DEVELOPMENT
Let’s cover the subject of the CHIA blockchain: what kind of network it is, what the results are for 2022, and the development plans for 2023.
About Chia
What is Chia
Chia Network is a smart cryptocurrency and blockchain transaction platform that was designed to make cryptocurrency easier to use and harder to lose than cash.
Chia was founded in 2017 by Bram Cohen, founder of BitTorrent, a popular file-sharing platform.
The idea behind Chia Network is to sell smart contracts services and software to governments, financial institutions, corporations, and large buyers and sellers of storage. In addition, the company expects to facilitate the development of DeFi, cross-border payments and new end-user wallets to accelerate the development of new applications that have not yet been invented.
Chia’s current ecosystem consists of the following projects:
Information about TVL is not available because there are no large DEXs that trade the XCH token. Available DEXs are shown in the screenshot above.
How much invested
According to known information, about $70 million was invested in Chia. The details are in the screenshot.
The current capitalization is about $300 million (not including 21 million prefarm tokens).
XCH’s current price is $46.6. The price has fallen by 97.2% from the highs.
Chia has not conducted an ICO. The project relies on private funding rounds to provide capital for the project.
What is XCH
The Chia token (XCH) is a native asset of the Chia network.
Chia blockchain blockchain producers are rewarded in XCH for their contributions to the security of the network.
The Chia team has pre-farmed 21 million XCH (prefarm), which they are investing in the long-term development of the network.
The team has several ways to use their prefarm, including:
- Lending: Lending XCH coins to customers will pave the way for more liquidity for XCH.
- Rewards: to distribute additional rewards to farmers.
- Investment: Developers and other network members may be offered grants in XCH coins.
- Redemption: Chia’s roadmap calls for going public at some point in the future. When that happens, the team can use its strategic reserves to buy back shares.
- Dividends: Strategic reserves can also be used to pay dividends when the company goes public.
Chia development activity
Among the largest ecosystems (Polkadot, Ethereum, Cosmos, Aptos) Chia has ranked fourth over the past year.
At the same time, the level of development is kept at about the same level.
Development activity – shows the project’s development activity over time based on a number of purely development-related “events” in the project’s publicly accessible Github repository. (does not take into account: release comments, forks, stars, etc.).
Another type of hidden question that is often asked is, “Hey guys, are you going to run out of money?” and I’ll go on and warn you that we have more than a year’s worth of cash for expenses. We’re kind of over budget, and we’re getting pretty good at it, but we still have room to grow. Gene Hoffman, July 2022.
It turns out that by about the end of 2023, Chia will run out of development money if they don’t do anything about it.
They have several options for dealing with this problem in 2023:
- Get additional investment in private equity rounds;
- Become a public company (go public with an IPO);
- Spike the price of the XCH token. The last point is especially interesting because the value of the company at IPO will be equal to the value of the prefarm (21 million XCH tokens).
How Chia works
The Chia protocol presents an innovative approach with Nakamoto’s own version of consensus. The algorithm at the heart of the network eliminates the energy needs of the system associated with mining, while keeping it secure and decentralized.
The Nakamoto algorithm that Chia uses is a combination of Proof of Space and Proof of Time (collectively called Proof of Space and Time or PoST). Let’s talk about it briefly:
– Proof of Space refers to a cryptographic method that allows a miner (aka a farmer) to demonstrate that they are allocating some amount of unused storage on their hard drives to participate in the network.
– Proof of time refers to a consensus algorithm that uses a voting system to select farmers and focuses on how long a particular farmer has been actively participating in the network (as well as his overall reputation).
This approach is very close to Satoshi Nakamoto’s original ideal of “one processor, one vote,” where voting refers to the chance to win and confirm a block.
A fair system can be created by combining evidence of space and time. In such a system, users store random data on their hard drives. Their chance of winning XCH is proportional to the space allocated to them.
In addition, such a system scales to billions of participants similar to Proof of Work.
Proof of Work can be seen as a way to prove that you keep some hard drive space unused. Chia blockchain users will “fill up” unused space on their hard drive by installing software that stores a set of cryptographic numbers on the disk as “rafts/graphs.” A farmer’s probability of winning a block is the percentage of the total space the farmer owns compared to the entire network.
Chia farmers earn block rewards and fees by finding valid evidence of space within their saved plots. Farmers work by waiting for updates from the full node, which gives them new pointers (equivalent to winning lottery numbers) about every nine seconds.
