When the storage-based cryptocurrency Chia came out, hard drive prices skyrocketed as increased demand pulled rare goods from store shelves. SSDs turned out to be pretty little impacted – the Chia tracing eats consumer drives like candy – but the prices of large capacity hard drives have been definitely affected.
Bulk storage vendor and backup company Backblaze has released its own assessment of whether the company could make any money mining Chia. We’ve seen companies take advantage of unique positioning to make a lot more money through cryptocurrency than you would typically expect. The Greenridge Power Plant near Seneca Lake, NY currently uses 87% of its power generation capacity to mine the cryptocurrency and make a lot of money in the process. Backblaze doesn’t have the benefit of self-generated power, but the company is a storage vendor experimenting with storage-based cryptocurrency. Surely it is an easy victory?
According to Backblaze, no. In fact, company estimates suggest that making money with Chia is quite difficult. Backblaze initially decided to launch cloud mining in order to provide service to its customers. Once he had some expertise under his belt, he turned his attention to the larger question of whether a storage vendor like him could make money in such a business.
Backblaze encountered two issues. First, its activity is largely based on the hard drive. It’s good for farming, but bad for plotting (tracing Chia is incredibly difficult on SSDs, but forces them to work at any kind of speed). The cost of purchasing enough SSDs to keep things running was a big expense according to the company. However, this was not the most serious problem.
Backblaze estimates indicate that even using 150PB of one’s own storage buffer is not enough capacity to make money on Chia in the long run. The company assumed that it would allocate 150 PB of its storage, that Chia’s value would remain constant, and that she would earn $ 250,000 in her first week. This is actually quite good. The problem is what happens after:
Based on the growth rate of the Chia network (33% weekly, according to Backblaze), even starting with 150 PB of hard drives is not enough to keep pace with the rapidly expanding market. Weekly earnings appear to be around 75% of the previous week, decreasing asymptotically over time. This produces a curve with farm income falling to near zero well before the 20 week mark. Things get better when Backblaze assumes a constant growth rate, but not by much.
In this model, the long tail of revenue leaves Backblaze with nothing after 16 weeks, but the business still earns the overwhelming percentage of its revenue in the first three months. This also appears to be the case for individuals; several people I know who started mining farms in Chia when cryptocurrency was new have already pulled out of the market after their income fell.
Once the costs were factored into the equation, the calculations did not favor Chia mining. Under the exponential growth model, Backblaze’s theoretical 150PB farm pool would cease to generate net income if launched more than seven weeks after the time the company performed its initial analysis. If the steady growth pattern is correct, costs exceed revenue “around week 28”.
Backblaze notes that he never planned to hold Chia on a speculative basis. The company still intends to offer the ability to grow Chia in the cloud to its customers, as “we love to watch people experience storage”, but it doesn’t mince words about the value of mining Chia. . Backblaze writes: “As our analysis suggests, unless you can continue to cultivate your plots, there will come a time when it will no longer be profitable”. The company’s post also acknowledges concerns about the power consumption and hardware requirements of various cryptocurrencies and their impact on the electronics market.
Chia recently added mining pools, but given how quickly her investment could fall in value, that may not be of much help in the long run. It doesn’t seem like a great way to invest your money.