When the storage-based cryptocurrency Chia came out, hard drive prices shot up as a surge of demand took scarce product away from store shelves. SSDs turned out to be pretty minimally impacted — Chia plotting eats consumer drives like candy — but large-capacity HDD prices were definitely affected.
The bulk storage provider and backup company Backblaze has published its own evaluation of whether the company could make money mining Chia. We’ve seen companies take advantage of unique positioning to earn a lot more money via cryptocurrency than you’d typically expect. The Greenridge Power Plant near Seneca Lake, NY is currently using 87 percent of its power-generating capacity to mine cryptocurrency and making a great deal of money in the process. Backblaze doesn’t have the advantage of self-generated power, but the company is a storage provider experimenting with a storage-based cryptocurrency. Surely this is an easy win?
According to Backblaze, no. In fact, the company’s estimates suggest making money with Chia is quite difficult. Backblaze initially decided to get mining up and running in the cloud as a way to provide a service to its customer base. Once it had some expertise under its belt, it turned its attention to the larger question of whether a storage provider like itself could make money in such an endeavor.
Backblaze ran into two problems. First, its business is largely HDD-based. That’s good for farming, but bad for plotting (plotting Chia is incredibly hard on SSDs, but requires them to work at any kind of speed). The cost of buying enough SSDs to keep things rolling represented a serious expense according to the company. This, however, was not the most serious problem.
Backblaze’s estimates indicate that even using 150PB of its own storage buffer is not enough capacity to make money on Chia in the long term. The company assumed that it would allocate 150PB of its storage, that the value of Chia would remain constant, and that it would make $250,000 its first week. That’s actually quite good. The problem is what happens afterward:
Based on the rate at which the Chia network is growing (33 percent each week, according to Backblaze), even starting off with 150PB worth of HDDs is not enough to keep pace with the rapid expansion of the market. Earnings each week appear to be roughly 75 percent of the week before, decreasing asymptotically over time. This produces a curve with a farming income that drops to nearly 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 earnings doesn’t leave Backblaze earning anything after 16 weeks, but the company still earns the overwhelming percentage of its revenue within the first three months. This seems to be the case for individuals as well; several people I know who launched Chia mining farms when the cryptocurrency was new have already retired from the market after their earnings plunged.
Once costs were factored into the equation, the math didn’t favor Chia mining. Under the exponential growth model, Backblaze’s theoretical 150PB farming pool would cease generating net revenue if it launched more than seven weeks from the time the company performed its initial analysis. If the steady growth model is accurate, costs exceed income “around week 28.”
Backblaze notes that it was never planning to hold Chia speculatively, so it made no sense for the company to mine under the assumption that coins might dramatically increase in value at some point in the future. The company still intends to offer the option to farm Chia in the cloud to its customers, because “we love watching people experiment with storage,” but it doesn’t mince words about the value of mining Chia. Backblaze writes: “as our analysis suggests, unless you can continue to grow your plots, there will come a time when it’s no longer profitable.” The company’s post also acknowledges concerns regarding the electricity consumption and hardware requirements of various cryptocurrencies and their impact on the electronics market.
Chia has recently added mining pools, but given how quickly one’s investment could lose value, that may not be much help in the long term. This doesn’t look like a great way to invest one’s money.
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