So, in Chia, the goal is to create tokens and reward network validators based on the free storage they contribute to the network. This is fundamentally different from PoW blockchains, which depend on the performance of the miners.
Features of Chia
Chia has several features that distinguish it from traditional blockchains such as Bitcoin.
- High decentralization: about 125 thousand nodes, which are located all over the world, including both data centers and households.
Top 5 distribution of nodes by country: China, US, Germany, Russia, Iran.
Over the year, the number of nodes decreased from 220 thousand to 125 thousand nodes.
At the same time, the number of active nodes over the year remained virtually unchanged: from 14,000 to 12,500 nodes.
Active nodes are nodes with available connections that allow incoming connections and have space available to connect more peer nodes.
Secure blockchain
The combination of “space + time” ensures that the network and its transactions are as secure as possible, and the high decentralization only contributes to the best possible outcome.
Example. Each XCH contains a hash of the identifier of a previously mined coin.
Since hashes are irreversible with today’s technology, a hacker cannot even analyze the blockchain to determine the type of coin, let alone look at the code that created it.
Chia argues that this is a better solution than Ethereum, where the source code of a smart contract can be viewed with a compiler.
A smart contract platform for business tools and services
In terms of value, Chia is closer to Ethereum than Bitcoin because of the presence of smart contracts in the network.
Chialisp
A new programming language and “a fundamentally better way to build smart transactions than what has been created in the past. It’s powerful, easy to audit and secure.
It is a unique virtual machine smart transaction language, similar to the Ethereum Virtual Machine (EVM). Chialisp tracks the state of the blockchain and avoids duplicate spending by using a so-called coin set model, which is comparable to Bitcoin’s Unspent Transaction Model (UTXO). Chia emphasizes that its coin set approach differs from the Ethereum account model in that it increases security, reduces MEV and makes its code fully auditable.
Chialisp is based on Solidity, Bitcoin Core and the Ethereum codebase, while retaining Bitcoin’s UTXO model.
It lays the foundation for concurrent transactions rather than “sequential transactions.”
Energy Efficiency
The combined Chia consensus with time and space proof is more energy efficient than PoW and allows anyone with connectivity and free disk space to participate as a node.
The dual Chia consensus with time and space proving saves energy.
Thus, Chia combines the security of PoW blockchains with the performance and energy efficiency of PoS blockchains.
Results for 2022
In 2022, Chia blockchain introduced a notable number of new technologies. Let’s take a look at the most important ones.
The emergence of the NFT1 standard
Chia introduced the NFT1 standard focused on artists. The standard brings us as close as possible to digital property by:
Market Independence. Provides support for multiple sources and a cryptographic hash for digital NFT files for publication and storage.
It will never be necessary to transfer your NFT to the marketplace to sell it. While marketplace storage is allowed, self-storage is standard for Chia NFTs from day one.
Consistent provenance. Allows creators and owners to validate their Digital Identifiers (DIDs) through their established social media presence. Additional integration with third-party partners for Know Your Customer (KYC) paid verifiers and other types of verified credentials will be provided in the future.
DIDs allow you to track the full history of NFT. DIDs will later be used for NFT authentication.
Digital Persistence. With their established social media presence, creators and owners can link their identity to NFTs, including transaction history, to establish consistent provenance.
You can add a list of links to NFT data, metadata and license. Each link is verified with a hash that is permanently embedded in the NFT itself. If one link changes or disappears, you can use another existing link or create a new one. Even if all the links disappear, as long as someone has a copy of the original file, the owner can always add a new link to the list.
The emergence of the CAT2 standard
What is the CAT standard?
CAT is a Chia asset token. CATs are interchangeable tokens that are issued on the Chia blockchain. The CAT1 standard was finalized in January 2022. Some examples of CAT include Stable USD (USDS), Spacebucks (SBX) and Marmot (MRMT).
The CAT standard was upgraded to CAT2 based on a security vulnerability discovered during an external security audit.
Chia DataLayer Database Announcement
Chia DataLayer is a decentralized, general-purpose database: anyone can publish data tables and others can subscribe to that data. The published data is as immutable as the Chia blockchain, but it is not stored in the blockchain.
Instead, evidence of the data is stored in the blockchain along with URLs where someone can retrieve the data. The subscriber can compare the data received with the proof-of-data on the blockchain and confirm that the data is correct.
