Why we believe that Chia Network will be the main protocol for future money.
In this article, we’d like to explain the reason why we believe that the Chia network has great potential as a protocol for future well-designed digital currencies.
What do we mean by well-designed?
Currencies should do one thing perfectly: Move value from point A to point B. And bitcoin has achieved that in a perfect way. It never fails. It’s secure. It works. So far.
A modern currency for the digital world should have the following characteristics (will explain why further below):
Doesn’t consume energy resources : Money is a mainstream and high frequency product. Our planet doesn’t afford our money to consume energy.
Fair distribution: Every participant in the network should access the network’s currency
Has embedded logic: Not just move value, but apply rules.
Green money and fair distribution
Chia did something genius. It’s genius because it scales and it’s clean at the same time.
Up until Chia, established cryptocurrencies like Bitcoin and Ethereum were using electricity to validate and complete transactions; I am sure you have heard about the miners. Energy is consumed daily and of course as more people use these currencies more and more energy is going to be consumed. Our world is already overwhelmed by energy consumption and adding a highly frequent mainstream product such as currencies into the equation of energy consumption is not a good idea.
Chia protocol made a twist to the mining industry: Instead of consuming something to create something else, it uses something that already exists; available storage space on everyone’s personal computer. Storage is there, sitting, underutilized most of the time in millions of personal computers and servers. How can we use this to create a secure currency network?
Chia introduced a new mining algorithm called “Proof of Space and Time” were the participants who need to validate, confirm, and get rewarded for the transactions:
Do not have to buy new specialized machines; they use what they already have, everyone has a computer.
Do not consume energy, they just need to prove that they have storage capacity.
Have no disadvantage to other participants who live in areas with cheaper electricity. That’s irrelevant for space capacity. Space capacity is the same no matter if you are in Africa or Denmark.
Are not doomed by those who can buy more storage space. The next winner is selected randomly like in a lottery. The probability of someone winning the lottery in Chia though, is not only a function of how many numbers you have selected. It’s also a function of time - how long have you been in the network. Someone who just owns a room of storage servers and introduces them to Chia farming, does not necessarily mean that it’s going to farm more Chia than someone who has been in the network for two years using a laptop disk. You have the resources you get the reward, but if you have double the resources, it doesn’t necessarily mean that you get double the rewards.Are not doomed by those who can buy more storage space. The next winner is selected randomly like a lottery. Someone owning a room of servers has the same probability to win the next reward as someone who is participating in the network with a … laptop. You have the resources you get the reward, but if you have double the resources, it doesn’t necessarily mean that you get double the rewards.
It’s clean and fair. As any mainstream currency and payment system should be.
Unfortunately, fair distribution and participation are one of the weakest parts of Bitcoin. Distribution was not fair from the very beginning since those with the most advanced computing power could outperform the rest of the network. They could move to areas with cheap electricity, buy rooms of servers and start a profitable business. As a result, a few participants (miners) control and enjoy all the rewards from the network. If, for any reason, these miners decide to attack the network, technically, they have the power to do so.
The difference is that we are not talking about an app like tik tok where a hack would be huge but would not destroy people's lives. When we build a currency network, the potential of attacking should be impossible. Hopefully, this is going to change in the future for bitcoin.
A currency should be equally distributed to all by the very beginning and then the market will define the rest. But fair distribution is not only important on the miners' level. Good market distribution is achieved by good products that people use. If Chia ends up like another speculative asset then no matter if it’s green or fairer, it will be just one more speculative cryptocurrency. The biggest challenge is to build real products with it, and Chia has the right pedigree to do so.
And this brings us to the third value proposition of Chia.
Easy to manage your payments and savings with built-in logic
Most devs built currencies that are too simple, from point A to point B, e.g., bitcoin, litecoin, monero.
But the banking world has spoiled us with amazing features. We can schedule our payments (autopay), dispute a transaction, and get our money back in case of fraud or bad services, we can make a trust and make sure that our wealth will be transferred to our family, etc. These are all powerful functionalities because they give power to the consumer.
A cryptocurrency that only transfers value from point A to point B is not an appealing product for the majority of the population. Fiat money does that better (remittances is an exception).
The consumer should have full control over their money without losing their peace of mind. Cryptocurrencies need to be better than fiat on both local transactions and remittances if we want them to be understood and be adopted.
New technologies such as the Lightning network and RSK were born with the goal to extend bitcoin’s simplicity. The problem is that these are additional networks. When another layer is added on top of bitcoin they need to be as secure and simple as bitcoin which is very hard, if not impossible, to be achieved.
Other “currencies” were built after bitcoin with which you can practically build an entirely new internet on top of them, e.g., Ethereum. This was the first time we created programmable money and opened so many new possibilities. But as the network scaled, Ethereum faced expensive and slow transactions that made the network unusable for everyday use. There are many reasons this happens, from using a general-purpose VM and programming language to build simple products, to picking up design practices that are not meant for currencies but rather for more complex products. This also limits the creativity of the engineers since fees will make their products unusable.
Chia took a different approach. Instead of using a general-purpose programming language and code the currency’s logic into the smart contract layer, it embedded the core functionality of the currency into the “colored coin” model. Colored coins are a core feature of Chia and in combination with ChiaLisp - the programming language of Chia - makes the system, super robust.. This makes a huge difference in the security and simplicity of the system. Here are a few examples:
Create and swap a coin just with your wallet
In the first place, with the chia network, you can create your smart coins (colored coins). Technically this is happening by:
Burning chia coins to create your colored coin
And program the coin’s logic like you’ll do in a chip.
Let’s say that you want to create Coin A. By default chia creates 1 billion (but you have the option to adjust this) of Coin A and asks you to burn some chia coins to create it. If you decide to burn 1 chia then each Coin A is now valued: 1 chia / 1 billion Color A.
Now let’s say that you want to swap a few Coin A with chia. You can create a partial transaction that says that you are willing to change 1k Color A for 1 chia. In other words, you overvalue your coin and you throw it to the market looking for buyers. Practically, you create a bid and wait for an ask. If someone decides to buy it then they just need to accept your offer by signing the partial transaction. This will remove one chia from their account, move them to your account and remove 1k from your account to theirs.
Something like that on ethereum would require:
A smart contract for the token
A centralized or decentralized exchange or a protocol like Uniswap.
In chia, this happens just with your wallet.
Also, if you think about it, privacy was achieved as a “by-product” since transferring what to whom.
Autopay
(info to be added here)
Kids accounts
You can create a “Family” coin (or program into an existing one) that is deposited monthly/weekly/daily in your kids’ wallets.
This family coin can be programmed to be spent on specific merchants, e.g., school cafe, ice cream shop or even specific apps on Apple's App Store or iTunes shop.
Trust/Will accounts
You can program a coin that you can ask to be transferred to a family member(s) if there is no activity in your wallet for x amount of time.
A currency and payment system needs to be:
secure,
fast to make a payment,
with low-cost transactions
and be easy to manage your payments and savings.
Of course, useless energy consumption should be out of the equation by default.
To be continued (as we keep learning)…