With the introduction of peer-to-peer (P2P) technology, Bitcoin opened the doors to decentralized finance (DeFi). But mining Bitcoin requires high-power computing resources that not everyone can afford. While Bitcoin remains a king among cryptocurrencies, it’s also facing an environmental backlash due to the energy-intensive technologies that underpin it.
Solving this problem is at the core of the Chia project. Founded by the inventor of BitTorrent in 2017, Chia comes with a much smaller carbon footprint and a solid mining process of verifying and recording transactions.
What is Chia and how does it work? Is Chia going to become the cryptocurrency of the future? Read on to get all the answers you need.
What is the Chia network?
Before we move on to discuss the Chia coin, let’s focus on the network first. Chia Network (CHIA) is a decentralized and blockchain-based platform built to help teams in developing and executing smart contracts. The platform deploys Chialisp, a custom-designed on-chain programming language.
The network was launched in 2017 with the goal of becoming an alternative to traditional networks. Chai aims to increase transaction speed, offer an energy-efficient and eco-friendly network, and – naturally – help to disrupt the financial services industry.
Who stands behind Chia? The founder of BitTorrent, Bram Cohen, created it back in 2017. The current executives are former Nasdaq CEO Gene Hoffman, who now serves as Chia’s Chief Operating Officer and President, and Mitch Edwards, former CEO of Overstock.com and currently Chief Financial Officer at Chia. The protocol gained support from many investors – including Andreessen Horowitz, MetaStable, and Galaxy Investment Group.
What is the Chia token (XCH)?
Chia Network comes with its own token – CHIA (XCH). This utility token takes advantage of a custom-designed version of Bitcoin’s model of unspent transaction outputs (UTXO). This works as the primary incentive mechanism that supports the Nakamoto Consensus Algorithm.
The coin was launched on May 3, 2021, and instantly caused a splash on the crypto scene and beyond. Chia is set to achieve widespread digital exchange listing and fast adoption across the financial, corporate, commercial, and governmental sectors.
How does Chia work?
Chia is basically a reward created for Chia “farmers” – note the analogy to Bitcoin’s or Ethereum’s miners. As mentioned before, the protocol utilizes an improved and simplified version of Bitcoin’s unspent transaction output (UTXO) model. Chia’s implementation boosts the flexibility and programmability of coins.
So, Chia farming brings the reward of 2 XCH per block during the first three years to serve as an incentive mechanism for the Nakamoto consensus.
Chia manages its treasury with a Strategic Reserve – allocating 21 million XCH in the “pre-farm” process to support blockchain development. All the users, farmers, and developers can own a portion of the treasury as a shareholder.
What’s special about Chia’s technology?
Nakamoto Consensus Algorithm
We already mentioned the Nakamoto consensus. This is where the Chia protocol offers an innovative approach. In its essence, the Nakamoto Consensus Algorithm reduces the energy demands from the system, while at the same time working towards even more decentralization and ensuring full security.
Chia introduced a new version of the Nakamoto algorithm that combines Proof of Space and Proof of Time.
- Proof of Space – this is a cryptographic technique to prove that farmers keep unused storage on their hard disk drives.
- Proof of Time – this consensus algorithm ensures that there’s consistency between block periods in terms of time between them. The idea here is to increase the security of the network.
What’s special about Chia? It brings together Proof of Space and Proof of Time.
First, farmers need to install special software on their machines to allocate free space on their hard disk drives. They can then use this amount of memory to solve the challenge the protocol presents. The software will be collecting cryptographic numbers into plots on the hard drive.
When a block is created on the blockchain, the challenge number is derived from the previous block on the chain. So, farmers need to scan their pots ot check whether they have a number that is close to the challenge number. When they create a new block, they receive a reward in the form of Chia tokens.
Proof of Space and Time requires far less energy and hardware than Proof of Work (PoW) that we find in Bitcoin. Moreover, the space left unused is resistant to ASIC mining and doesn’t incur any electricity charges. That’s why Chia’s blockchain is set to become an eco-friendly alternative.
Chialisp
Another key technology aspect of Chia is its programming language, Chialisp. This on-chain blockchain language lets teams develop and execute funds with smart contract capabilities.
The Chia team launched the first version of Chialisp in 2019 and instantly generated a positive reception in the DeFi community and developers. No wonder – it offers a better method of building smart transactions.
Here are a few important characteristics of Chialisp:
- It brings together the most important components of the Ethereum (ETH) codebase, Solidity, as well as the Bitcoin core. It uses Bitcoin’s UTXO model and combines it with the expressiveness of Solidity.
- Chialisp opens the doors to simultaneous instead of sequential transactions without causing any side effects. It also offers more powerful delegation than the Bitcoin Core.
- Chialisp easily detects coin IDs (coins can also assert their IDs as well). This, in turn, allows for explicit self-reference and eliminates the need for quines (self-replicating programs).
Governance in Chia
In Chia, node operators retain full control of any future changes of the protocol. As you may expect, the protocol changes are validated and approved only if the majority of users agree to them. On top of that, Chia nodes can adopt new rules depending on the users’ opinions on the network’s operation.
Contrary to other protocols with Proof of Stake consensus, the amount of Chia coins owned by users doesn’t have an impact on the governance of the protocol. It’s only up to independent running nodes to upgrade the blockchain to a new version.
Chia is gaining steam on the crypto market
Compared to other blockchains, Chia reduces energy usage and environmental impact. Instead of using high-power computing resources, farmers allocate computing power into the network – and then prove that a specific amount of storage is left unused on their hard drives.
Chia was designed with accessibility in mind. The idea was that anyone who can use the internet can become a farmer since farming doesn’t require massive amounts of computing power.
All it takes to start farming is downloading the Chia Network’s blockchain transaction platform Mainnet. Then users need to allocate a specific amount of space to the network through the simple user interface. Since farming doesn’t require lots of energy, it’s not going to send your electricity bill through the roof like Bitcoin.
Just like miners buy graphic cards in bulk to support their operations, Chia enthusiasts are already investing a lot in SSDs, causing huge demand for them. The South China Morning Post showed that there’s in fact a shortage of SSDs and hard drives in China as the hard drive models sold out quickly when Chia Mainnet was launched.
Is Chia the cryptocurrency of the future?
It’s hard to make predictions about the crypto market, but Chia is definitely on its way to making a mark on the industry. The new network adopts the core principles of Bitcoin and implements a new technology to improve PoW-based blockchain with the Nakamoto consensus.
By reducing the amounts of electricity required for farming and the use of wasteful single-purpose hardware for validating transitions, Chia is an eco-friendly alternative to other blockchain platforms.
The protocol will surely scale-out to become a global open-source system that supports institutions, corporations, and governments all over the world. XCH might also be used in commerce and trading.
On top of that, the team behind Chia is planning to enhance the features of the coin and Chialisp further and make more improvements in the support of digital identity wallets, colored coins, and NFT (non-fungible token). So, keep your eye on Chia in the next few years because it seems to be on the path to disrupting the DeFi scene.
