As explained in About Sia, Sia is built to be trustless and decentralized. In order to accomplish these goals, a break from traditional payment methods and fiat currency is necessary. For that reason, Siacoins (SC) were created. It would not be possible for Sia to be truly decentralized if there was a party involved in processing fiat payments, even if that party were Sia's developers.
Siacoins are a cryptocurrency with the function of buying and selling storage on the Sia network. When you purchase or sell storage, it will be priced in Siacoins. Like many other cryptocurrencies, they are based on Proof of Work (PoW) and can be mined. Sia uses the Blake2b algorithm for Proof of Work functions, which is not commonly used.
Benefits to Using a Cryptocurrency
- Facilitates decentralization
- Facilitates anonymity
- Facilitates small/micro transactions
- No exchange rates between users/countries
Drawbacks to Using a Cryptocurrency
- Can be difficult to acquire
- Not much practical use outside Sia platform
- Price fluctuations are common
Why not use another existing coin?
- Sia's blockchain also handles storage contracts
- Better control over transaction fees
- Sia development predates most other coins, including Ethereum
Buying Coins versus Mining Coins
Siacoins can be purchased on a cryptocurrency exchange, or they can be mined. Purchasing Siacoins can be done with another cryptocurrency like Bitcoin through an exchange, and at least one exchange has said they will soon allow you to buy Siacoins and other coins directly with USD. Mining coins requires you to purchase specialized mining hardware, which is not cheap but will continue to generate Siacoins over time. To further compare:
- Pros: Easier to get coins compared to mining; lower cost of entry; access to coins relatively quickly
- Cons: Bought on cryptocurrency exchanges, which may not be accepting new users; fluctuating coin prices can sometimes make coins expensive
- Pros: Can be profitable to mine if selling excess coins; basically free money after ROI on hardware investment
- Cons: Takes time; requires a large investment in and knowledge of mining hardware and electricity costs; competition with other miners decreases returns over time; mining hardware becomes obsolete as new versions released
Siafunds (SF) are another type of token on the Sia network, though they are much more rare than Siacoins. Siafunds are intended to provide long-term funding to Nebulous (Sia's developers), as well as to be a fundraising instrument when sold to actual investors.
There are only 10,000 Siafunds in existence, and currently Nebulous holds about 8,000 of them. The other Siafunds have been sold off to investors in various funding rounds, including a recent Tokenized Security Offering (TSO) which followed SEC rules regarding accredited investors and brought in about $1.5 million USD in April 2018. As such, Siafunds can be difficult to acquire for the average crypto user.
Siafunds provide returns to holders by a fee paid on storage contracts on the Sia network. There is an approximately 3.9% fee collected on certain components of storage contracts, and this fee is usually paid by the renter. The host may become responsible for the fee if the host does not stay online or fails storage proofs. This 3.9% fee is distributed amongst all 10,000 Siafunds, so the more the Sia network is utilized, the higher returns will be to Siafund holders.
As of May 2018, one Siafund trades for around $8,000 USD, but only returns about 3-5 SC per month. As such, Siafunds are not suitable instruments for typical Sia users as they are very expensive and also very high risk. You can see historical Siafund profitability here.
Currently, Nebulous will only offer Siafunds to accredited investors in a TSO format when they decide to hold fundraising rounds (see the Siafunds website). However, Siafunds can also occasionally be found for resale by private parties. They can often be found on Bisq (though usually for heavily inflated prices), as well as in the Sia Discord under the #siafunds channel.