5 Reasons it might.

Blockchain has a power-consumption problem and the crypto community is scrambling to find answers. While Bitcoin and Ethereum offer their own solutions, a radically different approach is presented by the self-professed ‘green’ Chia Networks. Is this $500 million company worth taking seriously — and can it follow through on its big claims?

To say that blockchain has a power problem isn’t exactly new. Yet there’s a very good reason it’s being taken so seriously — cryptocurrency is all about the long game.

If crypto can’t resolve its dependence on fossil fuels, investors can kiss goodbye to those five and ten-year gains.

We all know the figures; Bitcoin and Ethereum each consume as much power per year as a small country. That, by itself, wouldn’t be an insurmountable problem if it weren’t for the fact that around 80% of Bitcoin mining depends on cheap Chinese electricity powered by coal fueled power stations. This revelation quickly led to Elon Musk’s infamous tweet:

In response, the Chinese mining conglomerates quickly pledged to reach net-zero electricity and carbon emission targets by 2030 and 2040, respectively. Genuine aspirations or PR crisis management? You decide. Either way, any shift to renewable energy would likely involve extensive reliance on Sichuan hydro-electric power, an uncertain and variable power source likely to add further volatility to the market.

Ethereum, whose power consumption is roughly half that of bitcoin, is going in a different direction, moving from a Proof of Work (PoW) model to Proof of Stake (PoW). It is claimed this could reduce energy consumption by a factor of 100 at the least and potentially even 10,000. However, such a move won’t be immediate and depends on tech that is still largely untested at scale. Ethereum’s creator, Vitalik Buterin, acknowledged the complexity of the transition.

“[PoS is] still in its infancy and less battle-tested compared to POW … [We thought] it would take one year to [implement] POS… but it actually [has] taken around six years” — Vitalik Buterin, May 2021

It could be argued that neither of these approaches is ideal. Both Bitcoin and Ethereum are digital currencies designed from the ground-up to utilize the energy intensive Proof of Work. In responding to the climate-driven market forces, they risk coming across as offering ad hoc solutions to systemic problems. In other words, it smacks of delaying the inevitable.

Part of the issue is the decentralized nature of blockchain. Rather than presenting a united front to criticism and pressure, different currencies are free to pull in different directions. Moreover, in maintaining a systemic firewall against government interference, blockchains are unable to harness state protections against climate pressures (in the ‘national interest’) as so many energy companies and auto manufacturers around the world have over the years. This leaves cryptocurrencies particularly vulnerable to the winds of market concerns.

Given that global concerns about the climate are likely to be around for the foreseeable, it should be no surprise that the niche of a ‘green’ crypto would be filled in short-order. Chia Networks aims at filling that niche.

1. Chia was designed as a next-gen, green crypto

Chia Networks is very open about being a next-generation cryptocurrency, iterating the technology to a new, improved state. The Chia business whitepaper released in January 2021 states as much directly:

Eleven years after Satoshi’s whitepaper was released, the world has learned much from the Bitcoin experiment. Research progress in cryptography has also advanced. At Chia, we have set out to harness this experience and stand on the shoulders of giants like Merkle, Rivest, Hellman, Finney, Wuille, Boneh and others to apply new cryptography, some of which we helped invent and refine, to create the next chapter of the Bitcoin experiment. — Chia Networks Inc., emphasis author’s own

As such, Chia is presenting itself as an analog of companies like Tesla (though this isn’t stated directly); where Tesla takes existing car manufacturing processes and iterates them to incorporate better, greener tech, so Chia will do the same for blockchain. At least, that’s the idea.

It’s a tempting offer for investors wishing to capitalize on the potentially lucrative crypto market whilst also future-proofing their investments. Where Ethereum are retro-fitting their tech to meet new market conditions, Chia present themselves as already one step beyond.

This all begs the question — what new tech are they actually offering?

2. PoST: A greener alternative to PoW

Proof of Space and Time (PoST) is Chia’s answer to the traditional Proof of Work (PoW) model used by Bitcoin, Ethereum and others.

The original PoW system, outlined in Satoshi Nakamoto’s original whitepaper, requires miners to verify block transactions by hashing complex cryptographic problems. The idea was to use the vast, untapped resource of excess CPU cycles. However, it didn’t work. As the Chia business whitepaper notes:

“Specialized single-use hardware and cheap electricity have, instead, become far better at Proof of Work calculations than general purpose CPUs.” — Chia Networks

Vast mining farms, particularly in China, dominate the crypto mining scene, using ASIC hardware and huge amounts of cheap electricity to hash faster than anyone else. This undermines the fundamental blockchain principle of decentralization alongside consuming masses of ‘dirty’ electricity.

