The current equipment: staking coin cost is as high as 1:9, which is no longer easy for Filecoin's vast number of sinking market users to participate.

Although Chia and Filecoin have completely different positioning, we have seen a simple and easy-to-understand direct analogy in terms of communication: "Chia may become the new generation of Filecoin or Filecoin 2.0" and "Those who missed Filecoin last year must not miss the opportunity to mine Chia this year." This analogy is similar to "Bitcoin is gold, Litecoin is silver". It may not be accurate, but it is easy to spread and is conducive to converting Filecoin's original user group.

Therefore, we intuitively feel that the Chia craze this year is even more intense than Filecoin last year.

Third, the threshold for Chia mining is low, and it “sucks blood” from hard disk mining projects such as Crust and BHD.

(Data source: hpool)

In the past week, Chia's total network computing power has increased by 227%, from 482 PB to 1069 PB at noon today (April 29). This growth rate is extremely terrifying.

At the same time, the computing power of the old PoC project BHD fluctuated greatly and dropped by 12.5% ​​overall. BHD miners slightly configured their machines to switch to Chia mining. BHD requires a graphics card, while Chia only needs a CPU.

Crust miners, another famous PoC mining project, may also turn to Chia mining because they cannot borrow pledged coins and the price of CRU has soared.

Based on the above points, plus a little bit of market fermentation, the off-market price has been ignited, from $250 to a maximum of $2,700, and FOMO sentiment has spread. Chia is on fire, naturally.

As for the value of Chia, I would like to quote a point of view shared by Alex, the head of Hpool:

The value of Chia is divided into two parts: the first part is the value of the project itself, and the second part is its consensus algorithm - the PoST space-time proof algorithm, which may truly inherit the original intention of the birth of blockchain, empower decentralized networks, and make them both safe and environmentally friendly.

1. The value of the project itself: The investment industry generally says that it would rather invest in second-rate projects and first-rate teams. Because if the people are not reliable, nothing they do will be reliable. And Chia's founding team is very capable.

2. Successor of the original intention of blockchain: Back in 2009, Bitcoin's PoW algorithm was used by everyone at home with a CPU. Theoretically, 7 billion people in the world could be the issuers and maintainers of Bitcoin. However, the BTC mining industry has now made the maintenance of the BTC network more and more centralized and monopolized. Chia is safer. In theory, any device with storage can become a Chia node and mine after installing a program. This is its security level.

03The best time to enter Chia mining is now

Wang Xuejing: The latest version of Chia Network has updated the transaction function, but it is not yet enabled. It is expected to enable transfer transactions on May 4. If it is enabled, what impact will it have on the miners who have already deployed?

Dou Erdun: Chia trading function has been added in version 1.1.0. The implementation of trading function means that XCH has entered the real market circulation stage. XCH price will be determined by market supply and demand and will be closer to the real and effective price. At the same time, the gentleman's agreement of many miners will be effectively implemented after the trading function is implemented. I think the biggest impact after the transfer is opened is that more miners will join in to compete for rewards.

Wang Xuejing: At present, 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. Considering the price factor and the competition of Chia's entire network computing power, do you think it is still a good time to enter the market?

Wan Liyuan: Regarding whether Chia is the right time to enter the market, my understanding is that the best time to plant a tree is ten years ago, and the second best time is now. The same goes for mining.

First of all, with the launch of the Chia mainnet on March 17, Chia, which is in a halving cycle in the next three years, is expected to produce 10 million coins. As of now, Chia's total network computing power has reached about 1070P, and the output of a single P computing power is roughly about 8 coins. The Chia futures price of several platforms that have been launched is maintained at around US$1,500.

Moreover, the price of hard disks has dropped in the past two days. A 16T hard disk is around 3,600 yuan. We calculate that the pure hardware cost of 1P computing power is about 350,000 yuan. The daily output of P is about 80,000 yuan. The advantage of the first mine is very obvious. This year is a mining bonus period for Chia.

