Chia Network

What is Chia (XCH)?

Chia is a blockchain project that uses a novel consensus mechanism to solve real-world problems and has already seen adoption by organizations such as the World Bank.

Called Chia as part of the project’s “green” marketing drive, where miners are also called farmers, Chia is an enterprise-grade blockchain meant for enterprise adoption. In addition to its novel consensus, it also uses a new smart contract programming language called “Chialisp,” enabling various critical smart functions.

Unlike many, if not most, blockchain projects, Chia is fully focused on becoming a listed company on the US stock markets. According to the company, Chia’s goal is to be sustainable, secure, and compliant while also being environmentally friendly.

When Was Chia Launched?

Chia, or the company behind it, was incorporated in Delaware, USA, in August 2017. It is based in San Francisco, with 58 employees and 11 part-time advisors.

In January 2018, the Chia whitepaper was published at BPASE ‘18, and the company raised a $3.3 million seed round that closed in March of that year. Notable participants in this funding round included a16z, Greylock, True Ventures, Galaxy Digital, and Naval Ravikant.

Chia’s first open-source library hit GitHub in August 2018, and the Verifiable Delay Function (part of its novel consensus) was released in January 2019. VDF functions as Chia’s proof-of-time, and its proof-of-space went public via the Chia Green Paper in July.

By then, Chia was already in the beta stage of its blockchain development. Its mainnet was released in 2021, with farming rewards going live in March and transactions being enabled in May. Chia saw extremely aggressive growth, topping out at some 300,000 worldwide nodes at this time.

Chia has had considerable adoption since then. In November 2021, Chia launched the Circular Drive Initiative in partnership with Bill McDonough and hard drive manufacturers Seagate and Western Digital. The project aims to increase the average useful hard drive lifespan from four years to eight.

In the same month, Chia announced that the World Bank had chosen Chia as the foundation of the Climate Warehouse project. This project is a cooperative undertaking of the World Bank and the Paris Agreement signatories to create an immutable carbon credit database.

Who are the Founders of Chia?

Chia was founded by Bram Cohen, a well-known and popular figure, thanks to his role in creating the peer-to-peer file-sharing platform BitTorrent.

How Does Chia Work?

Chia is a blockchain or a ledger of transactions distributed across a public network and maintained by a decentralized collection of nodes.

Each block on the chain is made up of the transactions published to the network, along with a hash of the previous block, which is why blockchains are immutable because, once a block is on the blockchain, changing a transaction would change the hash of a block and break the chain.

Chia uses a smart transaction language called Chialisp, which is based on the Lisp functional language. Chialisp allows Chia developers to create more complex functionality and applications atop the Chia network, similar to blockchains like Ethereum.

What Makes the Chia Network Unique?

Chia uses a novel consensus mechanism called proof-of-space-and-time (PoST). Instead of relying on processing power like in proof-of-work (PoW) blockchains, PoST rather focuses on storage.

Chia “farmers,” analogous to miners on PoW and validators on proof-of-stake blockchains, write 100GB “plots” on their storage drives filled with hashes. This is similar to purchasing a vast number of lottery tickets.

A network participant called a “timelord” sends a random proof to the network. This random proof verifies that the timelord has dedicated some amount of time to produce it via Chia’s Verifiable Delay Function. This is where proof-of-time comes in, and timelords broadcast their proofs every 9 seconds.

When this proof is sent, it becomes a challenge for the farmers on the network. It is compared to the hashes on farmers’ storage devices, and the farmer who scores the closest match wins the block and receives the block reward.

These stored hashes are difficult to generate, so they are done beforehand and then stored away rather than generated on the fly, like in PoW. The mechanism is called “proof of space” since the number of hashes a farmer can store is directly proportional to the space they have dedicated to it.

What is the Use of XCH?

According to Chia, XCH is “green money for a digital world.” Aside from its utility as a currency across the Chia network and a reward mechanism for farmers, XCH doesn’t appear to have any further use cases.

Who Controls Chia?

Chia is supported by its parent company, Chia Networks Incorporated. The company was formed to drive the adoption of the blockchain and provide controls, trust, and transparency to the project.

As per the company’s business whitepaper, it intends to sell software services and support for Chia to governments, financial institutions, corporations, and large buyers and sellers of storage.

However, Chia Networks Inc. has no direct control over the Chia blockchain. Instead, the rules of the blockchain can only be updated by having a majority of independently running nodes upgrade to a new version.

In this, Chia differs significantly from proof-of-stake since holding coins doesn't mean that they have direct control over the entire network. Rather, the blockchain itself is upheld by its nodes and, therefore, could be argued to be truly decentralized.

Rather, the company’s control of Chia refers more to the control of its Strategic XCH Reserve than the control of the actual network.

