Chia Network — founded by peer-to-peer file sharing protocol BitTorrent creator Bram Cohen — launched its new eco-friendly blockchain and native cryptocurrency chia (XCH) today.
The Chia blockchain aims to be a more decentralized, energy efficient and secure platform by tapping on unused hard drive space on regular computers.
Unlike the predominant proof-of-work consensus algorithm behind Bitcoin and proof-of-stake blockchains like Ethereum 2.0 and Cardano, the Chia blockchain utilizes a new protocol created by Cohen, called “proof of space and time.” Cohen has been suspected of being bitcoin’s creator Satoshi Nakamoto, an allegation he has denied. BitTorrent, which was invented by Cohen, was acquired by TRON in 2018 for US$140 million.
I of course would rather go completely thermonuclear and switch to proofs of space, which is exactly what we’re doing at Chia.— Bram Cohen (@bramcohen) March 17, 2021
“Chia is an attempt to improve on Proof of Work-based blockchains with a new consensus algorithm we call ‘proof of space and time.’ Instead of consuming massive amounts of electricity and wasteful single-purpose ASIC hardware to validate transactions, proof of space leverages the over-provisioned exabytes of disk space that already exist in the world today,” according to its white paper.
The white paper points out that bitcoin mining, which involves solving complex equations, has become increasingly centralized with specialized mining hardware owned and operated by a few large entities in purpose-built large data centers located near areas with cheap electricity.
“There has been centralization of what was intended to be a decentralized consensus network. This centralization lowers trust and raises difficult issues regarding electricity consumption, e-waste, carbon generation, and geopolitics,” the white paper stated.
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According to Chia Network, proof of space is a cryptographic technique where provers show that they allocate unused hard drive space for storage space, and doesn’t require energy. Miners, or “farmers,” will have to install software on their computers that allow them to allocate their empty disk drive space into “plots” to “farm” the native cryptocurrency XCH.
The probability of winning a block is tied to the percentage of the total space a farmer has compared to the entire network. Proof of space is tied to proof of time or “verifiable delay function,” where there is consistency in the time between blocks and increases the blockchain’s security against attacks.
Chia Network sees the blockchain powering payments use cases. “We believe that central bank digital currency initiatives, financial institution internal tokenization and external payments, global enterprise vendor management, DeX/ DeFi, and even personal cross border payments will work best on the Chia blockchain,” the white paper stated.
“Our hope is that, over time, Chia will be supported by point of sale systems and consumer payment apps all over the world. For example, if you pay for a coffee at Tully’s in England with your GrabPay app from Thailand, it should “just work” without you needing to know it was paid in Chia,” according to Chia Network.
There will be an initial six-week period after launch where farmers can earn, but not spend their farming rewards. “This is to stabilize the chain and give additional time for testing,” according to Chia Network.
21 million XCH — an homage to bitcoin’s supply limit of 21 million — will be created at mainnet launch for Chia Network’s pre-farm or strategic reserve. The company intends to use the strategic reserve to ease the volatility of the coin to mitigate bubbles and crashes and to drive adoption of XCH. For example, Chia Network intends to loan XCH to Global 5000 companies who can use it to pay their international vendors.
Chia Network believes that the blockchain will be sufficiently decentralized after the start of transactions on mainnet and would meet the SEC’s Hinman Test. “US Securities regulations generally focus only on the sale of securities so we do not plan on selling components of the pre farm until we have addressed any information asymmetry by becoming a reporting company and we have comfort from our regulators that they do not deem any future Company sales of chia to be a security,” the company said.
The company, which intends to go public on an American exchange, has raised approximately US$16 million in funding since its inception in 2017. Its investors include Slow Ventures and AngelList co-founder and former CEO Naval Ravikant.