Secondly, since IBM invented the mechanical hard disk in 1956, the technology update and iteration of mechanical hard disk has been very slow in the past 60 years, unlike the machines for mining BTC and ETH.

ASIC technology has a huge room for improvement. With the optimization of nano-process, the energy consumption ratio is reduced by half almost every 18 months. The hard disks that we are currently investing in Chia will not change much in the next five years. The iteration and update of computing power is unlikely to be as fast as that of BitEther. As long as the machine hardware is not damaged, it seems that mining can continue.

Third, the POST mining model adopted by Chia, I personally believe that it is the true 4.0 era of blockchain, including Chia’s early top-level development team and VC, and has broad prospects.

Finally, and most importantly, compared to Bitcoin and Ethereum mining machines, which have been extended to 18-24 months, Chia can be said to be the project with the highest efficiency and fastest payback.

Making money is the bottom line. As a veteran BTC miner, I am fortunate to have encountered this project in the best bull market, so I plunged into the Chia mining boom without hesitation a month ago.

04In the second half of the bull market, there are great opportunities to invest in new stocks and mine first

Wang Xuejing: At present, 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. Considering the price factor and the competition of Chia's entire network computing power, do you think it is still a good time to enter the market?

Jia Xudong: The second half of the bull market is still here. In such an environment, there are still many opportunities to invest in new stocks and mine the first mines.

Mining is an investment, and miners will consider the input-output ratio. If you can get your money back within 8 months, it is still very attractive. Judging from the current computing power growth rate, the output of Chia token XCH is declining significantly. The scarcity of chips is beneficial to the price after the transfer transaction is opened.

You can make a simple model of coin production and revenue. Chia produces more than 9,000 coins per day. Considering the computing power growth rate and the delivery time of your own mining machine, you can roughly estimate the coin production. Combined with the XCH price, you can get a profit table. Judging from the current OTC price and participating funds, the payback period is still considerable.

Wang Xuejing: At present, 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. Considering the price factor and the competition of Chia's entire network computing power, do you think it is still a good time to enter the market?

Dou Erdun: Getting on and off a train is always an art. Getting on a train not only depends on the price in the secondary market, but also requires you to have sufficient understanding of Chia's planning and Chia's protocol. Of course, the price in the secondary market is the best feedback on market conditions, but usually by the time there is actual feedback, it is already too late.

Here I will only talk about why I got on the bus and what was the basis for me to get on the bus?

1. First of all, the founder of the project is Bram Cohen, who once worked in the BitTorrent Protocol Laboratory. The once popular eDonkey and Shareaza were both implemented based on the BitTorrent protocol. I believe there is no doubt that Bram Cohen can implement the Chia protocol.

2. Secondly, the institutions that participated in investing in Chia's seed round include Naval, A16Z, True Ventures, Greylock, Galaxy Digital, Metastable and other institutions. They invested in Chia in the form of equity investment. The white paper clearly stated that before Chia's equity is publicly registered on the US stock exchange, strategic reserves will not be used to fund shareholder activities and repurchase shares.

3. Chia clearly stated that the strategic reserve will not be transferred to a third party. Before the public registration of equity, the 21 million reserve will not appear in the secondary market in the form of sales. The strategic reserve is officially used for lending and interest. The interest is returned in the form of XCH. We can understand that the circulation of XCH in the early stage mainly comes from miners and institutions that borrow coins for commercial operations.

4. The important time nodes of Chia are filing for registration with the US Stock Exchange and the effectiveness of Chia’s equity registration, followed by its first listing on the exchange.

At present, the entire network has produced 405,732 XCH through mining. I estimate that the official listing time on the exchange should be when the mining output is more than 10% of the reserve funds. It is expected that the three major exchanges should rush to get XCH. At present, it takes about 150 days for the total amount of XCH produced by miners to reach 10% of the strategic reserve funds. Judging from the enthusiasm of the current market feedback, listing on the exchange is basically a sure thing.