The World Bank’s Climate Vault demonstrates a real-world example of Chia DataLayer usage. The Climate Vault, led by the World Bank, aims to provide transparency and trust in carbon markets. The World Bank developed several “simulations” of the climate vault, eventually choosing the Chia-designed version to refine a clear proposal for how it should work before submitting it to an independent secretariat in late 2022.
The World Bank’s mission required blockchain technology for immutability and transparency. Adding another layer of complexity, the blockchain must also be sustainable, support their data storage needs, and operate with minimal technical specifications. Chia is the only blockchain that meets their requirements. The final simulation using Chia Blockchain is complete.
Plans for 2023
Updated 2/25/2023 – A new roadmap for 2023 has been released.
In 2023, Chia blockchain will introduce an even more prominent number of new technologies. Let’s take a look at the most important ones.
ETH-Chia Bridge
The bridge will allow a user who owns ETH to convert ETH into wrapped ETH on Chia. This will create another avenue for increased capital inflows and outflows into the Chia network.
The bridge will also provide support for wrapped Ethereum ERC-20 assets in Chia, such as the USDC Stablecoin.
Key Features:
- A user-friendly dApp that allows users to initiate connection requests.
- Secure bridge implementation based on the approval of most participating validators.
- Ability to mint packaged ETH and ERC-20 tokens using the Chia CAT2 standard.
- Multi-signature Ethereum wallet for storing and managing ETH sent to a smart contract.
Ledger support
As Ledger adds BLS support to its latest device firmware, Chia will have the ability to use Ledger devices for Chia assets.
This will allow the user to create and store private keys on the Ledger device and use them to obtain addresses and sign charges.
New features for wallets
Wallet developers will be able to add the ability for users to undo expenses sent to the wrong address by mistake.
A graphical user interface (GUI) will be created around the Chia storage primitive to encourage adoption of enterprise storage solutions.
Key Features:
- Support for multiple signatures – for any transaction.
- Clawback support allows any transaction to be revoked from the internal custody wallet within 90 days.
- Timelock support allows you to declare a transaction followed by a 90-day processing period.
- Speed limit support, which allows designated people to have access to a certain number of assets, for a certain period of time.
- Re-key support is available to counter any fraudulent attempts to break in or steal a key.
CAT security token
Combining verifiable credentials (1) with the CAT token primitive (2), allows an organization to issue compliant CAT security tokens while complying with regulatory rules.
(1) Verifiable Credentials (VC)
Verifiable credentials are factual statements about the subject matter verified by the third-party issuing organization. Verifiable credentials use cryptography to create tamper-proof evidence that can be used to represent the facts about a subject. This is becoming a building block for the development of digital reputation.
Future possibilities include verification of existing credentials such as driver’s licenses, passports, diplomas, trade certificates, etc.
Use Cases:
- Accredited investor issuance services for carbon credit registries and security token issuers.
- KYC issuance services for carbon credit registries and security token issuers.
(2) CAT token
With built-in restrictions to ensure its compliance with regulatory requirements when sold or exchanged. Any company, corporation, joint venture, group of friends or large global party organization will be able to tokenize existing company capital or issue new tokens to raise capital.
Key features of the CAT security token:
- Allow companies to issue compatible security tokens.
- Security tokens require certain verifiable credentials (e.g., KYC) that a buyer must have in order to buy or exchange a security token.
- Any security token will be freely tradable after any lock-in period and security compliance requirements are met.
- Ownership of the token can be verified.
Use Cases:
- Enabling startups to tokenize existing capital into security tokens, tokenize profit distributions, and issue tokenized securities (based on Reg D and Reg S) as a means of raising capital.
By combining these primitives together (verifiable credentials and the CAT token primitive), the resulting ownership through tokenization can be used by venture capitalists for peer-to-peer securities trading that meets regulatory requirements.
Updates for DataLayer
The addition of the permission feature to DataLayer will open up new customer segments, allowing enterprise customers to maintain data privacy in their DataLayer by establishing who has permission to access and update data.
There will also be support for an enablement pay feature that can link updates made to DataLayer to a pay feature for those updates. If something is included/updated in the database, the customer will pay to see/use those inclusions/updates.
Permissions feature
The vast majority of enterprise use cases require permissions to share data. With the addition of permissions, organizations will have the ability to control access to sent data among a select group of participants.
