Known as “Green Bitcoin”, Chia has been aware of the high energy consumption of Bitcoin since August 2017, so its mining method has changed from graphics card mining to hard disk mining, avoiding the high degree of centralization of Bitcoin mining. In addition to the drawbacks of high energy consumption, the definition of “green bitcoin” is also highly consistent with the current national policy of “carbon peak and carbon neutral”.
At 2 o’clock in the morning on May 4, 2021, Chia was launched on the world’s famous trading platform OKEx and several second-tier trading platforms. There are reports that: XCH has a minimum quotation of 495 USDT and a maximum quotation of 2500 USDT, which has skyrocketed by 500% overnight. As of May 7, 2021, the price of XCH has stabilized at around 600USDT. It is not difficult to speculate that the reason for the ups and downs of the price curve after the listing is due to the early miners’ selling pressure.
So is Chia, which is growing at such a rapid rate, still worthy of miners’ participation in mining? Is it still a good time to get in the car? The editor conducted a wave of analysis on this project, hoping to help friends who want to invest money in mining vehicles.
1. Chia white paper analysis
1. Basic content of Chia
Chia is a brand new public chain that can delay and revoke transfers of digital assets. This function can derive many applications. Chia’s goal is to become the first publicly tradable “ETF-like” encrypted asset, and become an encrypted asset used by sovereign states, financial institutions and enterprises in daily business.
It is reported that the main network of the Chia project was just launched on March 19, 2021, with a total issuance of 42 million pieces. The annual output for the first three years was 3.3 million pieces. Currently, only 400,000 pieces of XCH have been dug out. And Chia does not have private equity, and currently only obtains it through mining channels, but the team has a pre-mining mechanism. The popularity of Chia is soaring, and the miners in the first stage of mining have gained a lot of money.
2. Chialisp underlying language analysis
Chia technology innovatively invented a new programming language-Chialisp. According to the official description, Chialisp is an intelligent transaction programming language launched by Chia, which is powerful, easy to audit, safe and reliable. Currently available reference smart transactions are: atomic swap, authorized payee, recoverable wallet, Multisig wallet and interest rate limit wallet.
The most important feature and greatest advantage of Chialisp is that it not only retains the UTXO model, but also adds the function of the Ethereum Solidity model, which is more powerful.
Chialisp’s first type of object is an asset, and a transaction becomes a brief adjustment of destroying some objects and creating others. In Bitcoin, transaction is the first type of object, and Token (UTXO) is expressed as a transaction ID and output number. The transactions in Chialisp happen at the same time. Chialisp programming greatly simplifies the format of Token (UTXO), including only the main input, puzzle hash and quantity;
At the same time, Chialisp is a Turing-complete language. Because the execution is short-lived, it will be much simpler than Ethereum’s Solidity model. Chialisp language has the necessary primitives for calculating Token ID, and Token can declare its own ID, so it supports explicit self-referencing, which can effectively avoid the use of the self-generated program Quine.
3. Analysis of the Token Economic Model of Bitcoin and Chia
The total number of Bitcoins is 21 million, and the mining rewards are halved every four years. Chia’s incentive mechanism directly refers to the reward mechanism of Bitcoin, so the total amount of farming rewards given by XCH is also 21 million, and the farming rewards are halved every four years. However, the total issuance of Chia is 42 million XCH, because when the main network is launched, Chia set up 21 million XCH for pre-mining.
4. Chia pre-mining analysis
The 21 million XCH pre-mined by Chia serves as a strategic reserve. The strategic reserve will not be used for sale and distribution. The company intends to use the strategic reserve for but not limited to the following purposes:
(1) Lend Chia to governments, financial institutions, market makers and companies for Chia-related projects, such as asset issuance, payment of international invoices, and liquidity on various digital asset trading platforms;
(2) After publicly registering the equity, use Chia to fund shareholder activities, such as repurchasing shares or distributing dividends to shareholders;
(3) Use Chia to invest in promising projects to expand Chia’s function and influence in the asset and financial technology market, but cannot invest until the project is publicly registered;
(4) The project party may use Chia to increase additional farming rewards (farming) or otherwise encourage farmers or developers to verify or develop networks or software.
5. Overall analysis
From Chia’s white paper, it can be seen that Chia’s Token issuance model is similar to that of Bitcoin, and the main “green Bitcoin” is out of the circle. This often makes people overlook the strength of Chia’s own technology and investment lineup.
Technically created the first new Nakamoto consensus algorithm since Bitcoin, and wrote a new programming language Chialist, which made up for all the defects and deficiencies of the two public chains of BTC and ETH. The investors are led by the participation of Coinbase and A16Z, the top venture capital institutions on Wall Street.