5. Based on the above judgment, I personally followed Chia's agreement and joined Chia's basic ecological construction. As for whether to get on board, you need to make your own judgment. Here I need to point out that investment is risky and you need to be cautious when getting on board. If you have already got on board, I suggest that you can pay attention to the following two addresses.

"xch16g76z3545xy2u4cgm52jyc7ymwyravn7m6unv9udfkvghreuuh7qa9cvfl" "xch18krkt5a9jlkpmxtx8akfs9kezkuldpsn4j2qpxyycjka4m7vu6hstf6hku"

At the same time, attention should also be paid to Chia’s information disclosure on US stock exchanges.

05Chia needs to find more practical application scenarios

Wang Xuejing: How much room does it have for future development? What potential problems does it have? Known as the "green bitcoin", can it really become the second bitcoin?

Max Hu: From a fundamental perspective, Chia is a star project: with a strong team background and capital support, it may be among the top 100 or even top 50 in the market as a whole.

As for potential problems, the most immediate one may be liquidity risk. As the listing approaches, the off-market sentiment has been very high, while the circulation in the secondary market is still small, so it is inevitable that it will experience a "burst" as soon as it opens. As for whether it will open high and close low like Filecoin, it depends on the short-term performance of the coin price after listing and the income of miners in the entire network at that time. If the income of miners is too high, it may form market selling pressure and the price will fall in the long run.

In the long run, the value of Chia will be reflected in whether it has truly achieved its goal of "green Bitcoin" (giving holders confidence) and the ceiling of this goal itself. "Green" is a result of its consensus mechanism, and the core lies in whether it can replace Bitcoin.

The digital currency market is not short of currencies that think they are better than Bitcoin. However, in the past 12 years, Bitcoin is still the digital currency with the largest circulation, the most users, and the strongest consensus.

To replace Bitcoin, simply put, is to defeat it in consensus: if more people trust Chia, then Chia can replace Bitcoin and become "green Bitcoin".

The total number of Bitcoin addresses held on the entire network is 460 million, with 135 million active users. In the past 24 hours, the number of active addresses was nearly 1 million, and there are 22,191 merchants around the world that accept Bitcoin payments. It is obvious that it is difficult to get more people to choose Chia.

So under the general principle of maintaining Bitcoin's market leadership, can Chia forge its own path? Relying solely on the vision of "greener Bitcoin" is obviously not enough. It needs to find its own more practical application scenarios.

06Chia can solve the selling pressure problem and has a promising future

Wang Xuejing: How much room does it have for future development? What potential problems does it have? Known as the "green bitcoin", can it really become the second bitcoin?

Wan Liyuan: I won’t go into details about the advantages of Chia, I will talk about the potential problems.

Judging from the rate of return alone, Chia mining naturally cannot escape the "law of true fragrance". The sharp increase in the computing power of the entire network, the crazy influx of retail investors and Fil miners, and the high popularity are only temporary manifestations of Chia mining. Here, I still want to make a few risk warnings and trend analysis:

Chia Network is committed to improving the global financial and payment systems, which seems to be an easy task. In the past, Ripple, the originator of the payment project, had a long-term game with the US regulator SEC over the attributes and illegal sales of its token XRP, and later there were a large number of compliant stablecoins. The payment tool that Chia wants to make will face huge regulatory pressure. If XCH cannot find its application scenario, is it still valuable as a consensus currency similar to BTC?

Chia's economic model has defects, and the secondary market trend of XCH is not optimistic. After reading through XCH's economic model, I only saw the output mechanism of XCH, and there was no detailed description of the recovery mechanism of XCH. In the future, when XCH is listed on the exchange, miners will continue to cause selling pressure. Who will buy a large amount of XCH? How to maintain the price of the currency?

If Chia can solve the selling pressure problem in the later stage, I think the future is still very promising.

Wang Xuejing: Thank you all for the wonderful sharing. See you next time!