Data layer permissions will include a pluggable mechanism for reading and writing (e.g., access control, cloud provider support, etc.), providing multiple ways to publish and subscribe to the actual data.
The Pay by Inclusion function
This function connects the DataLayer to financial transactions using evidence of inclusion.
DataLayer can include a document, such as a human-readable PDF file, that describes the actual commitment that the recipient makes in exchange for the funds. This extends DataLayer’s capabilities from simply tracking data update transactions to payment infrastructure.
Key features:
- Payments at turn-on – the ability to make a payment in exchange for a data update.
- Chia asset tokens (CAT) or XCH token can be accepted as currency in financial transactions.
Use cases:
- Web3 e-commerce enablement: proving that a payment was linked to a data update is very effective because it allows real-world transactions to be represented online. Digital receipts for transactions in the Web3 space open up use cases such as contracts, retail sales, ticketing services, etc.
In each of these use cases, a data change is recorded and can be proven along the chain to have been associated with an actual transaction.
Improvements for farmers and rafts/graphs building
Graphics Processor
Both raft building and farming will become available using the NVIDIA CUDA GPU on Windows and Linux.
Plot compression
Plot compression will become available, allowing farmers to create and process smaller rafts and be paid more for the same amount of space with the Chia client on the main processors.
Creating functionality for DAOs
Will allow developers to set up and fund DAOs, provide management and voting for DAO members, and allow those DAO members to be rewarded for their participation.
DAO will allow any members — a corporation, a joint venture, a group of friends, or a huge global association of parties — to form a treasury, grant ownership, and vote on how that money is spent. DAO primitives will serve as a representative extended set of capabilities needed for a new and more interoperable class of DAOs.
Going IPO
Chia is actively working to become a public company.
Chia Public Company
In 2023-2024, Chia intends to list the company on the U.S. National Stock Exchange.
Chia created 21 million Chia when it launched its core network (prefarm) and considers them part of the notional balance sheet of a future public company, Chia. Chia’s management and use of the prefarm could be essential to Chia’s adoption.
The goal of Chia’s $21 million prefarm is to make it very easy for us to raise fiat capital, pay developers, and make grants to continue to build our developer relations team…and so the goal here is part of a public company strategy. If you’ve never been close to a public company, it may not make much sense, but public companies can very easily raise money by being public. So, essentially, what the prefarm ultimately becomes is a long-term asset, and the way the valuation of the company is constructed represents that asset plus the future of our cash flows from business income.
So, if you’re an investor, you get two things: you get the price of the coin and the service business that we have to build around the price of the coin to help people really embrace it. Eventually, when that market gets really rich and fat, like where we are in the top 5 cryptocurrencies, we’ll start paying dividends on those coins to shareholders. So once a quarter, everyone who owns shares can get 0.01 XCH. The idea here is that this is a completely fair way to distribute it. Ultimately, it looks like this: at the 50-year mark or even at the 30-year mark, I think 50% of the coins are in the hands of farmers, 25% of the coins went to private investors, and 25% stayed with the team and the developers is a pretty good way to do it, now, eventually, we are going to get this prefarm out through the shareholder base. Gene Hoffman, March 2022.
The public company structure, combined with sound corporate governance, provides a framework for prefarm management and allows Chia to be distributed fairly to shareholders using traditional corporate tools.
A corporate form with transparent disclosure better combines incentives than other current attempts to support or manage public blockchains. Of course, because of the decentralized nature of the Chia Network blockchain and Chia coins that are not owned by Chia will operate and trade regardless of the company’s existence. Chia has no direct control over the Chia blockchain, as the Chia blockchain rules can only be updated by independently updating most of the nodes in operation to a new version. Chia does not intend to further farm tokens. In addition, unlike Proof of Stake blockchains, coin ownership does not affect the management or validation of the Chia blockchain.
Future earnings of a public company
The Company expects to generate revenue and enhance value for shareholders primarily by:
- Providing installation, development and ongoing maintenance and support for the use of Chia, Chialisp and Chia smart coins in trading and asset issuance using CAT;
- Generating interest on Chia loans to market makers, governments, financial institutions, corporations and developers for their use in day-to-day operations;
- Increasing the value of Chia on the Company’s balance sheet due to the demand and use of Chia by participants in the Chia Network blockchain.
