Filecoin

Earlier this year we announced that we are backing Protocol Labs (makers of IPFS, a peer-to-peer hypermedia protocol to make the web faster, safer, and more open) as equity investors on their mission to upgrade the internet, one protocol at a time (we have, however, been investors since early 2016).

With their first protocol, IPFS, Juan Benet and the Protocol Labs team have shown they can build and grow a next generation decentralized web protocol to a meaningful scale. Over the last twelve months, files on IPFS have grown from 200 million to over 5 billion (with data and requests witnessing similar growth) and the protocol is witnessing grassroots adoption and community contributions not seen for decades in the new internet protocol space.

Already back in early 2016 we discussed with Juan and were excited about the possibility of introducing a token-based native intelligence and economic layer for storage on IPFS: Filecoin. Today we are happy to announce that we are early and meaningful investors in the Filecoin token too.

IPFS & Filecoin are nothing short of a re-architecting of core web infrastructure. Filecoin is an incredibly important and ambitious project at internet scale. However, it is based on the movement, growth and adoption of the decentralized technology stack the team has created around IPFS and the supporting family of decentralized internet protocols it has already built.

The reason this is important is that today’s internet is increasingly centralized, fragile and inefficient. It has created vast centralized data monopolies and suffers from vulnerable choke-points, poor data safety and the ability to mute voices of organizations and individuals. At the same time the internet will continue to play an ever increasing role in our daily lives and how societies and economies evolve. Humanity will need a better internet. We think the best way to upgrade the internet is to move it to a series of decentralized protocols and technology stacks, which due to their decentralized nature will avoid server-side data monopolies, have no central choke points, are immutable, have vastly improved data safety and can harness the web’s infrastructure far more efficiently.

Filecoin, built on IPFS, is the obvious next step to upgrading the internet by creating a decentralized storage network. The amount of data stored on the web will continue to increase exponentially. Yet most storage capacity (disk space) is unused and we rely on centralized and vulnerable central points to store data. Filecoin will introduce an intelligence and economic layer to harness the world’s storage power more efficiently and to create a more resilient, safe and efficient market for storage.

This also means that the Filecoin token will have a real utility value — i.e. the token is in a sense underwritten by an economic value proposition: the ability to purchase storage space and the ability to earn for providing storage space. Filecoin adds value and makes sense in the here-and-now.

Another aspect is that the Filecoin network will also be far more efficient than other decentralized and blockchain networks — e.g. instead of using a vast amount of computing power and electricity to solve cryptographic problems (Bitcoin), Filecoin’s miners actually store data — i.e. are using the energy and storage power efficiently. In many other ways, Filecoin will be a next-gen decentralized network that will have several upgrades to earlier blockchain networks that struggle with efficiency and scalability. In this context it is important to note that 70% of the tokens go to future miners (Ryan Shea’s analysis is a good read on the topic).

As with other token sales, there has been some debate about the structure and sizing of the Filecoin offering — a debate that is healthy and welcome. What Juan and the team are trying to square is i) improving our digital lives by making the web less vulnerable, re-architecting data ownership and safety, and hard wiring it for openness ii) capitalizing on the ambition appropriately, in an SEC compliant way, and leveraging Filecoin’s head start from being embedded in a family of successful and rapidly growing decentralized web protocols (i.e. IPFS) iii) striking an economic balance for all stakeholders that solves for long term success of the network. Is the chosen structure the right way, with the right balance? Time and the market will tell. The only thing we do know is that for the sake of the web, it is in all of our interest that projects like Filecoin succeed and we collectively deal responsibly with the capital allocated by the community to these projects.

The internet is not the same as when original protocols were created. There are strong gatekeepers and significant infrastructure barriers to overcome in re-wiring the web. For Filecoin this means nothing short of going head-on with many tech giants and even governments and regulators that protect incumbents or want to control data on the web. Therefore Juan and Protocol Labs have, in addition to the capital being raised, assembled an advisory investor group that has signed up to very specifically help Filecoin deliver on the vision and deploy capital effectively: e.g. large business development deals with suppliers and purchasers of storage space to supercharge the network from day 1, significant partnerships with key players from the application down to the hardware layer, and veterans experienced in building large technology organizations who can mentor and coach the team — all while committing to significant investments and longer lock-up periods.

We look forward to continuing working with Juan and the entire Filecoin team and all the new additional investors. Head over here for a primer on Filecoin, whitepaper, research roadmap, etc.

Disclosure: BlueYard is an investor in Filecoin and Protocol Labs. The view above is a personal opinion only, not investment advice. Information we have about Filecoin and Protocol Labs may be inaccurate and should not form the basis for any investment decision.

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