Chia FOMO explains the economic accounts: what are the costs and benefits?

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Wu said author | Shulden

Editor of this issue | Colin Wu

Overnight, all the topics in the mining community were focused on Chia, and the FOMO sentiment of participating in Chia mining was likely to overshadow the momentum of the star project Filecoin. However, the crazy growth of computing power seemed to have poured cold water on the participants. Is Chia mining worth participating in? What is the rate of return of Chia mining? This article will discuss Chia mining from three aspects: analysis of the Chia mining process, explanation of input-output calculation, and analysis of the risks and trends of Chia mining.

Analysis of Chia Mining Process

In order to calculate the economic account of Chia mining, you need to first understand the basic process of Chia mining, as well as information such as mining machine selection.

According to Chia miners, the current Chia mining machine is mainly composed of two parts: the P disk machine and the data hard disk. The working process of the Chia mining machine is mainly divided into 4 stages. The hardware resources required for each stage and the general process are as follows:

Data filling: consumes high-speed disk (Nvme) and writes the garbage table data automatically generated by the Chia program into the high-speed disk.

Data filling: It takes 42% of the time, consumes high-speed disk (Nvme), and writes the garbage table data automatically generated by the Chia program into the high-speed disk.

Data calculation: 19% of the time, CPU and memory, to perform specific calculations on the data in the above links

File compression: 27% of the time, CPU and high-speed disk, compressing data into a file, about 240G

File storage: 2% of the time, hard disk space, store the previous compressed files on the hard disk

The above four links are the P disk process of a file, which can obtain about 240G computing power. The hardware resources used in these four stages constitute the core of a Chia mining machine: a high-frequency multi-core CPU, a certain amount of memory, a certain size of high-speed read and write disk, and a large-capacity hard disk.

The efficient combination of electronic components directly determines the price of Chia mining machine and the speed of P disk. Based on this, we can preliminarily draw a reference standard for evaluating the cost performance of Chia mining machine: excluding the price of hard disk (its price is relatively transparent), the unit cost of each Chia mining machine is the computing power of P disk per day (that is: xx T/day/10,000 yuan).

The mining machine obtains the computing power of the Chia network through the P disk. As long as the computing power is not lost (data is not lost) and the network connectivity is good (ensuring that there are no abnormalities in block synchronization), it will have the opportunity to continuously participate in block generation and thus obtain block rewards XCH.

Therefore, Chia mining can be said to be a one-time investment with continuous output.

Chia mining input-output calculation

Now that we have learned about the Chia mining process, let’s calculate the rate of return. The basic calculation logic is: based on the total network computing power base, the daily computing power growth rate, and the daily output forecast of the accumulated mining income, and then compared with the cost of the mining machine, the rate of return can be calculated.

The following focuses on calculating the revenue that 1PB of computing power can produce:

Calculation logic: During the statistical period, 1PB of computing power produces XCH per day ≈ 1PB/total network computing power ratio*the daily Chia mining output of XCH in the previous three years, and then sum up the daily output during the statistical period.

Chia network computing power change trend Image source: chiaexplorer

Revenue calculation: As of 15:00 on April 25, 2021, Chia network has produced 3,363,840 XCH, and the total computing power of the entire network is close to 700PB. The average daily new computing power in the past week is about 50PB, and the average daily new computing power in the past half month is 30P. Considering the recent fomo sentiment of participating in Chia mining, it is expected that some enthusiasm will fade in the future. We take the daily increase of 30PB of computing power as the rate of return calculation variable, and we can conclude that 1PB of Chia computing power is expected to produce 1,640 XCH in one year (excluding 10% of the operation and maintenance service fee).

Cost calculation: Currently, the price of Chia cloud computing power products in the market is about 250-400/T, so we take the price of 1PB computing power as 300,000. In addition, if it is a Chia physical mining machine plus a P disk service, 1PB is about 500,000. Since the mining machine is mainly a hard disk that is relatively valuable, the residual value after one year is 70%, so the value loss of 1PB mining machine in one year is about 150,000. Based on this, we can calculate that under different XCH selling prices, the corresponding one-year yield of 1PB computing power and 1PB physical mining machine is as follows:

(Warning: This article and table do not endorse any investment or business behavior. The calculation is only a theoretical value. Investments must strictly comply with local laws and regulations and pay attention to risks.)

From the above table, we can roughly estimate the Chia mining yield. The Chia physical mining machine yield is higher than the Chia cloud computing power, and the higher the coin price, the greater the yield.

Chia mining risk and trend analysis

The above briefly describes the mining process and rate of return calculation. Judging from the rate of return alone, Chia mining naturally cannot escape the "true fragrance law". 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:

1. Chia network is committed to improving the global financial and payment systems, which seems to be not easy. 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?

2. The Chia economic model has defects, and the secondary market trend of XCH is not optimistic. After reading the economic model of XCH, 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?

3. The configuration of Filecoin mining machines is naturally suitable for Chia mining. More and more Fil miners will participate in Chia mining, and Fil miners will have greater cost advantages. At the same time, Fil miners will inevitably push Chia's related computing power or mining machine products to their Fil customers, which will undoubtedly expand the spread of XCH and increase the Fomo sentiment of Chia mining, but at the same time it will also increase the bubble of XCH value.

4. Chia mining will move from the stage of competing in computing power growth to the stage of competing in costs. In the stage of computing power growth of Chia miners, since the P disk machine can be reused, it is only necessary to add storage machines; at the same time, when the computing power no longer increases (it will continue to produce income), its cost is mainly the power supply and network cost of the mining machine, which is similar to BTC. Low-power storage solutions will be the core competitiveness of Chia mining in the future.

Whether Chia mining will evolve into a capital feast or a capital bubble is still difficult to judge in the short term. Finally, we cannot draw a conclusion on whether Chia mining is worth participating in. Readers can make their own judgment based on their own investment habits and risk preferences.