Future public company services
The Company provides services to corporations, financial institutions, governments and developers that use the Chia Network blockchain. These services include, but are not limited to:
- Software maintenance and support agreements;
- Integration services into existing enterprise resource planning software or financial institution infrastructure;
- Custom function/smart coin development/ CAT development;
- Integration services into large storage deployments and co-purchase agreements to support the acquisition of large storage deployments;
- Creating developer tools, supporting and investing in developers, and supporting developer events and hackathons.
International payments
The company believes that one of the main uses of Chia is for international payments, especially in regions where governments or financial systems are unstable. In the near future, Chia Network intends to support and potentially invest in companies and developers that allow Chia to be exchanged for local currencies, as Localbitcoins and Paxful currently do for Bitcoin. Chia Network plans to introduce and encourage adoption of Chia to pay international bills where storage vendors and cloud service providers purchase hardware and components. Chia Network expects significant revenue to be generated from service and support contracts with exchanges and international businesses, as well as related revenue from interest on Chia loans.
Carbon Credit Marketplace
In partnership with the World Bank, Costa Rica and other countries, a climate database, Climate Warehouse, is being created: Chia wants to take advantage of cryptocurrency markets, such as deep liquidity, a wide range of markets around the world and DeFi tools, to create a first-of-its-kind decentralized global carbon marketplace.
Chia plans to use this marketplace as a demonstration of direct online asset trading capabilities to show regulators and financial institutions just how powerful and secure cryptocurrency asset trading can be. In doing so, Chia wants to help create a marketplace to fund the continued development of carbon credits through both natural and technological means.
How will Climate Warehouse increase demand for XCH?
“The climate vault is a favorable marketplace (carbon data) that allows for the actual trading and redemption of carbon credits on blockchain. Microsoft alone has a $600 million annual demand for carbon credits at $50 per ton. “Retailing and decommissioning the global carbon marketplace based on Chia’s blockchain will lead to more transactions per block and demand for XCH as a means to match/offer/acquire CAT with carbon offsets.” Gene Hoffman, March 2022 Reddit AMA.
The way this works is that each country in the Paris Climate Agreement will have their own local database where they actually put PDFs of audits and satellite imagery of trees, etc. Then they subscribe to the NFT just like any other country. Essentially, everyone has write access to their table in this distributed database, but read-only access, so Japan can update their data in CW, and Costa Rica will see it. Once they do, they request that update from their fellow database owners, compare it to Merkle’s hash in the tree to make sure that’s really what Japan updated, and apply that update. Datalayer allows you to sort of turn GitHub inside out, where you can take any logical database and check it out. That database can end up being like CW and be publicly available, immutable and publicly auditable, or private, immutable and auditable by internal or third-party auditors.” Gene Hoffman, Reddit, January 30, 2022.
Regulation and the SEC
Chia believes that next-generation blockchains, must comply with regulatory requirements worldwide. They have stated their goal of becoming a public reporting company subject to the Securities Act of 1934 to ensure full transparency of activities affecting Chia’s blockchain.
Chia’s Compliance Efforts
Chia is compliant and works to ensure that their approach provides the transparency and auditability needed to build trust with consumers, businesses and governments.
- Chia recognizes that financial compliance is the only way to build a blockchain that the world can trust and rely on.
- Announced their intention to become a public company subject to the Securities Act of 1934, which means they plan to be fully transparent and comply with regulatory requirements before any offering of securities.
- Chia is funded by reputable investors including Andreesen Horowitz, Richmond Global Ventures, Slow Ventures, True Ventures, Greylock and DCM. Chia raised this funding by selling preferred stock.
- Chia has never conducted an ICO. They agree with the SEC that most ICOs are illegal unregistered securities offerings. Unlike much of the industry, they don’t think the Hoey test is difficult to apply, and are confident that XCH does not constitute a security under Hoey, and are actively engaging with the SEC.
Conclusion
Chia is unusual in that they are building blockchain focused on the corporate sector and global international payments markets, carbon credit market, etc.
The ongoing development of the CAT2 token standard + sophisticated NFT implementations + the Datalayer distributed database, coupled with the fact that the World Bank has chosen Chia technology to build the global Climate Data Warehouse, will lead to a Chia blockchain-based carbon credit market.
The value of Chia will grow exponentially once this carbon credit market is fully operational.
It’s also worth saying that under Chia’s terms, the value of the company at IPO will be equal to the value of the prefarm at the time of market entry. The higher the XCH token price, the higher each share of Chia’s public company will be worth.
Chia has a great future!
