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Chia farming seems to be the best alternative to PoS and PoW

Author: LB 2021-11-02 352

Being an enthusiastic cryptocurrency miner since the beginning of 2021, I can tell that there is nothing more interesting than following the latest trends in the world of cryptocurrency mining. To be honest, even as a CS graduate it took me months to fully understand the whole idea of “earning money by running a computer program”. With the birth of several consensus algorithms we find ourselves in a unique position to investigate the latest proposals to solve some of the most crucial problems of distributed systems. In this article I’m going to share some of the most intriguing findings of the past months that I deem notable.

With the launch of the chia mainnet we experienced an exponential growth in the netspace size in the chia network. I think this was pretty much in accord with our expectations, as social media and video sharing platforms serve as a tool to propagate information from one end of the world to the other one with the speed of light. When Youtubers started talking about this novel cryptocurrency, most of the early adopters, driven by overheated urge, ran to the hardware stores to stock up large quantities of HDDs. Whether this was a good decision, time can only tell.

So long story short, I did the same thing and we purchased something like 700 TBs of HDD space to farm chia, as was showing us crazy ROI on HDD space. Well, the price of the coin initially exploded, most likely because of the hype on social media and then it started descending. The same thing happened to netspace. The netspace size also exploded, although it seems to be stabilizing around 32 EiB, contrary to the expectation of the chia team as they were forecasting the netspace size to reach 100 EiB by the end of 2021. These movements demolished the chia farmers ROI and these days is showing us much smaller returns for on TB of space allocated to chia farming. But still, I don’t think this is something we have to worry about, because chia farming is not a short term project. Wise farmers should think about the potential that lies in the new consensus mechanism.

I think the netspace size has stabilized mostly because of rival cryptocurrencies. A purely rational investor wants to squeeze out the most amount of return from his investment. Therefore, in theory, these investors were constantly checking the ROI of chia farming and other cryptocurrency projects. Whenever another cryptocurrency mining project overperforms chia farming, rational miners start purchasing hardware to mine the other currency. While it’s not easy to follow and calculate the ROI of other related projects, miners on a longer timescale tend to switch over to other cryptocurrencies when returns on chia farming decreases. I think these dynamics stabilize the return on both other cryptocurrencies and chia farming as well. Miners are simply not motivated to buy more HDDs if GPUs produce more digital money by mining ethereum for example.

A similar thing happened in our cryptocurrency mine. When the xch price dropped, we started looking at GPUs and we ended up buying a few Nvidia RTX 3090 cards to mine ethereum in the PoW system. Obviously the concomitant risk is also higher when mining with GPUs, because we don’t really know when PoW based ethereum disappears. The PoS based beacon chain is already running in parallel with the PoW chain and the ethereum foundation is doing great efforts to discontinue the energy wasting PoW-based consensus algorithm.

Proof of stake based blockchains consume almost no energy compared to Proof of work chains. Chia is based on proof-of-spacetime, which consumes significantly less energy than the PoW consensus, however HDDs require more electricity than just running a PoS node. So from the point of view of energy consumption, Eth 2.0 is indeed better than chia and this (along with some other factors) is currently reflected in the market price (1 eth is ~30 more expensive than 1 chia).

Things to consider when eth 1.0 disappears

Whether PoS is the best way to implement the consensus algorithm in cryptocurrency networks is an ongoing debate. Extremely skeptical experts say that PoS is by default an oligarchy. This is the last thing we would want to see in a cryptocurrency network. After reading these blog posts of profound cryptocurrency experts, I’m very doubtful about PoS based blockchains, no matter how much they are being hyped on YouTube. PoS indeed solves the problem of high energy consumption in PoW networks, however investing in PoS based cryptocurrency is super risky due to its oligopolistic nature.

For these reasons, I think GPU mining will prevail and even if ethereum 1.0 disappears, there will be several other cryptocurrencies to mine with video cards, in addition to GPU rental services. There is already a huge computational power owned by individuals around the world, because miners have been stocking up high performance GPUs for the past few years. I’d be very much surprised if those cards stayed idle after the discontinuation of the PoW chain in ethereum.

Another very interesting project in this aspect is the chia network. The nodes in the chia network reach consensus with the aid of proof-of-spacetime. This is neither proof-of-work nor proof-of-space. We can say that competition in the HDD industry is almost unbridled (as opposed to PoS, where the competition is bounded by the total token supply) and therefore chia network is less oligopolistic. Consequently, chia supposed to live longer in a decentralized nature. While stocking up large amounts of drives in a certain region is possible, getting hold of 51% of the entire HDD space of the world is not an easy task. In PoS networks, you just need to control 51% of the stakes and you’re ready to take over the entire network. So for proof-of-spacetime there are physical limitations an adversary would have to overcome, while in PoS blockchains there are only computer science type of limitations.

Let’s hope that none of these networks end up in a mining oligarchy.

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