How Much XCH is In Circulation?

XCH has an uncapped total supply, with all newly created XCH going towards farming rewards. Chia Networks Inc. performed a pre-mine of XCH to make up its Strategic Reserve. According to Chia’s own documentation, it will take a staggering 21 years from the mainnet launch for farming rewards to equal the size of the Strategic Reserve.

The Strategic Reserve is evenly divided between Chia Network’s US parent company and their Switzerland-based European subsidiary. Their wallets can be viewed on the Chia Blockchain Explorer.

XCH farming rewards are subject to a halving schedule, similar to Bitcoin. Halving means that the amount of XCH given out to farmers as rewards reduces at a set interval. With Chia, halving happens every three years until year 12, with the reward dropping from 64 XCH to 4 XCH at the end of this schedule.

This schedule aims to strike a balance where reasonable transaction fees will be high enough to strongly incentivize farmers to include them in blocks.

Chia’s Strategic Reserve pre-mine amounted to 21 million XCH in homage to Bitcoin creator Satoshi Nakamoto. Its circulating supply is currently 5.8 million, with a total supply of over 26.8 million.

How Do You Farm Chia?

To become a farmer, you first need space for your proverbial crops. There are two elements to this.

As mentioned, the generation of proofs, or “plots,” is difficult and, therefore, can take time. For this reason, Chia farmers normally use a large, enterprise-grade solid-state drive (SSD) for this. A consumer-grade SSD will wear out quickly if subjected to this task.

Then, farmers transfer their finished plots to a large HDD. Plots are a little more than 100 GB in size but often require far more than that in temporary storage.

Now that the hardware is taken care of, you’ll also need some software. You can simply visit Chia’s website to download and run the installer. A part of this process requires you to select an existing Chia address or create a new one. To decide whether to opt for Chia farming, a calculator like this one can help you work out how long it’ll take to see a return on investment.

How Do You Buy XCH?

If you’d rather buy XCH, you can do so on several major cryptocurrency exchanges. However, listings on US-based exchanges are notably sparse.

To get around this problem, you can simply buy XCH via Chia’s native wallet. This is thanks to the native integration of multiple decentralized exchanges and peer-to-peer trading.

How Do You Store XCH?

Chia’s native wallet is a great way to acquire XCH. It’s also a good way to store XCH, given that it possesses various functionalities and gives you full custody of your coins as well.

Chia Energy Consumption

One of the main reasons why Chia came about was the perceived energy consumption problem that proof-of-work blockchains like Bitcoin have.

Chia’s PoST is certainly far cleaner than ASIC miners or the GPUs other PoW blockchains use. However, individual nodes are still made up of at least a couple, if not entire, arrays of hard drives.

Per Chia, these hard drives only have to idle for 99.75% of the time, and the energy consumption of the entire network is less than 1% of that of Bitcoin. According to Chia’s data, that’s also less than the energy usage of PayPal and less than 10% of the power used by Bank of America.

Is XCH a Good Investment?

Chia Networks Inc. literature clearly states that “the company expects its equity valuation in a public market to correlate to the price movements of chia coins on digital money exchanges.”

This is related to the fact that, as mentioned, the company holds a huge proportion of the total, let alone the circulating supply, of XCH as a pre-mine. Chia’s business whitepaper also states that the pre-mined XCH is considered part of their pro forma balance sheet.

These disclosures are considered red flags by Some consider these disclosures “red flags,” since similar accounting practices have proven disastrous in the relatively recent past. The implosion of FTX was found to be largely due to the company’s use of its own FTT token to prop up its balance sheet as well as that of Alameda Research, a hedge fund owned by FTX founder Sam Bankman-Fried.

In this light, Chia’s aim to go public might be extremely beneficial. FTX was a private company, so it could get away with various irregularities, breaches of its own terms of service, and other things that a publicly listed company would usually not.

A public listing would also bring Chai under the umbrella of the US Securities and Exchange Commission (SEC). In contrast, FTX was lobbying for the regulation of cryptocurrencies by the Commodity Futures Trading Commission (CFTC).

The CFTC is a smaller agency than the SEC, and Bankman-Fried reportedly had a “close working relationship” with its head, Rostin Behnam. Beyond its connections to FTX, the CFTC also became internet-famous recently, with the CEO of the world’s largest derivatives exchange, CME, Terry Duffy, appearing to say on live television that he had bribed the CFTC.

Chia also discloses the possibility that “excess chia, if any,” from its pre-mine could be distributed to shareholders using traditional corporate tools. This gives a certain color to the company’s statement that no XCH has ever been sold for fundraising.

Ultimately, the value of XCH will be decided by its users if and when they use it in transactions. Like any currency, XCH possesses its own unique risk profile, and investing in it is a decision that is best taken with time and care.