Understanding Chia: Green Bitcoin and the next Filecoin? There are great opportunities and risks

Wu Shuo Author | Tan Shu

Editor of this issue | Colin Wu

With the perfect environmental protection concept, top leadership team and VC, and mainstream compliance, Chinese miners seem to have seen the second Filecoin. But Chia is still a long way from success, and what is more worrying is, when it is perfected and started, will it still be a bull market?

About Chia

On March 19, Chia, which calls itself the "Bitcoin killer", finally launched its mainnet after more than three years of development. This project has a great background. Its founder Bram Cohen is the inventor of BitTorrent, and Chia's investors include well-known large institutions such as a16z and greylock. Although the project was launched at the beginning of the bear market, the mainnet was launched at the bull market, which attracted huge attention and the community was very enthusiastic.

Chia was aware of the high energy consumption of Bitcoin very early on, so it advocates the concept of green. Its white paper is not even called a white paper, but a "green paper". Opening Chia's official website, you can also see that its design is mainly based on green environmental protection. Coincidentally, due to the carbon neutrality policy, both China and the United States have criticized Bitcoin mining due to environmental issues. Refer to carbon emissions and environmental protection. The biggest threat to Bitcoin mining in the future may be groundless worries. How to deal with it

Chia is a brand new public chain. Different from the previous POW or POS, it proposes a concept called Proof of Space and Time, or PoST, hoping to reduce the energy consumption of "mining" while ensuring safety and green. In fact, Chia has even changed the concept of mining. In its system design, mining is not called mining, but "farming", which is another green concept.

After the mainnet was launched, the Chia network started to grow. Users can participate in the growth by contributing idle hard disk space. However, the entire network has not yet opened the transfer function, and transfers will not be possible until early May. Therefore, the only way to obtain chia tokens XCH is to grow by contributing hard disk space.

Chia's Innovation

The codes of many blockchain projects are often based on open source codes such as Bitcoin, Ethereum or tendermint, while Chia's code is written from scratch. In addition to the consensus mechanism, Chia has also made many technical innovations. For example, it proposed a new dedicated smart contract language called [chialisp](1).

In terms of finance, Chia is also very innovative. Although it is a blockchain project, Chia's tokens have not been privately or publicly offered. All 21 million pre-mined tokens are held by Chia Networks, the company of the Chia project, and Chia's investors only received equity in the project company, not any tokens.

According to Chia Networks, as a profit-making company, its goal is to eventually be listed on a traditional stock exchange such as Nasdaq or NYSE, and the company's value depends on the number of Chia tokens it holds. In other words, its goal is to become a de facto ETF based on Chia tokens through listing.

Therefore, Chia also signed a bet agreement with its investors. If it fails to submit a listing application to the stock exchange within two years after the mainnet launch, and fails to be successfully listed within three years after the mainnet launch, investors can obtain a certain number of chia tokens based on the agreement.

The next star project or another huge bubble?

Although Chia has many innovations, it does not mean that it will not become another bubble. The most obvious example is the stablecoin project Fei, which was launched not long ago. It also has investments from big institutions such as a16z and Coinbase, but it eventually caused huge losses to investors. For Chia, there are also many challenges to succeed:

1. Energy consumption. Although Chia has proposed the concept of "green", it still requires users to turn on their computers for planting. Although it can save a lot of energy compared to Bitcoin's mining farm-style mining, it is still not green compared to the POS mechanism of ETH2.0. Moreover, although it requires users to contribute idle hard disk resources like projects such as filecoin, after all, filecoin's hard disk is used to store files, which is still useful, while Chia's hard disk resources are used for planting, which is the same as Bitcoin's asic chip and has no practical use. It is conceivable that if the Chia network becomes popular, it may attract the same "waste" criticism as the Bitcoin network.

2. The problem of centralization. At present, the value of Chia tokens is not clear because the network transfer function has not been opened and there is no exchange online, so most of the participants are retail investors. If the value of Chia soars, it is conceivable that large data centers or cloud storage service providers will join in the mining, but there are not many cloud service providers in the world, which will largely cause the centralization of mining or planting. The official's original vision was that everyone's idle computers and mobile phones could participate, but the participation of professional miners is obviously a deviation. If the official modifies the model for this reason, the miners who participated in the early stage may suffer losses.

3. Tokens are too concentrated. According to Chia's design, the Genesis team holds 21 million pre-mined tokens, and it will take 21 years for the network to generate such a large number of tokens. Although Chia officially claims to hold pre-mined tokens, whether it can be listed still depends on the attitude of the regulatory authorities. After all, such an approach is equivalent to directly issuing an ETF based on XCH, and the SEC has not approved any cryptocurrency ETF products so far. If it cannot be listed in time, early investors can obtain a large amount of XCH. In order to realize the benefits, these XCH will be a selling force that cannot be ignored in the future.

Fourth, Filecoin’s success is largely due to its launch at the beginning of the bull market, and its price has been rising step by step, which is equivalent to going through the entire bull market, benefiting the vast majority of participants. But given Chia’s pursuit of a steady trend, when it is truly perfected and listed, will it be the end of the bull market?

In addition, Chia is similar to Bitcoin, with a fixed coin production and halving cycle. Its appeal seems to be similar to that of the early BCH, and it is mainly used in payments and transactions. Therefore, the mining model is relatively simple at present and not as complicated as Filecoin. The final price will determine the miners' income. It is possible that it will soon reach a balance between computing power and income, similar to those small POW currencies, or even have an excess of computing power.

In any case, under the popularity, a familiar scene has been staged again. In the multiple mining communities of Wu Blockchain, many miners have begun to deploy Chia. Miners said that mechanical hard disks above 8T are in serious short supply, and other Chia mining-related equipment is also in high demand. Miners who made a lot of profits in the bull market and funds that did not catch up with BTC, ETH, and Filecoin mining all hope not to miss Chia. However, due to the uncertainty of Chia's future, many people also choose to rent computers for mining. (Since Chia is still under development, please feel free to discuss and correct any problems with the content)