Explained: Filecoin
Filecoin is a file storage blockchain network that enables anyone to become a storage provider, allowing web3 users to store personal, web hosting, or enterprise files.
The service aims to stake its claim as the “storage protocol” of the decentralized web, where developers can create applications similar to Dropbox and iCloud without centralization.
The Filecoin blockchain secures economic incentives for both parties, encouraging them to easily agree on price and level of service.
This storage protocol also functions as a regular blockchain similar to Bitcoin, in which miners typically compete with CPU power to solve the next block and earn the block’s rewards. Filecoin slightly deviates from this common path — its miners instead compete with “partitioned sectors” of storage capacity to earn the block’s rewards.
The founders of Filecoin developed the popular peer-to-peer file distribution network IPFS (InterPlanetary File System) in 2015. IPFS allows users to receive and host content, in a similar manner to BitTorrent.
Filecoin builds on IPFS by ensuring the files are replicated across the decentralized network by facilitating the economic incentives with the power of a specialized blockchain.
Value Propositions
Filecoin is a unique file storage marketplace that is not controlled by one entity; instead, it enables independent storage miners to set their fees in a hypercompetitive open market, a process that is bolstered by its specialized blockchain.
This open marketplace architecture allows for any developer to produce decentralized versions of apps like Dropbox or iCloud. They can connect these apps into Filecoin’s storage capacity, which impressively rivals AWS S3, Google Cloud, and Microsoft Azure in pricing and service levels.
Users and applications that are not comfortable with their files being centralized on any of the big 3 cloud service providers can turn to Filecoin, using the network to store and dispense their files across a vast, international web of storage capacity.
FIL Token Use Case
Web3 users pay miners in Filecoin’s native cryptocurrency “FIL” to store, distribute, and retrieve their data from the miners’ storage. Miners then receive the FIL token for performing the necessary actions and have the potential to earn block rewards. These rewards and processes incentivize the network with an inflationary supply to bootstrap the economics and build up storage in the new network.
Storage Fees
Fees are paid in FIL by clients after a deal has been reached in exchange for storing data. These fees are automatically deposited into a miner’s associated withdrawal wallet as they continue to perform their duties over time, and are briefly locked upon being received.
Block Rewards
FIL is distributed to miners for creating a new block. All active miners on the network have a chance to receive a block reward — a chance that is directly proportional to the amount of storage space currently being contributed to the network.
Retrieval Fees
FIL retrieval fees are paid to miners when users wish to retrieve their data from the storage. Due to the bandwidth and disk lookup, this process discourages spam transactions. It’s important to note that retrieval fees are not unique to this decentralized storage network — all of today’s enterprise cloud storage providers involve retrieval fees as well.
Staking/Slashing
A miner’s FIL balance is penalized if it fails to provide reliable uptimes or acts maliciously against the network. If slashed, miners must offer a stake in order to accept new “storage deals” or use their pending storage fees as a bond.
Gas Fees
Each transaction includes message limits and computation limits that must be paid in FIL “gas” fees, similar to those found on Ethereum. In Filecoin’s current setup, a portion of the gas is burned, while the rest is awarded to the miner that successfully mined the block with the corresponding transactions.
Filecoin Tokenomics
The Filecoin blockchain has a hard supply limit of 2B tokens that are set to be completely liquid in about 20 years. The allocation for the token supply is set as the following:
- 70% Block rewards (Miners)
- 10% to investors (ICO and private sales)
- 15% Protocol Labs (Founding development team)
- 5% Filecoin foundation
The Filecoin ICO was concluded on September 7, 2017, raising $257M from a sale of 200M FIL tokens to public and private investors. The public sale raised $205M from investors, who were granted the opportunity to buy the FIL token in price ranges from $1 to $5. This included a 6-month to 3-year vesting schedule that was modified by a 0% to 20% discount depending on the chosen option.
From the published ICO details, it’s unclear which vesting schedule most participants chose, and how much tokens were allocated to private versus public investors.
What we can conclude from the sale details is that all of the 200M FIL tokens were sold at an average price of $1.29. This estimate is reached when you factor in the vesting schedule discounts and private sale price of $0.75, and note that the tokens will be released linearly on a daily schedule for the next 3 years.