By contrast, Proof of Space and Time seeks to make use of a genuine untapped resource — excess hard-disk space — with minimal power consumption requirements.

“Chia is the first new Nakamoto consensus since Bitcoin” — Chia Networks

Chia ‘farmers’ pre-populate ‘plots’ with potential solutions to cryptographic problems. Blocks can then be verified by checking plots to find matching solutions. When a plot contains a solution needed to verify a block, the owner of the plot is rewarded with a Chia coin. That’s the Proof of Space. Proof of Time is implemented through ‘Timelords’ — a Verifiable Delay Function that ensures time passes between each block and prevents malicious parties overwhelming the honest nodes through brute computational power.

Since the process of checking and verifying plots is computationally simple compared to hashing, the power consumption is massively reduced. This, in turn, makes massive ASIC powerhouses of Bitcoin mining redundant. It’s not about processing power anymore. It’s simply about seeding plots and waiting for them to bear fruit. Work-intensive mining becomes patience-rewarding farming.

For this reason Chia should never require the electricity needs of a small country. In theory, it’s a much greener crypto.

3. Maintains decentralization

As noted above, traditional PoW cryptocurrencies have a tendency to centralize. This is certainly true of Bitcoin and Ethereum. Large mining pools push out smaller individual miners and thus weaken the network.

Moreover, Chia believe there are intrinsic security problems in the first-gen cryptocurrencies:

“Poor design and security have made it virtually impossible for enterprise projects to adopt Ethereum to move money or investments in production or at scale. The next most likely alternatives, such as Ripple and Stellar, also have significant issues that force governments and banks to use “intranet” versions of blockchain software on an experimental basis instead. Intranet blockchains are private, permissioned, and have few benefits over a good old fashioned database. They lose all of the positive network effects of an open, decentralized, and secure blockchain.” — Chia Networks

In other words, the market-leading blockchains tend towards centralization. The argument goes that a PoST consensus algorithm, combined with a superior, more secure blockchain programming language, Chialisp, will preserve decentralization — an essential ingredient for the long-term success of any cryptocurrency.

4. Credibility

Perhaps one of Chia’s strongest cards, as an emerging cryptocurrency, is the credibility of its key figures; Bram Cohen and Gene Hoffman.

Both are established figures in the tech sector with considerable successes behind them. Cohen is best known for developing the p2p BitTorrent protocol, while Hoffman developed eMusic and Vindicia.

The bottom line is there are good reasons to believe Chia Networks have a top-tier understanding of both the technical and business aspects of developing a new cryptocurrency. Chia Networks make very bold claims — but with brains like Cohen and Hoffman at the helm, there might be good reasons to take these claims seriously.

5. Chia is generating serious heat in the investing world

It’s one thing for a company to have great tech, but something else entirely to bring it to market. With this in mind, Chia is showing all the right signs.

In May, Hoffman revealed plans for an IPO later in 2021.

“Our goal has always been to go public relatively quickly as that will significantly clarify our regulatory environment and allow customers to use currency to hedge public market volatility, which is different from other coins.” — Gene Hoffman

Moreover, Chia Networks has some significant backers. A recently completed funding round has brought in more than $60m in cash and doubled its value to $500 million, with investments from Richmond Global Ventures, Andreessen Horowitz, Breyer Capital, Slow Ventures, True Ventures, Cygni Capital, Naval Ravikant, Collab+Currency, and DHVC.

Richmond Global Ventures chief David Frazee explained what he saw in the new crypto, lending weight to Chia’s claims of next-gen tech:

“Chia is what Bitcoin would look like if it was designed with knowledge from the last 13 years” — David Frazee

With backing like this, it’s difficult not see Chia as a significant emerging player on a global scale.

The world of cryptocurrencies moves quickly. Since the concept of the Nakomoto consensus emerged 13 years ago, the idea of digital currencies has smashed into global markets and financial institutions, turning traditional ideas of banks and financial dependency on their head. The question now is whether blockchain-based currencies can survive in the long term. This is the question Chia is responding to. Given their tech, the market context and their backers, surely it needs to be taken seriously?

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Source: https://medium.com/dismantle-locate/can-a-500m-crypto-solve-blockchains-power-problem-83fc02db72b6?source=rss——-8—————–cryptocurrency