Chia is a blockchain that uses a new Nakamoto consensus algorithm which they have called Proof of Space and Time. Like most cryptocurrencies that are not based on Proof-of-Stake, there is a process called mining. This process is the foundation for a blockchain to grow and secure transactions within the network. Chia network is no different, except that you use precomputed hashes to find values that can be used to forge a block. Chia's block producing process follows this pattern: farmers use their allocated space to farm blocks. The blocks are then passed to proof of time servers to finish. Once a block is complete, a proof of time server broadcasts the block and the winning block is appended to the blockchain. So, instead of chugging through algorithms on a GPU like Bitcoin, you allocate huge swaths of your SSD to store cryptographic numbers. When the Chia blockchain requires a new block it will search all of that space and the owner of the drive with the hash that is closest to the challenge wins! This means that the more space you allocate and the faster it can be searched, the more likely you are to own that next piece of the blockchain.
Chia coins
In Chia coins can be created in two ways; either as a reward to farmers, or as the output of a transaction.
Chia rewards
The main reward to farmers is currently a fixed amount of 2 XCH per block, with 16 blocks expected every 5 minutes. The coinbase reward amount is halved every 3 years.
The fees coin amount fluctuates as it contains a base amount plus the sum of all transaction fees for the block.
Chia transactions
Coins are locked by a puzzle, which is a program that takes an input solution, and if you provide the right solution to the puzzle you can spend the coin.
When a coin is spent it is destroyed and it's value is transferred into new coins.
Having ownership of a coin typically means that you control a private key that allows you to solve the puzzle that locks the coin. To transfer the coin to somebody else you solve the puzzle with your private key and create a new coin which has a puzzle that can only be solved by the private key of the receiver. If you are sending and receiving Chia using a wallet this is handled automatically for you by the wallet.
The proof of space is used to create an "unfinished" block which is propagated on the Chia network. The block will remain unfinished until it obtains a proof of time - this is where timelords come into play.
For security reasons Chia is designed to maintain a minimum amount of time between blocks which is achieved by timelords.
Timelords are notified when unfinished blocks are submitted to the network and are able to then start working on a "proof of time".
This proof is achieved using something called a VDF (verifiable delay function) which is a way of proving that an amount of time has been spent performing some work.
The important thing to know is that VDF are performed sequentially which means it uses a small amount of electricity compared to other approaches.
When timelords are notified about unfinished blocks they get to decide which one to work on based on the number of VDF "iterations" required - the more iterations required the longer it will take. It is possible that a timelord receives notification of a new unfinished block after they have already started the proof of time for a different one - when this happens it will have to look at how many iterations it has already performed to decide whether to continue with the current unfinished block or to drop it and start working on the new one (because it would be quicker).
Once a timelord finishes a proof of time it gets propagated to the network and the block becomes valid. It is at this point that the lucky farmer will be rewarded with Chia.
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