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Monday, May 3, 2021

Chia Coin Trading Is Live, Mass Storage Shortages Could Follow (Or Not)


After a month of waiting, newcomer cryptocurrency Chia has finally hit it's trading start date. It's not listed at many exchanges yet, and there are lots of concerns and caveats with jumping on any new cryptocoin. But Chia is going for a novel appoach with a new proof of space and time algorithm. It's supposed to be far more environmentally friendly than all the proof of work coins like Bitcoin and Ethereum, but it could also shake up the storage industry in a big way.

Instead of hashing, Chia uses large plots of numbers that effectively amount to a massive Bingo card. The network determines the winning criteria every 20 seconds or so (18.75s, theoretically?), and that plot gets 2 XCH, the abbreviation for Chia's coin. The blockchain and block reward structure ends up similar to other cryptocurrencies, but the creation of the plot is the only really difficult part. After that, it's just a matter of letting the Chia plots sit around on your storage devices and hoping one of them gets a 'hit' every now and then.

I hesitate to even mention the current pricing, as it's extremely volatile right now. Early guesstimates put the starting price of XCH at $20, but IOUs for when trading commenced already hit the $1,000 mark in April. So far, we've seen a high of $1,935 today and a low of $1,116. Given the current statistics, neither price is remotely sustainable. Unless...

Yeah, unless. If you asked me years ago what Bitcoin would be worth, I would have never landed at it hitting $50,000 per BTC. Others were more prescient. People asked me about Ethereum when it launched, and I had reached the jaded point of seeing too many scam coins and ICOs and felt it was nothing special. Now, those who took the risk on the ICO have seen its value increase by 10,000X. There are a ton of other coins that haven't done nearly so well, and lots of scams as well, but Chia has some well-known people behind it. As in, Bram "BitTorrent" Cohen. Yeah, the guy that helped create BitTorrent is deeply involved in Chia. Which, I don't know ... BitTorrent isn't exactly a warm fuzzy term. It's useful for a lot of things, but also has been used for a ton of illegal downloads. Whatever.

Let's talk some theoreticals, then. The current netspace used by Chia — which is basically the Chia equivalent of the network hashrate — is already at an astounding 1.77 EiB. That's exbibytes, as in binary exabytes, or 2^60. It's a huge number, in other words. You'd need 177,000 10TB HDDs to store all that data. Even more alarming: Chia's netspace has basically doubled in the past week, and doubled again during the week before that.

Now that XCH is a tradable commodity on a cryptocurrency exchange, the price will help determine the eventual resting point for how much netspace it will use. Right now, even if we go with $1,000 per XCH, you could theoretically earn $1,500 per month from a single 10TB hard drive (#affiliate)! But that's only part of the story.

Creating Chia plots requires about 2.7TB of data to be written. It takes a decent amount of time on a hard drive, but a fast SSD can work on multiple plots concurrently. Except, 2.7TB of writes will burn through the life expectancy of most SSDs! This is where an enterprise class SSD could make a lot of sense. Anyway, if you want to do a lot of Chia plots quickly, you'll need a decent CPU with sufficient RAM, and then an ultra-fast SSD with a high endurance rating. Intel's Optane 905p 960GB for example would be a great choice. Or get an enterprise Intel DC P3600 1600GB drive for $1250. That should allow for the creation of eight concurrent plots in perhaps five hours, or 40 plots per day.  Let's just call it 20 plots per day to be conservative — and Chia will move those plots from temporary creation storage (ie, your fast SSD) to slower long-term storage (ie, a cheap HDD) automatically.

Here's the catch: Right now, Chia farming is basically all done solo. There are mining guilds of a sort, but they're not something I'd recommend — they require you to give away the keys to the kingdom (your private wallet keys). Pooled mining (farming) of Chia is supposed to be coming, but it's not here yet. So in order to win let's just say one plot per week, you'll need ... wait for it ... about 50TB worth of stored Chia plots. Ouch. And that's before the inflation in Chia's netspace, which will drop your mining rewards proportionately.

Now we're looking at $1250 worth of hard drives, plus a $1250 fast enterprise SSD, to do around 20 Chia plots per day. It will take over a week to fill up the HDDs with plots, at which time the netspace has potentially doubled again. That's a very ugly cycle!

Ultimately, the price or netspace (difficulty, sort of) have to reach equilibrium. An RTX 3090 graphics card selling at $3000 (twice its official launch price) can each about $10 per day, so 300 days to break even. Chia farming at $1000 per XCH will potentially get you $1000 per month per 10TB HDD, with a cost of $250 or so per drive. What's more, the power required to keep those drives online is nominal compared to GPU or ASIC farming — about 10W max per 10TB, vs. 250W for a high-end GPU.

Where will Chia and XCH stabilize, and where will they be in a year? Without a lot of storage, it's going to be difficult to get started right now due to the solo mining approach, but when pooled mining becomes available things will likely get a lot better. 10TB of storage could easily net you over $1000 by next year, possibly much more. Or it could end up being wasted space and wasted write cycles on your SSDs.

One final item of note is that Chia has a premine — or in this eco-friendly coin market, a pre-farm. Chia calls this the "Strategic Reserve" and it's a whopping 21 million XCH. That's right: the creators already have 21 million Chia waiting to be utilized. Now, a premine isn't the end of the world, as the funds from such can be used for marketing, development, etc. Lots of successful coins have had a premine or ICO. But it does mean that at the current price of $1000+, a brand new coin would have a theoretical market cap of $21 billion.

Outside of the pre-farm, to date only 451K XCH have been farmed. So of all XCH currently in existence, 98% came via the pre-farm. At a rate of 64 XCH per 10 minutes from farming, for the first three years (the block rewards will halve every three years, until reaching a steady rate of 4 XCH per ten minutes after 12 years), after the first three years the farmed XCH will only account for 32.5% of all XCH in existence. In another three years, farmed XCH will represent 41.9% of all XCH. In fact, it will take approximately 21 years for the farmed XCH to surpass the total size of the initial pre-farm.

In other words, no matter how much money Chia farmers make off of XCH in the coming years, it will be dwarfed by the amount that the Chia Network 'company' makes. Keep that in mind. The people who stand to gain the most from Chia doing well already have control of millions of XCH.

And let's end where I started. The price of XCH now, just an hour or two after I began, has now dropped to just over $1000. It could fall a lot further!

Addendum: The next morning, it looks like prices have reached relative stability at around $750.