It’s been a big year for cryptocurrency. Bitcoin is worth six times what it was 12 months ago, and the joke currency Dogecoin has seen its price increase a hundredfold. A boom in “non-fungible tokens,” or NFTs – exchangeable tokens based on the same technology as cryptocurrency – is transforming the art market.
With this growth, scrutiny has been renewed, with critics attacking Bitcoin in particular as a speculative bubble that uses large amounts of electricity and produces no real value.
A new cryptocurrency called Chia, which has just started trading, aims to address these loopholes while living up to the cryptocurrency’s promise of a secure and decentralized payment method.
Chia is the brainchild of Bram Cohen, who invented the BitTorrent peer-to-peer file sharing system. He claims that it will be more reliable than other cryptocurrencies and more environmentally friendly as well.
What is cryptocurrency?
Unlike traditional currencies such as the dollar or the euro, which are issued by central banks and rely on the trust of governments, cryptocurrencies rely on a decentralized database called a blockchain, secured by sophisticated cryptographic tools.
The first cryptocurrency was Bitcoin, released in 2009, and today at least 5,922 cryptocurrencies are available. Bitcoin is still the biggest by far; the total value of all Bitcoin in existence today is around US $ 1.2 trillion.
Read more: Demystifying Blockchain: A Basic User Guide
Despite this booming popularity, very few retailers accept cryptocurrency as a form of payment.
Governments around the world are also exploring digital currencies. The Bank of England is recruiting a dedicated team to explore possibilities in this area, while the Australian Stock Exchange is reviewing applications for a cryptocurrency-based exchange-traded fund. Germany is one of the pioneers in the adoption of crypto and is investing heavily in blockchain solutions for institutional investing.
How is Chia different from Bitcoin?
Bitcoin and most other cryptocurrencies use a system in which currency is created or “mined” using computers to solve mathematical puzzles. These are known as “proof of work” systems – solving the puzzle is proof that your computer has done a certain job.
Read more: The “ utopian ” currency Bitcoin is a potentially catastrophic energy hungry
Doing this job requires specialized equipment and a lot of energy. Bitcoin mining has helped create GPU shortages and by some estimates it consumes more power than copper mining and uses more electricity than some entire countries.
Chia runs on a system that should consume less power called “space and time proof”. In this system, users have to show that they have reserved a specific amount of hard drive space at a specific time.
Chia will therefore not be using huge amounts of electricity and will not see miners buying all the graphics cards in sight. But the requirement of storage space on the hard drive can lead to other disadvantages.
Soaring hard drive prices
Even before its official launch, Chia used over an exabyte of data storage. That’s the equivalent of about a million of the 1 terabyte hard drives you might find in an average desktop computer.
According to the South China Morning Post, hard drive prices in China have started to skyrocket as miners in Chia store their inventory. The price of 12 terabyte drives has risen 59% since Chia’s announcement in February of this year, and most professional-grade hard drives with more than 8 terabytes of capacity have run out.
Vietnam is also experiencing hard drive shortages due to the Chinese craze for Chia.
We may well see similar effects in other countries in the not too distant future. Right now, Chia doesn’t have the name recognition and celebrity endorsements that helped Bitcoin and Dogecoin soar, but she does have a clear cost advantage.
We can expect cryptocurrency miners to be inclined to try Chia, as a cheaper option than established cryptocurrencies. Eventually, hard drive manufacturers may also revise their prices to increase their own revenues.
Time will tell how Chia ends up performing in the market. If it takes off, we can expect hard drive prices to skyrocket. But on the other hand, it could also mean lower GPU prices.