6 points of analysis on Chia: short-term price speculation is inevitable and long-term prices are not worth looking forward to

Author | Yuyu doesn’t eat cats

Editor | Colin Wu

Today I briefly studied the Chia project, and read the white paper, official website, and articles in the media. Combining the analysis of various parties and my personal judgment, the report is as follows.

Bram Cohen, the founder of Chia project and also the founder of BTT, sold BTT to Tron in 2019 and then made full efforts in Chia. As early as 2018, he started to accept VC investment. The investors behind him include Danhua, a16z, greylock and other large institutions. The project was launched on March 19, 21. It was said that transfers and listing on the exchange would be started three weeks after the launch, but the time point has been delayed to May. The token is XCH. Similar projects include the early BHD and OneCloud.

In terms of points:

1. The starting point of the project is to improve the POW consensus mechanism of BTC. The Chia team believes that the POW consensus has caused the hoarding of graphics cards, a huge waste of CPU, GPU and electricity resources, and the emergence of mining pool tyrants, which violates Satoshi Nakamoto’s original intention of decentralization.

The author agrees with the Chia team's view that this drawback is objectively existing, but the green mining solution based on POST (space and time) proposed by Chia is not a complete solution. Its development path is likely to be similar to that of early BTC. Ordinary people can also mine BTC through home computer CPUs in the early days, similar to the current entry of retail hard drives in Chia. As the price of the currency rises and value is discovered, there will be mining pools and professional mining machines entering the market to monopolize the participation. For Chia, those B-side miners with large storage capacity have already entered the market, which will inevitably lead to the emergence of mining pools and mining tyrants.

2. Regarding the vision of the project, the Chia project is committed to peer-to-peer payment, cross-border transfer, etc. This is similar to BCH. The original intention of BTC's peer-to-peer was proven to be a failure, but it accidentally became the so-called digital gold. Even the later lightning payment network did not help, and the payment vision of BCH was also very embarrassing. At present, the successful payment methods in the crypto industry are compliant and non-compliant stablecoins headed by USDC, USDC, BUSD, DAI, etc. Therefore, I still have great doubts about the payment landing direction of Chia.

In addition, I think Chia's analysis of the contract loopholes of the Ethereum network and the project's expectations for its improvement mentioned in the white paper are neither fish nor fowl. At present, BTC and ETH represent two forked worlds of blockchain. The former represents new alternative assets and the consensus support of traditional financial institutions based on digital gold, while the latter represents blockchain application technology. The two cannot be merged.

3. Regarding the development vision of the parent company, the Chia project team mentioned that the parent company is committed to eventually achieving a compliant IPO and an ETF based on Chia, so Chia did not conduct ICO and private placement operations. The future equity stocks mentioned in the white paper must develop in a balanced manner with the value of Chia, breaking the hype of traditional encrypted digital currencies, thereby reducing the volatility of Chia. At the same time, the stability of Chia prices facilitates the realization of its online and offline payment vision. Low volatility is obviously not friendly to Chia retail investors and early miners, and it is not what they want to see.

The Chia project has great ambitions to achieve both a traditional IPO and the listing of Chia tokens in the crypto world, but is it a bit unrealistic?

4. Regarding technological innovation, Chia includes multi-signature and atomic swap, authorized payee wallet, transfer retraction, UTXO model optimization, limit wallet, delayed recovery function, integrated digital identity, and color coins. Strictly speaking, each of these technologies has no original traces and has been implemented in many domestic and foreign public chain projects in the early or even earlier periods.

5. Regarding Token distribution, the white paper mentions that the founding team has a strategic reserve of 21 million yuan, paying tribute to Satoshi Nakamoto, that is, 21 million yuan will be pre-mined, and 64 Chia will be awarded to miners every 10 minutes. In the first year, 3.36 million Chia will be mined, and the number will be halved every three years. The white paper shows that VC institutions that enter early do not hold Chia. When the parent company is not listed in 2-3 years, or the market value of the agreement is not completed after listing, Chia tokens of the same price will be compensated.

So theoretically, if Chia is listed on the exchange in May, only a small amount of mining tokens by early miners can serve as liquidity transactions, and there is no risk of selling pressure from large institutions. However, how to deal with the team's 21 million pre-mined shares is described in separate paragraphs in the strategic reserve use in the white paper, and it still tends to be general. The team has a lot of flexibility in operation, such as whether to increase liquidity and balance prices through market making.

6. Regarding the hype, Chia's biggest advantage lies in its founder, the investment institutions behind it, and the concept of green mining. This has brought about a wave of hard drive hype, which may be fueled by the hard drive manufacturers behind it. There are rumors that Coinbase has already booked Chia's launch (which is of course impossible). These factors are likely to cause Chia to reach a relatively high price when it goes online, but whether its price is sustainable is still a big question mark. A prerequisite here is that when Chia is listed on the exchange, the entire market is still in a bull market cycle.

Overall, the Chia project points out some deficiencies and drawbacks in the blockchain encryption world, but it only touches on the surface in terms of improvement, without substantial innovation or thorough solutions, and the gimmick is greater than the reality. Short-term price speculation may come, but we should not have too high expectations for its long-term application value.