The 21 million tokens held by the team pre-mined are currently being used prudently in compliance with regulations.
2. Analysis of the value of funds invested by Chia
1. The official website data shows that the output of a single T has dropped sharply, and the computing power of the whole network has increased rapidly
The official website shows that the current single-T output is 0.0033. From the above figure, it can be seen that the single-T output has shown a clear downward trend, and the entire network’s computing power has also increased to 2.67EiB.
Chia is similar to BTC. It has a fixed time output and a halving cycle. The mining model is currently relatively simple, not as complicated as Filecoin. The final price will determine the income of the miners. Although the over-the-counter transaction has not yet started, it can be predicted The price of XCH will have a wave of upswing after it is listed, which will attract more miners to enter the market, but it may soon reach a balance between computing power and income, and even the risk of excess computing power.
2. Analysis of miners’ return cycle and annual selling pressure
Chia’s mining process has two parts that are indispensable: making plot files (usually referred to as p-maps, because the official translation of plot is farmland) and mining (official translation is farming). On the Chia network, miners are called farmers. The reward is Farming.
(1) Analysis of return cycle
As of May 7, 2021, the over-the-counter price is 600 USDT, and the single T output is 0.0033. The cost of the mining machine is calculated by a miner on the market: 102,400 US dollars/1P.
The 1P power consumption is 2608W, the electricity fee per P is 25 yuan (the electricity price is calculated at 0.4 yuan/kWh), and the technical service fee is calculated at 15%.
On May 7, 2021, calculate the possible return period of miners:
The P disk cannot generate revenue immediately, and it takes a certain amount of time to calculate the p disk time and various unpredictable factors, and relax the return period to about 85 days.
Generally, BTC electricity bills account for about 10% of daily income, ETH electricity bills account for about 8% of daily income, and Chia electricity bills account for about 0.34% of daily income. Chia’s electricity consumption is very friendly to miners.
(2) Analysis of annual selling pressure
The farming reward given to miners in the first year of the XCH release plan is 3,363,840 XCH. That is, the annual selling pressure of miners in the first year was 3,363,840 XCH.
On May 7, 2021, 1P will produce 3.37 Tokens per day. Miners who enter the market may choose to quickly pay back, so there may be many miners selling Tokens in the early stage. If the miner pays back in one year at the latest and the cost is calculated at the market price of US$102,400, then the average price of XCH this year needs to be above US$83. If the price is less than US$83, then miners with no cost advantage will be eliminated , And the miners who came in late.
The inflection point prices for the sharp decline in miners’ earnings are as follows:
Because the output of 1P has been changing and showing a trend of rapid decline, the daily output in the later period will become less, and the price of the inflection point will be higher than 83 US dollars.
(Note: The above data are all estimates within the next month. Due to the rapid decline in single-T production, we have no way to estimate in the later stage, and there is no way to make inferences based on current indicators. So please make your own judgment when entering the market and investing. At your own risk.)
The current trading platform price of XCH is around RMB 3,800, with a downward trend. Therefore, the price in the secondary market is above US$83, and there is still predictable market space.
Three, Chia summary analysis
1. Summary of Chia’s income model
The residual value of the hard disk after Chia mining is very high, so take a step back, even in the case of Chia’s investment failure, miners can directly use the hard disk to invest in other storage tracks, it is really impossible, and finally the second-hand hard disk can be sold. Cost risk is effectively reduced.
The Chia pass design shows that the daily output is 9,216, and the official reserves will not be used for trading. When it goes online, the mined tokens will not exceed 500,000, so the circulation of Chia is small.
To sum up, the Chia project may attract more miners in the later stage, so it may present an investment situation where the earlier it joins, the higher the return.
2. Chia risk warning
From the above analysis, it is not difficult to see that the biggest risk of the Chia project is the occurrence of mining disasters caused by excess computing power. Moreover, the Chia mining model is relatively simple. Coupled with the current high heat, it is likely to attract a large number of miners in a short period of time. The rapid increase in computing power will also lead to a sharp drop in the output of a single T. The profitability of the miners is different. Out-of-market prices are highly correlated, and out-of-market prices are inherently highly uncertain.
The reason why I put the risk to the last to write, I also hope to give you a wake-up call. Although the Chia project is currently very popular in the market, many trading platforms have launched futures or spot, but the investment under the heat is even greater. Be careful. The effective reduction of cost risk does not mean that the Chia project is a zero-risk investment. After all, high returns are bound to be accompanied by high risks. Investors, please invest carefully.
Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.