Sia: How to invest with Siacoin, Siafund, Obelisk and Time (Part 5)
Sia wants to be the hard drive of the Internet. Underneath the hood, Sia is a cloud storage project, like Dropbox, but it is decentralized and powered by both a blockchain and its own cryptocurrency.
In this blog series I look at the Sia project from various angles. I provide pointers and share some thoughts. None of this is investment advice, though: research yourself and use your own head.
Parts of this series: (1) Intro — (2) Long-term — (3) Mid-term — (4) Competitors — (5) Investing — or Read more about Sia
This part is about pointing out ways to join the Sia journey. How can you invest money? How can you help with your time?
But it's also about understanding the mechanics of the currency: how does money flow in Sia? Apart from the obvious Siacoin, you definitely should get familiar with Siafunds, which allow you to get a dividend of sorts, and the Obelisk project, which is a somewhat controversial but definitely interesting effort to stabilize the network.
But first, let's talk about Siacoin.
As with any other utility or token coin, the usual warnings apply: These coins are not shares. They don't give you a say in the company. They don't entitle you to a part of the profits. If you believe in the long-term goal and outlook of Sia, then your only reason to buy Siacoin is that you believe it's value will rise with Sia's success as storage provider.
Inflation, proof-of-burn, price of storage
I won't claim to predict Siacoin's future. Instead, I'll point out a few factors that play their part in on the price of Siacoin. Long-term, the usual two factors of supply and demand will drive the value of Siacoin.
For the supply of coins, we need to look at the current number of tokens and Sia's plans to add and remove tokens from circulation. First, Sia does not have an upper limit on the number of coins, such as Bitcoin has with 21 million. Instead, the number of coins available will keep growing forever. As with Bitcoin, though, the mining difficulty will increase. In addition, Sia intends to implement a proof of burn mechanism, where hosts are forced to “burn” Siacoin on beginning of a storage contract. This will reduce the number of coins in circulation.
In some other universe price of storage would account for demand, which itself is driven by available storage and demand for it. Of course, at this moment, with only 3% of storage in use, a working market is nowhere in sight, and as any such crypto asset the price of Siacoin is mainly driven by speculation.
You've two choices: you can get them from exchanges such as Bittrex. For a full list, and the current wallet status, have a look at this reddit thread. Furthermore, there appears to be a dedicated Sia Exchange in the making.
And then, you can mine them.
Mining Siacoin with Obelisk (or Bitmain's A3)
Obelisk is the name for Sia's ASIC miner. In short, Nebulous strongly believes in ASIC mining to secure their proof-of-work blockchain, and therefore started producing ASIC miners. The first batch will be rolled out in mid-2018. Fun fact: They are loud.
What's an ASIC miner? For proof-of-work blockchains, there are two technical ways to mine new blocks: Graphic cards (GPUs), which can be used for any coin, but are therefore also not very efficient, and hardware specifically built for a certain coin (or the proof-of-work algorithm behind it). Because the latter are specifically built for that coin, they are much more efficient than GPU miners, but cannot be re-used for other coins.
Why does Sia prefer ASIC miners? The argument goes that people having to buy expensive hardware miners that they cannot re-use for other cryptocurrencies highly incentivizes honest miners. At the same time, those ASICs cannot be used for anything else, so they'd be running all the time, to maximize profit. GPU miners on the other hand are highly incentivized to switch to the most profitable coin available—which can lead to a coin suddenly loosing a lot of honest miners that were securing it. It's an interesting discussion. Read about Sia's side in their blog article. Here's an analysis of Obelisk on steemit, which I found useful.
And then on January 16, 2018, a company named Bitmain opened up orders for their Siacoin ASIC miner A3. A new hardware miner should be a Good Thing, but the news immediately created a huge wave of negative reactions, ultimately because Bitmain, in Sias words, is a “a bad actor in the cryptocurrency space”.
The danger to Sia is three-fold: First, A3 simply undercuts Obelisk sales. Second, with enough miners, the rollout of important software updates could be delayed by Bitmain, a tactic already employed by Bitmain in Bitcoin. Third, the number of A3 produced and remaining under Bitmains control is unknown. That means there is the possibility of them to retain enough miners to launch a 51% attack on the network with little notice. These concerns have been voiced in a public letter from prominent community members, who demand a soft-fork to render the A3 useless. Nebulous rejected a soft-fork, arguing that such preemptive measures would be a centralized move. (See the section about Sia Ethos earlier.) We'll see what Bitmain does.
The whole ASIC story is interesting for two reasons: First, if you want to acquire Siacoin by GPU mining them, then you've until the first batch of ASIC miners is shipped to download the GPU miner and turn a buck. Otherwise you'll be out-computed. Of course you can still ASIC mine them. Second, if you're interested in the long-term success of the project: Nebulous has gotten good amounts of cash, given that 3598 SC units were sold in batch 1, apparently at a price of $2499 (maybe discounted at the preorder?). Yes, you've done the math: Obelisk is a serious project. And business. In fact, Obelisk is its own company with its own team, though owned by Nebulous.
Read more about Obelisk in the November update.
Apart from Siacoin, you can acquire Siafund. I'll just quote the wiki on SiaFunds as it is concise:
Sia has a second cryptocurrency called the Siafund (SF). 3.9% of all successful storage contract payouts go to the holders of the Siafunds. There are 10,000 Siafunds in total, and all 10,000 are completely premined. Sia's parent company, Nebulous Inc., holds 8835 of these Siafunds. The remaining Siafunds were sold in a crowdfund which helped finance Sia's early development. The primary goal of Siafunds is to provide a way to finance the development of Sia without relying on donations or a premine. More people using Sia means more funding available to hire more developers.
Because holders of Siafunds get a share of every successfully completed contract in the network, as the network grows, so will the profit of SF holders. And yes, Siafund are not legal shares, either. I am not a lawyers, but I assume controlling a Siafund does not legally entitle you to anything.
There are two ways to get your hands on Siafunds: Either, as this blog post explains, you can join the siafunds Discord channel and ask for a trade. Or, you can hop over to Bisq and check on SF offers. There are plans to create an escrow mechanism on the blockchain, see the description of Project #5 on Github by clicking on “Menu” on the right.
And if you think about buying Siafunds, consider that they have huge theoretical potential, but generate nothing right now, and there are relatively few. This leads to not much selling happening, and so it's really hard to establish a fair price. Recently, one SF has been escrowed for 1.35 BTC, which may have amounted to $10k. (Give or take a few thousand dollars, with the current BTC volatility. ;) ) The last sale on Bisq was for 2.4 BTC, but that was late September and the value of BTC has risen substantially since then. And yes, you can only buy Siafund in whole numbers, not in fractions, though not everyone is happy about it.
You believe in Sia and want to invest your time, to help make Sia successful? Great, here's a couple of ways:
- Welcome newcomers in Discord.
- Help translate the wiki
- For developers, consider fixing easy bugs or claiming a bounty.
I wish there was a marketing page for the community, to kick off new evangelists. :)
Thanks for reading! I hope I could give you useful pointers. For more of those, here's my list of resources about Sia.