Chia is a blockchain that uses a consensus algorithm known as “proofs of space and time” that is designed to be significantly less energy-intensive than proof of work. It's being developed by a San Francisco-based company called Chia Network that was founded by serial entrepreneurs Bram Cohen and Ryan Singer. Bram is the author of the BitTorrent protocol and founder of the BitTorrent company, which sold to Tron earlier this year for $140 million. A few months ago, Chia raised a $3.395 million seed round from investors like Naval Ravikant and VC firm Andreessen Horowitz. The team plans to launch the blockchain in Q1 2019.
How does Chia work?
Chia's defining feature is its innovative consensus algorithm. Chia combines two concepts, proof of space and proof of time, to create a new algorithm that's both secure and significantly less energy intensive than proof of work. The team hopes that the energy efficiency will also translate to a more egalitarian mining economy since the financial barrier to start farming is reduced. That way, the team reduces the risk of a centralized economy similar to Bitcoin’s. With Bitcoin, one company, Bitmain, controls more than 40% of the network’s mining power.
Proof of space
In proof of work, a miner races other miners by using its computational resources to find the right hash to create a new block. Theoretically, the time taken to find the right hash is a a good proxy of how much computational power a miner has dedicated to mining. Ideally, the more computational power a miner dedicates to mining, the more likely the miner is to win. In proof of space, the more storage space a farmer dedicates to farming, the more likely the farmer is to win.
Proof of space has certain advantages over proof of work; for instance, it's more energy efficient - your computer is still generating proofs to solve a problem related to the “closeness” to the most recent block, but all these proofs are pre-generated, saved on your hard drive, and can be accessed in each block interval in the future (rather than being generated anew in each ~10 minute block interval which could lead to high energy consumption seen in Bitcoin). Plus, proof of space is designed to be more egalitarian (disk storage is cheap, widely available, and often unused).
The trade-off with using proof of space is that it’s vulnerable to more attacks than proof of work. One example is the case when a rogue farmer decides to build a new blockchain from the genesis block with greater weight than the original. This is possible because its cheap to do so with a basic proof of space algorithm. Because the network follows the blockchain with the greatest weight, this allows the farmer to unilaterally control the blockchain.
Proof of time
To mitigate these attacks, the Chia team introduced proof of time. Very simply, to create a block in Chia, the block needs to first go through proof of space and then go through proof of time. While proof of space is used to determine the winning block, proof of time is only used to ensure that a certain amount of time has passed before the block is created. In aggregate, proof of time ensures that the blockchain has taken a set amount of time to create and this solves the problem of powerful farmers quickly building a new blockchain with greater weight.
At a high level, Chia's block producing process follows this pattern: farmers use their allocated space to farm blocks. The blocks are then passed to proof of time servers to finish. Once a block is complete, a proof of time server broadcasts the block and the winning block is appended to the blockchain. Only farmers are reimbursed for their work, proof of time servers do not get rewarded for their work. The team assumes that network participants will "do it to keep everyone else honest".
Blockchain characteristics and performance
Outside of the consensus algorithm used, he Chia blockchain is similar to the Bitcoin blockchain. Like Bitcoin, Chia uses the Unspent Transaction Output (UTXO) transaction model. Additionally Chia will also have a speed and throughput as Bitcoin. Unlike Bitcoin, Chia will not have a maximum capped supply of tokens. Although there will be three halvings of block rewards, Chia's blocks will always offer newly minted tokens as rewards for farmers.
What are other blockchains similar to Chia
There are other blockchains that use similar consensus algorithms as Chia. SpaceMint and Burstcoin both use a proof of space consensus algorithm. They don't complete it with proof of time. Although it's arguable that Chia is more secure with its proof of space and time combination, both SpaceMint and Burstcoin have their own safeguards against the weaknesses of proof of space.
The team behind Chia
Chia is being built by a strong team and its cofounders have impressive entrepreneurial backgrounds. For instance, Bram created the infamous and highly popular P2P file sharing protocol, BitTorrent. Bram then created the BitTorrent company, which he recently sold for $140 million to Tron. The other co-founder, Ryan, is a serial Bitcoin entrepreneur. He co-founded one of the first Bitcoin exchanges in the US, TradeHill, and served as COO. After TradeHill, Ryan co-founded CryptoCorp, a multi-signature security company, Blockchain Clearing Corporation, a securities clearing technology company, Blockchain Health, which does document control for clinical documents using blockchain, and now Chia.
As previously mentioned, the team recently secured a $3.395 million seed round led by AngelList's Naval Ravikant and joined by heavyweight VC firms like Andreessen Horowitz and Greylock. In order to acquire more funding, the team plans to hold an IPO instead of an ICO and dole out Chia tokens as dividends to the participants of the public sale. The IPO will be capped at $50 million. According to the Chia Network, the IPO "may be the first fully compliant public offering for a crypto company".
Proof of stake
Proof of space and time might be a better alternative to proof of work because it’s more energy efficient and makes farming more accessible, but the consensus algorithm already has staunch competition from the proof of stake model. Proof of stake is not only highly energy efficient, it’s arguably more accessible than proof of space and time since you only need to buy and hold the token to mine. In proof of space and time, you need to buy hard drives, connect them to the farming software, and set them up for farming before being able to actually farm. The process is more complicated, manual, and has subsequently, more points of friction.
Finally, proof of stake is arguably more secure than proof of space and time since it’s economically integrated into the blockchain, so it doesn't require external resources like storage or computation power. Additionally, attacking a proof of stake blockchain is more expensive since the attacker needs to acquire a large stake to attack the network. If the attack’s successful, it significantly devalues their investment and the attack is thus highly economically irrational. With proof of space and time, however, the hard drives that the attacker bought can easily be reused or resold.
Little differentiation from Bitcoin
Although proof of space and time is an innovative consensus algorithm, Chia has little differentiation from Bitcoin in terms of the end user's experience. Its blockchain performance is comparable to Bitcoin - in fact, the team plans to alleviate its blockchain performance issues by launching with the Lightning network. Which, assuming that the Lightning network is viable, will also be used in Bitcoin. Plus, Chia doesn't offer any new features from Bitcoin such as smart contracts or a protocol-based decentralized exchange.
Farming will likely still be centralized
The team claims that Chia will be resistant to farmer centralization because "there is so much empty storage space available, and anyone with unused storage space will be able to farm". In addition, using storage means that ASICs, processors specifically designed to mine cryptocurrency, can’t be used for farming.
However, empty storage space being widely available - and ASICs being rendered useless in this system - does not mean that farming will be less centralized than Bitcoin mining. Storage space is ultimately a resource: resource distribution follows wealth distribution, and wealth distribution follows the power law. There'll eventually be a select few farmers that will control the majority of the farming power. Under this system, AWS could very well be the new Bitmain.
Chia's proof of space and time consensus algorithm is innovative, and it solves the energy wastefulness of Bitcoin's proof of work consensus algorithm. The team developing Chia is led by Bram Cohen, the creator of the BitTorrent protocol, and, overall, the Chia team has a strong technical background. It's also promising that well known investors like Naval Ravikant and VC firm Andreessen Horowitz are backing the project.
However, an important open question is whether Chia improves on Bitcoin enough for it to be a strong competitor. Many cryptocurrencies in the market significantly improve upon Bitcoin but their network, usage, and market cap lag far behind Bitcoin. Take for example Ethereum, the largest smart contract cryptocurrency, still has less than half of Bitcoin's market cap. How does Chia, which only innovates on Bitcoin's consensus algorithm, compete with the likes of coins like Ethereum and Monero? It's going to be an uphill battle to say the least.