Observation | Beware of the early IQ tax of Chia mining machines!

"After Filecoin, Chia mining machine has become popular. "Luxury founding team" and "first-line investment lineup" have become Chia's own halo, and another star project has appeared in the distributed storage track.

But on the other hand, the high-priced sales of crude mining machines, the MLM-style propaganda style, and the influx of speculative funds seem to have changed the flavor of the Chia project, which is still in its early stages.

Chia "marketing" trend permeates the community

In various crypto communities, Chia has been all over the WeChat Moments.

Chia was founded in 2017 by Bram Cohen, former founder of BitTorrent. The core team members also include Gene Hoffman, former founder and CEO of eMusic.com and Vindicia, and Mitch Edwards, former acting CEO of Overstock.com. Such a founding team lineup is highly recognized and respected by the market.

From 2018 to 2020, Wall Street institutions such as A16Z, Danhua Capital, and DCM Ventures invested in Chia. The team's financing situation was relatively optimistic, and the luxurious investment lineup became Chia's second advantage.

On March 18 this year, Chia Network officially released the Chia1.0 mainnet and started mining. As a distributed storage platform, Chia-related mining machine promotions are inevitably compared with Filecoin. The general perception of Chia in the market is that if you miss the best time to enter Filecoin, Chia is very likely to be the early stage of the next Filcoin, and its appearance seems to be just in time.

Since the end of March, Chia has started to gain a strong "marketing" trend in the Chinese community. As Fomo sentiment spread, more and more people issued risk warnings about the explosive Chia and various dazzling Chia mining machines.

Chia: A cheap alternative to Filecoin?

The market was the first to express its affirmation of Chia's founding team and luxurious investment lineup.

In September 2019, Coinbase published a content showing 17 unlaunched projects that were intended to be launched, including Chia. This made some speculators have high expectations for Chia to land on Coinbase.

Compared with Chia’s high expectations in the context of “luxury”, its technical route and development prospects actually require more time for testing and further market observation.

Official data shows that Chia advocates environmental protection, hoping to reduce the energy consumption of "mining" while ensuring safety, and therefore changed the concept of mining to "farming". Blocklike sorted out multiple channels and official data and summarized the main concepts proposed by Chia:

1. Enterprise-level currency: Selling software services to governments, financial institutions, enterprises, and large storage buyers and sellers, supporting open source blockchain and smart trading software.
2. Promote the development of DeFi, DEX, and cross-border payments.
3. Allow individuals, financial institutions, enterprises and governments to issue on-chain assets, which inherit the smart transaction capabilities of the Chia Network blockchain and rely on the global decentralized security verification provided by space-time proof.
4. Solve the problem of mining consuming a large amount of resources: reduce the negative effects and impacts of Asic, computing power, and electricity consumption.

It is worth noting that Chia uses "Proof of Space and Time" (abbreviated as PoST). This unique proof method is different from the proof of work (POW) used by BTC and ETH, and is also different from the "proof of replication" used by Filecoin.

Proof of Space and Time PoST can use the remaining storage space in storage devices (computers, servers, NAS, Raspberry Pi, etc.) for mining. Chia mining does not require computing power, but storage space. This means that when mining Chia, the larger the hard disk space, the higher the efficiency.

From the perspective of mining, Chia can be regarded as a type of POC mining. Chia and Filecoin belong to the same storage track and do have many familiar features with Filecoin mining.

A long-time industry practitioner and Filecoin mining machine manufacturer analyzed in an interview with Blocklike that according to his observation, the technical threshold of the entire Chia project is extremely low, and the equipment required is much lower than that of Filecoin. Compared with Filecoin mining machines, Chia mining machines have very low configurations in computing power machines and storage machines. According to Chia's economic model, Chia does not require maintenance during farming, and there is no penalty setting for participants to lose computing power, and no collateral coins are required. Investors who want to participate in mining only need to configure simple equipment and download the mining applet on the official website.

"Compared to Filecoin, the threshold for Chia mining has been lowered to the greatest extent possible."

He believes that such a low threshold is one of the main reasons why many investors are rushing to enter the market. POC mining is one of its innovative ways, but this has become an industry that almost everyone can enter, and entering the market is not a good choice at present. "

Currently, on the Chia mainnet, users can participate in the planting by contributing idle hard disk space. However, the transfer function of the entire network has not yet been opened. Currently, the only way to obtain Chia tokens XCH is to "plant" by contributing hard disk space, which directly led to investors' eager purchase and the crazy rise in the price of Chia mining machines.

Are Chia miners being “harvested”?

The Chia project is still in its early stages, but the price of mining machines has already "taken off" ahead of schedule.

