What is Chia Network (CHIA)?

What is Chia Network (CHIA)?

Chia Network (CHIA) is a blockchain platform for creating and executing smart contracts written in the Chialisp programming language.

What problems does Chia Network address?

In the view of Chia’s creators, bitcoin mining harms the environment and requires powerful computing resources beyond the reach of most users (the environmental issue is examined in an exclusive article).

Chia seeks to address these problems by combining key parameters of PoW blockchains with new technical solutions.

What does the name “Chia” mean?

Chia is positioned as an “eco-friendly” cryptocurrency because its production uses energy‑efficient hard drives and solid‑state drives.

To underscore its “green” character, the creators named it after chia blanca (Spanish sage) — a plant native to Central America that was a key crop for the Aztecs. Chia seeds contain more calcium than milk. In recent years they have become popular among vegetarians in the United States, and the EU has officially recognised chia as a “novel food”.

Who created Chia, and when?

Chia was created by American programmer and BitTorrent founder Bram Cohen. In August 2017 he registered in San Francisco the company Chia Network, which develops the Chia blockchain. The company’s president is former Nasdaq head Gene Hoffman, and its chief financial officer is former Overstock head Mitch Edwards.

Since March 2018 the company has raised about $77m in financing via SAFE agreements. The latest round, for $61m, closed in May 2021. Backers included venture funds Andreessen Horowitz, Galaxy Investment Group, DCM Ventures, True Ventures, Richmond Global Ventures and others. The round valued the company at $500m.

The Chia mainnet launched on 19 March 2021.

On 3 May 2021 developers enabled transactions on the network. Trading in Chia began on several exchanges.

How does Chia Network work?

The Chia blockchain uses a mining method based on Proof‑of‑Space (proof of space) and Proof‑of‑Time (proof of time).

The concept was presented in September 2017 by Bram Cohen and other researchers in the paper “Beyond Hellman’s Time-Memory Trade-Offs with Applications to Proofs of Space”.

They proposed a mining process that uses a computer’s disk space rather than its computing power. In this approach, the chance of producing a block is proportional to the amount of space allocated divided by the network’s total capacity. According to the authors, this method is more environmentally friendly than Proof‑of‑Work and more economical.

The process of minting coins in Chia is called farming, and users who produce coins are known as farmers.

Farming has two stages: plotting and harvesting.

Plotting

With Proof‑of‑Space, a user proves that there is free space on the computer’s hard drive. Plotting requires a high‑performance drive used as a buffer for temporary data storage. The minimum buffer is an SSD of more than 356.5 GB. This is enough to “seed” a plot of 108.8 GB. Plotting one plot takes from four to 12 hours.

The plotting process does not require an internet connection and consists of the following phases:

• seeding — generating seven tables of cryptographic hashes and saving them on the temporary disk;

• computing the gradient [backpropagation] of hashes;

• sorting and algorithmically compressing hashes in the temporary folder and beginning creation of the final plot file;

• completing the plot file and moving it to plot storage for subsequent harvesting.

Harvesting

When a new block is being created, the system announces a challenge, and the farmer scans their plot to find the hash closest to the challenge parameters. The chance of producing a block depends on the farmer’s share of the network’s total space.

The process resembles a lottery — the block reward (for three years after launch it is 64 XCH) goes to the first 32 farmers who submit a solution to the cryptographic challenge.

The Proof‑of‑Time algorithm ensures regular block creation and enhances the blockchain’s security.

Proof‑of‑Time is implemented by verifying nodes, the so‑called time lords [timelords], using a Verifiable Delay Function [Verifiable Delay Function, VDF]. This function takes a set time to compute but is very fast to verify. The enforced delay minimises energy waste and prevents any advantage from parallelising across multiple devices.

There will likely be relatively few “time lords”. The fastest finishes first, and only one fast and honest timelord is needed to complete a block and advance the chain.

The Chialisp programming language

Chia Network uses the Chialisp programming language. The first version of Chialisp was released in 2019 and was well received by DeFi practitioners and developers.

Chialisp combines key elements of Ethereum and Solidity with Bitcoin Core and the UTXO model of Bitcoin. This approach enables transactions to be executed in parallel rather than sequentially.

Chialisp recognises coin IDs, which can also attest to their own IDs. This enables precise self‑addressing and removes the need for self‑replicating programs.

According to its creators, the language is efficient, flexible and easy to audit. Chialisp is expected to allow developers to build a wide range of services on Chia, including cross‑border payments and the issuance of stablecoins. The platform already supports atomic swaps, wallets with multisig and “coloured coins” [colored coins].

The Chia token (XCH)

Chia (XCH) is the utility token of Chia Network. It uses a customised version of Bitcoin’s UTXO model and is used to incentivise network participants.

For the first three years, the block reward is 64 XCH for 32 farmers. Every three years the reward halves. This schedule applies for four three‑year periods, after which halving ceases.

In the first three years, farmers will generate about 3.4m XCH per year; in the next three years, half as much, and so on.

By the end of the sixth year after mainnet launch, users will hold 42% of the coins. It will take 21 years of farming for the circulating supply to match the number of tokens in the strategic reserve.

Strategic reserve

At mainnet launch, the company created a strategic reserve (prefarm) of 21m XCH. A vesting programme will be implemented via smart contracts.

In future, the company plans to list on the NYSE and NASDAQ. Shares will be used as ETFs pegged to the token’s price.

Distribution of funds among investors and users will be overseen by a governing board. The community will be notified 90 days in advance of any sale of coins from the strategic reserve. Employees and contractors of the company will not be able to receive payments in XCH.

How is Chia developing?

The project’s growth has brought several problems:

• Shortages: as early as April 2021, before trading began, Chia farmers created a local shortage of HDDs and SSDs in China.
• Rising equipment prices: in May 2021 Taiwan’s Phison Electronics warned of impending SSD price increases amid hype around Chia farming. In the same month, strong demand for hard drives from Chia farmers pushed prices for high‑capacity models at American retailers up by several hundred dollars.
• Restrictions on the sale and use of equipment: in April 2021 Chinese firm Galax warned users it would deny warranty service for SSDs used to farm Chia. At the same time several Chinese SSD manufacturers announced specialised storage devices for cryptocurrency farming, with substantially shorter warranty periods. According to experts, Chia farming can cut the lifespan of a 512 GB SSD from five years to two months.

By the end of 2021 the company intended to conduct an IPO compliant with SEC requirements, while not ruling out a merger with another firm via a SPAC.