Filecoin

What is Filecoin (FIL)?

Filecoin is an open-source network aiming to be a blockchain-based decentralized digital storage and data retrieval method designed to “store humanity’s most important information.”

Filecoin builds in verification to allow trust in peers, while storage miners prove that they are physically storing a unique copy of the client’s data.

The problem Filecoin attempts to solve is a hefty one. The centralization of the internet’s data is an issue that isn’t readily apparent to casual users, but a handful of corporations have been able to build out the services that host almost all of the web.

Cryptocurrency, for all its libertarian ideals, is not exempt from this risk either. According to Amazon Web Services’ own website, a significant number of Ethereum workloads run on AWS.

Aside from the single points of failure created by this level of centralization, it also has other risks. State-level censorship becomes a major possibility, and access can be disrupted easily via distributed denial-of-service (DDoS) attacks.

Filecoin exists to offer a decentralized storage solution to mitigate these major risks.

When Was Filecoin Launched?

The theory behind Filecoin was first published in an initial whitepaper in 2014, but the rapid evolution of blockchain technology led to a major revision in July 2017. 2017 also saw Filecoin raise $205 million in an ICO that sold out in record time.

In its initial description in 2014, Filecoin was positioned as an incentive layer for the Interplanetary File System (IPFS).  In the 2017 revision of the whitepaper, Filecoin is described as a decentralized storage network that turns cloud storage into an algorithmic market running on a blockchain. Miners could earn the native token FIL by providing storage to clients, and clients could spend FIL to hire miners for the storage or distribution of data.

The Filecoin mainnet launched in October 2020, surpassing 1 EiB of storage within its first month.

Who are the Founders of Filecoin?

Filecoin is the brainchild of Protocol Labs founder Juan Benet, who is also the creator of the Interplanetary File System.

Benet, born in 1988 in Mexico and educated at Standard University, was recognized for his IPFS work in 2018 as one of Fortune magazine’s “40 under 40.”

Having described Filecoin in his 2014 whitepaper, Benet was busy realizing IPFS and launched its alpha version in February 2015. IPFS quickly saw use during several censorship conspiracies, including the 2017 Catalan independence referendum and Turkey’s blocking of Wikipedia in the same year.

With employees covering 20 countries and 22 spoken languages, Protocol Labs is a distributed company without a central office. Everything the Protocol Labs does is open-source, in keeping with its focus on internet freedoms, permissionless systems, data sovereignty, and censorship.

How Does Filecoin Work?

Filecoin miners compete with each other to mine blocks on the Filecoin blockchain in order to win block rewards, but while this sounds like proof-of-work, it’s not. The key difference is that the mining power of Filecoin is proportional to active storage.

In proof-of-work, the mining power is proportional to the amount of computing power the miner can bring to bear. Meanwhile, in proof-of-stake it’s economic, with validators locking larger amounts of a currency having a better chance of being selected for the block reward.

Filecoin miners, however, are incentivized to amass as much storage as they can and provide it to clients on a rental basis. The Filecoin protocol then weaves all of the miners’ storage into a self-healing storage network usable from anywhere in the world.

Filecoin achieves robustness by replicating and dispersing content while automatically detecting and repairing replica failures.

Thanks to this structure, Filecoin decentralizes data, can be used to build and run distributed applications, and can even implement smart contracts.

What Makes Filecoin Unique?

A large part of what makes Filecoin unique is the scope of the problem it seeks to solve. Filecoin is not the only blockchain project that attempts to decentralize data storage and claw user data out of the grasp of the current oligopoly. It is, however, one with an extremely high pedigree, given its link with IFPS.

Filecoin also constructs two markets, a Storage market and a Retrieval market, which govern how data is written to and read from Filecoin.

Filecoin builds upon four novel components:

• Decentralized Storage Network. The Filecoin protocol is outlined as an incentivized, auditable, and verifiable DSN that allows providers to offer storage and retrieval services.
• Proofs-of-Storage. These include proof-of-replication (PoRep) and proof-of-spacetime (PoSt), both of which secure the network.
• Verifiable Markets. Verifiable markets ensure that payments are made when a service has been correctly provided.
• Proof-of-Work. PoW is based on proof-of-spacetime that is used by miners in consensus protocols.

Filecoin also supports generic smart contracts as well as those specific to data storage.

How is the Filecoin Network Secured?

In the Filecoin protocol, storage providers have to convince their clients that they actually stored the data that they were paid to store. To do this, miners generate proofs-of-storage that the blockchain network can verify.

Proof-of-replication is a novel proof-of-storage that is used by Filecoin to prove that a provider is storing a certain number of distinct replicas of a piece of data. PoRep improves upon previous proofs-of-storage by preventing Sybil Attacks, Outsourcing Attacks, and Generation Attacks.