Blocklike learned from the mining machine manufacturers that the production of normal distributed storage mining machines mainly goes through the following stages:

(1) Officially recommended configuration version (2) Entering the optimization phase: modifying the code and updating the configuration (3) Mining machine upgrade and iteration

Judging from the standard version configuration officially announced so far, if the mining machine manufacturer assembles enough computing machines, storage machines and related accessories, it will take about 3 days to complete the assembly and test the code. After that, professional mining machine manufacturers will set aside about 7-10 days for data testing and make a feasibility report. At this stage, mining machine manufacturers usually optimize the code and upgrade the configuration to improve the competitiveness of mining machines.

However, for Chia mining machines, due to the rapid increase in the prices of hard disks and other products in the industry, many professional mining machine manufacturers choose to wait and see. According to the introduction of mining machine manufacturers, major manufacturers usually refer to the hardware price for quotation reference.

In late March, the cost of a Chia mining machine's hard disk was generally around 160-170 yuan per TiB, 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.

“Storage machines are out of stock right now and manufacturers can’t buy them,” said the mining machine manufacturer.

According to Blocklike's multiple sources, the current shortage of mining machines is not due to insufficient production, but mainly due to the fact that upstream suppliers are reluctant to sell. Public data shows that the total shipment of solid-state drives in 2020 was 330 million units, with a total storage capacity of 27 EB. The total shipment of mechanical hard drives was 259 million units, of which Seagate, the world's largest manufacturer of hard drives, disks, and read-write heads, shipped 110 million units, with a total storage capacity of 1018 EB.

In the current market, a large number of dealers and agents in the upstream of mining machines have participated in the speculation of hard disks, facing the active miners in the form of hunger marketing. It is reported that only last week, the equipment costs of computing machines and storage machines continued to rise, and the price of hard disks increased by more than 3-4 times. At the same time, the price of hard disks fluctuated sharply, and the price instability was expanding.

In this case, some mining machine manufacturers believe that now is not a rational time to intervene in Chia mining machines.

As for investors, most of them who missed the Filecoin investment opportunity have placed their hopes on Chia mining machines. In the mixed Chia mining machine market, some unscrupulous merchants sell Chia mining machines at high prices, which may just be ordinary computer motherboards and hard drives with official "planting" programs downloaded. The technical content of this kind of mining machine is almost zero, but the price has risen with the marketing method.

How to rationally judge the configuration and reasonable price range of Chia mining machines?

(Chiaexplorer data shows that the theoretical "planting" reward of 1 TiB has dropped from 0.03 at the beginning of the month to 0.019 XCH)

The mining machine manufacturer mentioned above mentioned that it is recommended that investors refer to the three data dimensions of "cost per TiB", "coin production per TiB", and "current real transaction price over the counter" when investing in Chia mining machines, and make choices based on their own expectations and judgments about the future market situation.

"For early investors in Chia mining machines in late March, the payback period may be only a dozen days, referring to the current over-the-counter price. But for current investors, the payback period has been extended. The computing power that was previously snapped up in the market will be delivered in batches next month, which means that the payback period has been extended again."

Chia Next step: Waiting for approval from leading institutions

Regarding the Chia project, another side of the discussion began to be heard, and the innovation and sustainability of the Chia project were questioned.

This part of the view believes that the concept of "green Bitcoin" is not an original concept of Chia. However, it can be seen from the current operation of a large number of Chia mining machines that Chia miners will still invest a large number of mining machines and resources in "planting". Driven by the maximization of profits, the actual power consumption generated by the mining machines is not much different.

On the other hand, the POC track has once again become a hot topic in the market.

The POC (Proof of Capacity) consensus has been proposed for more than 6 years. This PoC project is mainly benchmarked against Bitcoin, with energy saving, more decentralized, and fairer mining as its core competitiveness. In the field of distributed storage, Chia is regarded as a typical "currency project that uses hard disk space as proof of computing power for mining and benchmarks Bitcoin as the main benchmark."

Since the model has a low threshold for participation, the influx of large-scale funds will help to increase the speed of project popularization. However, up to now, the development of the POC track has not been satisfactory, and there has not yet been a typical project case with strong sustainability.

Although the popularity and traffic of Chia mining machines are expanding, the industry's leading capital, exchanges, and media have not yet officially spoken out about the project, and more branded institutions are relatively conservative in promoting Chia computing power. Platforms that can accept Chia transactions are still mainly copycat exchanges.

In the long history of mining coins, the game between decentralization and centralization of mining pools is still moving forward amid controversy. Whether Chia can realize its vision still needs time to test. The current mining machine market is mixed, and the Chia project is undoubtedly in a very early stage. A more rational point of view is that ordinary investors still need to observe the recognition of the project by mainstream exchanges and mainstream institutions.