Chia Driving Wild (Storage) Land Rush

This is an Executive Brief by Trendfocus, Inc.

Chia Driving the Wild (Storage) Land Rush

Over the past decade, cryptocurrencies such as Bitcoin and a plethora of other competitors have grown from odd curiosities to arguably establishing new, more open and secure currencies and transaction methods tied to a principle known as blockchain. Most blockchain implementations such as Bitcoin rely on a proof of work consensus algorithm which requires highly compute intensive hardware, consuming vast amounts of energy to maintain.

Chia, a San Francisco-based company incorporated in 2017, seeks to use a proof of space and time verification algorithm, which relies on available storage space to maintain a series of cryptographic numbers in “plots.” Storing these cryptographic plots onto available HDD space is called “farming” and is critical to reducing the dependency on ever more powerful computational devices and high power consumption that mining techniques in proof of work implementations require.

Chia launched its mainnet to provide farming rewards on March 19, 2021 and is targeting to go live with transactions on May 3, 2021 around 10am PDT. This has resulted in a mad rush to deploy storage to allocate to plots in anticipation of farming Chia currency and recent articles on technology websites point to increased demand for storage coming out of China, targeting Chia farming. Accelerated demand for both SSDs and HDDs were noted in several articles; however, Trendfocus analysis has found that a recent uptick in nearline HDD demand likely related to this Chia storage rush has transpired out of China over the past 2 weeks, although overall OEM SSD demand increases have been less clear.

As transactions go live in early May, the sway of Chia in the cryptocurrency world will become quickly apparent and promises – or perhaps threatens – to drive incremental storage capacity requirements on top of recovering cloud and corporate spend in both the US and China demand for systems allocated to Chia farming will also further strain the semiconductor supply, further amplifying shortages that have impacted a wide range of industries. However, over the long-term, success for Chia could result in a meaningful upward inflection in storage absorption, and beyond storage, Chia’s success would demonstrate a cryptocurrency that could reduce energy consumption compared to existing platforms. At a time when investors are judging companies through the lens of environmental, social and governance (ESG) frameworks, environmentally sustainable solutions are targeted to win out over the long term.

New applications for storage come along infrequently and cryptocurrency solutions such as Chia that leverage the distributed security of blockchain yet without exacting a significant environmental toll from vast energy consumption are exciting developments. Trendfocus will continue to watch the Chia story closely to see if it becomes a sustainable next wave of cryptocurrency growth and, more importantly, determine how the solid state and HDD industries manage the new potential opportunity to sell storage capacity.