Proof-of-spacetime, meanwhile, allows a verifier to check if a prover is storing their outsourced data for a certain period of time. Filecoin uses PoSt to audit the storage offered by miners, and it uses random challenges rather than designated verifiers.

What is the Use of FIL?

FIL is used as the native currency of the Filecoin network, as well as an economic incentive within the network’s economy.

Storage miners, who provide the infrastructure for the Filecoin ecosystem, earn FIL by storing data for clients but also have to lock up FIL as collateral. The clients who rent storage from these storage miners also need FIL in order to pay for the storage services.

Who Controls Filecoin?

Filecoin is an open-source project, and its ecosystem is governed transparently by the Filecoin Foundation.

Upgrades to Filecoin are carried out via FIPs, similar to Ethereum’s EIP (Ethereum Improvement Protocol). FIPs are standards specifying potential new features or processes for Filecoin.

A FIP is the unit around which Filecoin governance revolves. FIPs allow the community to propose, debate, and adopt changes. Each network upgrade consists of a set of FIPs that need to be implemented by each Filecoin client on the network.

Anyone is free to propose a FIP, and the community stakeholders then debate the FIP to decide whether it should be adopted as a standard or included in a network upgrade.

How Much FIL Is In Circulation?

Filecoin has a circulating supply of over 240 million FIL as of July 2022, but this figure can change thanks to the supply and burn mechanics of Filecoin.

Early investors have vested FIL that can be issued onto the market when lockups expire, but FIL is also released consistently via block rewards that are granted to storage miners.

This block reward mechanism, which doesn’t have a defined maximum supply or halving mechanism like Bitcoin, paints Filecoin as an inflationary token, but burns also do take place.

Filecoin adopted a FIP similar to Ethereum’s EIP-1559 which introduced a mechanism for burning, or permanently removing, tokens used as transaction fees. This mechanism counters the inflation of FIL to some extent and applies greater deflationary pressure the more transactions take place.

How Do You Buy FIL?

Filecoin can be purchased on many of the top cryptocurrency exchanges in the world. Considerable exchange liquidity is underlined by trading primarily against stablecoins, with the most liquid FIL pairs being against Tether and BUSD.

Fiat trading pairs may also be available depending on the exchange.

Is It Possible to Buy FIL Instantly?

Since FIL is primarily available on centralized exchanges (CEX), buying it is instant. However, buying any token on the CEX doesn’t actually involve any settlement of funds.

Your fiat, stablecoins, and any purchased FIL are all kept in the custody of the CEX. That means the exchange simply adjusts its internal ledgers to reflect the outcomes of any trades you make.

How Do You Store FIL?

You could simply store your FIL on a CEX and take advantage of custodial storage, but many cryptocurrency holders prefer to use their own non-custodial wallets which they are in full control of.

These wallets tend to come in two forms:

• Cold wallets. These wallets stay offline, keeping your FIL safe from any potential hacks or other online attacks. Hardware wallets are a common form of cold wallet.
• Hot wallets. Hot wallets connect to the internet for convenience and tend to be far easier to log in to and use. Desktop clients and browser extensions are common forms of hot wallets.

Filecoin Energy Consumption

Filecoin is highly transparent when it comes to its energy consumption, providing an energy dashboard to analyze energy usage by its nodes. Energy use can be tracked here in detail, providing substance to Filecoin’s claims.

Filecoin aims to be a carbon negative blockchain project, working to connect the entire network to renewable energy and challenging storage providers to publicly prove their sources of electricity.

Storage providers going green are incentivized to do so with a grant program, and Filecoin has several strategic partnerships to continue its journey of sustainability.

Is FIL a Good Investment?

Filecoin’s initial funding attracted plenty of interest, not just from the wider community but from institutions as well. Prior to its September 2017 ICO, it raised $52 million from 16 investors led by Andreesen Horowitz, according to Crunchbase.

Prior to that, Crunchbase also reports several seed rounds of funding, including $300,000 raised from two investors in July 2017 and $120,000 from seven investors in 2014.

While these early institutional investors are vested, they tend to pose a significant risk to retail investors. Any new FIL investor would be wise to dig deep into the exact vesting periods and entry points enjoyed by these Wall Streeters.

Filecoin’s inflationary tokenomics present another risk for the potential investor, but that is mitigated somewhat by the FIL burning mechanism that will see holders rewarded as network use increases.

As with many projects, its success will ultimately define how good of an investment it is in the long run. Filecoin, however, is in prime position for this success, with many things in its favor. These include transparency, a focus on open-sourcing and decentralization, the credentials of its founder, and more.