The much-anticipated Chia cryptocurrency (XCH), billed as an eco-friendly alternative to Bitcoin, has suffered a steep drop in value since launch on Monday.
As per CoinMarketCap data, XCH debuted at $1,600 per unit and climbed briefly to a peak above $1,800, but quickly shed more than half of its value in the hours that followed.
At the time of writing, the new currency is hovering at a price of $690 per coin, down 61% on its maximum price, suggesting “farmers” smelled an opportunity to cash in on altcoin frenzy.
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The Chia network was designed by Bram Cohen, founder of BitTorrent, as an antidote to the increasing centralization of the cryptocurrency mining industry, in which individuals have been squeezed out by large mining syndicates.
The currency is also designed to address one of the main criticisms of Bitcoin, which has to do with the environmental toll of mining. What sets Chia apart from other major cryptocurrencies in this regard is the mechanism used to secure the network and incentivize participation.
Bitcoin, for example, uses a proof-of-work (PoW) consensus mechanism, which pits miners against one another and is extremely energy-intensive. A study from the University of Cambridge suggests Bitcoin uses up more energy on an annual basis than the country of Sweden.
The architects of the Chia network opted for a different system entirely, called proof of space, which relies on storage capacity instead of computing power. Here, so-called farmers (note the deliberate difference in terminology) set aside storage space to hold cryptographic numbers, called plots.
“When the blockchain broadcasts a challenge for the next block, farmers can scan their plots to see if they have the hash that is closest to the challenge. A farmer’s probability of winning a block is the percentage of the total space that a farmer has compared to the entire network,” the website explains.
While this system does away with the need for energy-intensive mining, other issues have emerged. In the runup to launch, for example, Chia hype led to shortages of high-capacity storage in a number of regions, pushing prices through the roof. This further aggravated existing component shortages, brought about by the global chip shortage and compounded by an increase in enthusiasm for traditional mining.
However, if Chia is unable to recover from its early slide, the storage shortage is perhaps unlikely to last for long.
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