OE OKEx Research Institute: Full analysis of CHIA mining

Title of the original article: "Oyi OKEx Research Institute:" A Feast for the Common People ", An Analysis of Chia Mining"

Original source: OEEE OKEx Research Institute

Mining has long been a hot topic in the cryptocurrency world. As long as you have a mining machine, you can "turn everything into gold" and achieve huge profits. Especially during the cryptocurrency bull market, both the current shortage of graphics cards on the market and the orders for mining machines whose delivery dates have been pushed into the fall reflect the pursuit of this wealth opportunity. Now, Chia, an old project born in 2017, is gaining new popularity thanks to the bull market in cryptocurrencies, making it a new object of interest in the mining world.

1. Chia's "aristocratic aura"

CHIA is best known for its three reputations: "Silicon Valley genius founder", "star investor" and "green mining".

In terms of team background, the founder of Chia is Bram Cohen, the inventor of BitTorrent. BitTorrent -- a free, open-source protocol that once accounted for a third of the global network and represented the idea of the first decentralized digital sharing economy -- won Bram a lot of buzz when it created the CINA project.

In terms of investment institutions, CHIA has obtained two rounds of financing in 2017 and 2018, including famous front-line investment institutions such as A16Z, Greylock Partners, DCM Ventures and Coinbase. It is the background of these star investment institutions that makes the market more full of expectations for the future performance of CHIA.

Of course, in addition to the above accolade, the most notable thing about CHIA is its unique "green mining".

When Nakamoto published the Bitcoin white paper, its main vision is that everyone can participate in the Bitcoin mining activities through the CPU; However, the competition for computing power based on proof of work eventually leads to a competition between specialized mining equipment and cheap electricity. Right now, unless an average person has a professional ASCI mining machine, they can't mine bitcoin; Similarly, according to the Cambridge Bitcoin Power Consumption Index, Bitcoin currently consumes 134.68 TWh of electricity per year, which is more than the annual power consumption of a medium-sized country. This is not appropriate at a time when the world is increasingly concerned about environmental and climate issues.

Chia, by contrast, aims to be an alternative to Bitcoin -- a "green, eco-friendly digital currency"; And its computing power is based on "a widely distributed, ASIC-resistant, price-independent commodity: hard disk space". How does Chia achieve its vision? It mainly relies on its Proof of Space and Time consensus mechanism.

Spatial proof is a way of proving that the user has kept some unused storage space on the hard disk. Users of the Chia blockchain "seed" unused space on their hard drives by installing the Chia Mining software. These users are called "farmers". When the blockchain broadcasts the next block challenge, the farmer can scan his plot to see if it has the hash value closest to the challenge. The probability that a farmer wins a block is the percentage of the total space in the network that the farmer occupies.

Time proof is to realize the block ordering in time order, so as to form a complete and effective block main chain. Time proof is achieved with a verifiable delay feature that takes some time to calculate but is very fast to verify. The key idea of VDFs is that they need to be calculated sequentially, and because having many parallel machines produces no benefit, it minimizes power waste.

Perhaps the above terms are too obscure and complicated. Let's look at the mining process of Chia to better understand the temporal and spatial proof mechanism:

(1) Tillage stage (P plate) :

A Plot Plot is a particular Plot, and Chia uses a hash algorithm to generate a large number of Nonce (random or non-repeated values that are only used once) to write to hard drive. The P Farming process is a bit like farmers planting Nonce on land (hard drive space), so China figuratively refers to this process as "Farming", and the users who are involved in Farming are called "farmers".

(2) Harvest stage:

After the user has planted seeds in the field, they can sit back and wait for the harvest. The process is that when a new block is broadcast on the Chia network, the farmer scans the Plot on their land (hard drive) and performs a small number of calculations to obtain a value. If the value is close to the Target given by Chia, the farmer is rewarded with Chia coins. During this process, Chia will provide a "spatial proof" that the user has indeed provided a certain amount of land (storage space) for sowing. Similarly, to prevent farmers with a lot of storage space from creating alternate transaction records to attack the system, Chia uses a VDF (verifiable delay function) to arrange the time of blocks to create a valid transaction history for the system, ensuring network security.

2. "Concubine Feast" under Chia

From the above, we can see that the probability of farmers winning block rewards is the proportion of their storage space to the total space in the network. Therefore, the more land a farmer has, the more likely he is to be rewarded. As a result, the Chia miners are buying up hard drives to expand their land space, leading to stock shortages and price hikes. This has led to an exponential increase in Chia's online space.

Figure 1. Chia network space growth

      Source: ChiaExplorer, OEC OKEx Research Institute

When Satoshi Nakamoto first designed the Bitcoin mining model, his vision was that everyone could use a CPU on a computer to mine. However, with the advent of computing hardware such as ASICs, CPU-based mining has become a far-fetched dream. It is difficult for ordinary people to participate in Bitcoin mining because of the lack of dedicated ASIC mining machines. Similarly, Filecoin mining, which is often mentioned with Chia, requires a lot of hardware configuration, requires a lot of bandwidth, and can't be shut down without triggering penalties. Therefore, BTC and FIL mining, gradually reduced to a few professionals of the aristocratic mining movement.

As you can see, the key to Chia's mining is the amount of hard disk space -- hardware that is available to anyone on the market. As a result, Chia has a lower barrier to entry for mining hardware than Bitcoin and Filecoin, allowing anyone to participate and reap the benefits of Chia.

That's one reason why Chia is so hot right now. Apart from the FOMO sentiment generated by the reluctance to miss out on Chia wealth opportunities during the bull market; More ordinary people can also participate in it, it can be called "the feast of the subaltern".

3. Chia mining analysis

Like Bitcoin, the difficulty of the work on the Chia blockchain network is adjusted dynamically to ensure that the block time remains constant and the target time is maintained at an average of 10 minutes per 32 blocks, which enables the stable release of XCH in the Chia network. On the other hand, as the competition on the P board increases, the Chia's network space will increase, ultimately resulting in a decrease in the reward revenue for "plowing space" without a unit. As shown in the figure below, the number of XCH rewards per terabyte per day of CHIA has been getting lower and lower over the past half month. By April 30, the amount of XCH rewards per terabyte of storage space per day was only about 0.0076 XCH. The number of XCH rewards per terabyte per day will drop further in the future as more farmers come in.

Figure 2. The number of XCH rewards earned by 1TB of storage space per day on the Chia network

    Source: ChiaExplorer, OEC OKEx Research Institute

On the other hand, it is important to note that the network can be disconnected during the P-drive process, but this can take a very long time, mainly because it takes a long time for a large number of Nonce to write to the disk on a P-drive. In general, the speed of a P disk depends on CPU power and disk read/write speed. The faster the P disk is written, the faster the tillage can be completed, and the sooner the farmer can enter the harvest stage. This means that while some farmers are still stuck in the time dilemma of P disk, other farmers are already harvesting XCH, and the longer the P disk is, the larger the network space is, and the less the future income will be.

Chia mining, therefore, is a "race against time" game. The larger the "land area", the higher the profit for the farmers who enter earlier. Unable to shorten the time required by the P disk, more farmers adopt the "space-for-time" strategy -- using a large number of hard disks at once to obtain a larger "farming area" to reduce the time loss caused by the P disk "farming" stage.

Overall, Chia is still in the early stage of dividend, driven by FOMO sentiment, Chia's popularity will continue for some time. It is a good choice for users who pursue short-term investment.

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