These distribution details leave us an estimated 182,648 FIL tokens from the ICO sale entering the circulating supply each day.
The mining rewards feature another token supply that will have a significant impact on the “tokenomics” of the FIL token. Currently, mining rewards result in an estimated 152,666 FIL tokens entering the circulating supply on a daily basis.
Miners have the incentive to “bond” their tokens in order to participate in “storage deals”, an option that may dampen the supply and end up in exchanges from the miner rewards. More time is necessary to conclude how much of the daily mining rewards are ultimately bonded.
Today, the Filecoin token is trading at an average price of $42, with an estimated 16M tokens currently in circulation; in effect, this gives it a market capitalization of $668M.
This features an estimated 335k tokens ($14M value) entering the market daily from the ICO sale vesting schedule, as well as the current mining rewards that include a 776% inflation rate.
How to use Filecoin
Filecoin has launched with several applications ready to be used by web3 users that wish to store their personal data or server backups in a decentralized system.
Today the cost to use Filecoin is $0.022 USD per GB and about 12x cheaper than Amazon S3 according to the latest “storage deals” sampled.
Here we will profile the top Filecoin applications ready to be used today.
- Textile — Textile is the most complete open-source development tools suite that is currently offered on the Filecoin network. Textile JavaScript clients and Powergate API solutions allow developers to easily build web hosts, decentralized databases, and file storage solutions using Filecoin.
- Slate — Slate is an open-source file sharing application designed with the Filecoin network as its storage layer. Users might compare Slate to a decentralized Google Drive, where you can store files, keep them private, or easily share them with a team. Currently Slate is only a web application with a working Chrome extension interface. A desktop client is currently in active development.
- Lotus — Lotus is the Filecoin network’s node and miner software implementation. In order to directly participate on the network, users must run an instance of the Lotus software. Applications that build on Filecoin can connect to open Lotus nodes or run their own nodes to access the Filecoin blockchain.
- Starling — Starling is a decentralized storage application built on the Filecoin network that is designed for archival and backup use. Starling can be compared to Amazon Glacier, where system administrators have grown accustomed to storing large volumes of backup logs and data from their servers. This application will feel familiar, as it offers the same solutions with its server CLI features.
- Filstats — FilStats is a Filecoin network data pricing dashboard that was developed by notable blockchain researcher Anish Agnihotri. FilStats uses the data from the 2,500 most recent “storage deals” on the network in order to aggregate and provide a transparent price to use Filecoin. This is perhaps best compared to Amazon S3 storage solutions.
- Self Custody Wallets — The Filecoin wallet options are still limited today. For self-custody, the “easy” available option is the Glif Wallet, which connects to Ledger hardware wallets in order to generate and send transactions. The other more “advanced” option is running the Filecoin’s node software, Lotus.
Unhappy Filecoin Miners
There is an ongoing development that Filecoin miners are not satisfied with the current mining rewards distribution setup and are threatening to fork the network.
Currently, miners are required to stake the Filecoin native cryptocurrency FIL (5/FIL per terabyte) as a bond in order to be eligible to generate new blocks.
Then the new FIL tokens rewarded are released on a 180-day vesting schedule where miners only receive 30% upfront and the rest is released daily for the remainder of 180 days.
In order to participate in the network miners face the high cost of equipment, the added cost of staking FIL tokens, and not getting the block rewards upfront is a real concern that needs to be addressed soon by the team to prevent fork this early in the network’s life.
Conclusion
The innovation of Filecoin comes from the blockchain architecture that enforces “storage deals” and can self-heal when a problem is detected on any of the stored files.
The Filecoin blockchain also allows for easy coordination of storage providers, file retrievers, and CDN services that together offer a complete “decentralized’’ cloud storage solution.
Filecoin’s launch was highly anticipated since its September 2017 ICO that raised over $200M in 30 minutes. Being one of the largest ICOs of the era and combining a unique use case where it’s seen as “Bitcoin is the money protocol”, “Ethereum the computation protocol”, and now “Filecoin is the storage protocol” of the web3 ecosystem — we will soon see if the project can live up to its high expectations.
