Chia hard drive mining is gaining popularity, leading to hard drive shortages and surging stock prices. How should we interpret the "green Bitcoin CHIA" phenomenon?

Due to the surge in Ether (ETH) prices, the "shortage of graphics cards" issue has been lingering for over half a year, and now it's the shortage of hard drives. Recently, Chia Network, known as "Green Bitcoin," has gained popularity, leading to shortages of SSDs and large-capacity HDDs in China and Hong Kong. Stocks related to hard drives have benefited from this situation. So, what is Chia? Is it another Filecoin?

Chia Network (referred to as Chia below) was founded in August 2017 by Bram Cohen, the inventor of the P2P file-sharing protocol BitTorrent. According to the official website of Chia, its goal is to develop a platform for smart transactions to improve the global financial payment system.

"Chia will become the first enterprise-grade digital currency," the FAQ states.

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Bitcoin is too energy-intensive, Chia is the green Bitcoin

In Bram Cohen's view, Satoshi Nakamoto's proof of work (PoW) is correct, but Satoshi Nakamoto did not anticipate the emergence of ASIC miners, and the centralized management has resulted in the majority of computing power being controlled by a few mining pools. The worst part is the massive waste of resources in mining. Data shows that the carbon footprint of one Bitcoin transaction is equivalent to 80,000 Visa transactions.

Chia, on the other hand, uses the "Proof of Space and Time" algorithm.

The Proof of Space and Time algorithm consists of Space Proof and Time Proof. Space Proof verifies that nodes allocate unused hard drive space to storage space, while Time Proof ensures global time consistency between blocks. The combination of the two enhances the overall security of the blockchain.

Users of the Chia Network need to install software to snapshot the unused space on their hard drives, a process called "farming." Transferring data involves storing a set of encrypted numbers in "plots" on the hard drive, turning the operator into a "farmer." Chia determines the probability of winning a block based on the farmer's hard drive space and bandwidth.

Time Proof is achieved through a Verifiable Delay Function (VDF), which quickly verifies the delay function. The core idea is to calculate in sequence; the VDF server with the fastest verification speed will be placed at the front, ensuring fairness, completing block verification, and advancing the blockchain.

In summary, farmers allocate land on their hard drives (which can be freely defined), then farm (mine). The larger the land, the higher the probability of winning a block. Additionally, since Chia's mining mechanism only consumes the energy of hard drives and networks, the power consumption is relatively low (at least according to the whitepaper).

Pre-mining 98% of the tokens, is Chia really okay?

Chia Network's mainnet went live on March 19th. The total supply of its native token XCH is unlimited, but it will halve every three years. The block reward rules are as follows:

• 1-3 years: 64 XCH per block (every 10 minutes)
• 4-6 years: 32 XCH per block
• 7-9 years: 16 XCH per block
• 10-12 years: 8 XCH per block (and so on)

For the first six weeks after the mainnet launch, Chia was only mined, but transfers (transactions) were not allowed until May 1st. This was to ensure the proper distribution of the initial issuance, meaning that on the day trading opened, only 387,000 XCH were available for trading across the network.

It's also worth noting that before the launch, Chia Network pre-mined 21 million XCH as a "strategic reserve fund."

What's the concept?

It will take approximately 21 years for the entire network of miners to mine this amount. Chia Network has provided a reasonable explanation for this.

Chia is not an anonymous team; it operates under a company: Chia Network. The company positions itself as a software service company with the goal of going public. The 21 million XCH serves as the company's funds.

After Chia Network goes public, its stock will function similarly to an XCH ETF, with stock prices fluctuating with XCH prices. When using the reserve funds, the company is not only bound by its regulations but also regulated by regulatory authorities. Should XCH and Chia stocks have a positive correlation, there will be arbitrage opportunities, stabilizing the price of XCH.

The latest business whitepaper also outlines the rules for using the strategic reserve fund:

1. The company will not sell the reserve fund.
2. Investors in Chia Network hold equity in the company, and the team does not hold XCH tokens.
3. The use of the reserve fund requires a majority vote by the board of directors, with approval from a majority of directors and one independent director. Currently, there are three directors and one external independent director.
4. Changes to the rules for the use of the reserve fund must be announced 90 days in advance.
5. Before the company submits its listing application, it will not use XCH holdings for stock buybacks, dividends, external investments, etc.

To B Model

Unlike other crypto startups, Chia Network operates under a traditional business model. The company created the Chia blockchain network, which operates in a completely decentralized manner, while Chia Network promotes the platform's technical applications based on its "technical capabilities" to generate service income.

As emphasized in the whitepaper, Chia Network can support daily payments and help global enterprises achieve secure, scalable cross-border payment solutions.

"One day we can use Chia to buy coffee in California. Current banks, governments, and DeFi organizations will use Chia Network to create new financial technologies, solve cross-border issues, and eliminate the need for excessive intermediaries in the future."

From the final vision, Chia Network's main focus is the payment system, whether for daily payments or enterprise-level payments, similar to Bitcoin rather than decentralized storage like Filecoin. Chia may have ambitions similar to traditional financial expansion, but consensus takes time to build. Just as it took Bitcoin thirteen years to enter Wall Street, with significant overlap in its business with investment banks, stablecoin issuers, and even national CBDC businesses. While it emerges as the green Bitcoin, would you be willing to take a chance on Chia Network?