Filecoin is a blockchain-based decentralized storage network designed to “store humanity’s most important information”. Cryptocurrency fans are eagerly awaiting this project to be one of the most important use cases for decentralized, censorship-resistant blockchain technology.
What is Filecoin?
Filecoin is a decentralized file storage network that allows anyone to buy and sell unused storage space in an open global marketplace. This allows users to rent out free space on their computer to other users who want to store files, data, documents, etc.
Filecoin storage network is decentralized, which means that users do not need to trust their sensitive data and information to one company. Instead, they can share and store files around the world on different computers. Plus, Filecoin is also censorship resistant, which means no government or centralized authority can stop you from storing, sending or receiving your files.
Now let’s dive into the inner workings of Filecoin:
The Filecoin protocol serves as an incentive layer on top of the Peer-to-Peer Interplanetary File System (IPFS).
The protocol design allows users to rent storage on accessible devices using the network’s own cryptocurrency, Filecoin (FIL). People who help with providing file storage on the network are rewarded with FIL tokens and are called storage miners.
Simply put, users pay FIL to store their files, while storage miners are rewarded in FIL for their work.
Storage miners compete with each other to offer the lowest price for storage, and as network usage grows, Filecoin’s open storage market will become “hyper-competitive” and therefore less expensive than a centralized data store like Amazon Web Services (AWS).
In addition, in addition to paying storage miners to store files, the Filecoin protocol encourages miners to provide storage in order to receive FIL token rewards from the network. The more storage they offer to the network, the more likely they are to be rewarded.
However, becoming a storage miner is more difficult than just giving users idle storage. Miners must perform computational processes (called proofs) to prove to the networks that they are reliably storing the data they claim to have.
If they do it securely and provide enough storage space, they can continuously mine blocks on the Filecoin blockchain and receive network rewards and transaction fees for doing so.
Who created Filecoin and when?
Filecoin was created by Protocol Labs and its CEO Juan Benet, who founded Protocol Labs and launched the Filecoin project in 2014. However, the Filecoin network only started operating recently, with the launch of its main network on October 15, 2020.
Protocol Labs is a software company building the next generation Internet. Its goal is to create an infrastructure for Web3, which is an advanced software development architecture that eliminates centralization.
Since its inception, Protocol Labs has created IPFS, lib p2p, Filecoin, and other protocols, tools and services that aim to radically improve Internet speed. The company has over 100 employees who work remotely.
Juan Benet, CEO of Protocol Labs and Founder of Filecoin, is a highly skilled technologist with an MSc and Bachelor of Science in Computer Science from Stanford University and has extensive experience in software development and computer science research.
Prior to founding Protocol Labs and Filecoin, Benet founded two technology companies, Athena and Loki Studios, and worked as a computer science researcher at Stanford University.
When founding Protocol Labs, Benet participated in the Y Combinator startup accelerator to get his company started. Since then, Protocol Labs has received funding from prominent investors such as Digital Currency Group, Stanford University’s startup accelerator StartX, Coinbase co-founder Fred Erhsam, and AngelList founder Naval Ravikant.
Further funding provided by Benet and his company comes from Filecoin’s initial coin offering (ICO), which ran from August to September 2017. They raised $ 257 million from prominent investors and venture capital firms including Sequoia Capital, Andreessen Horowitz, and Union Square Ventures.
3. What is the FIL token used for?
The native cryptocurrency of Filecoin’s decentralized file storage network is FIL, and its main use case is to pay for file storage and retrieval, as well as any other transactions on the network.
To understand how FIL is used on the network, we need to look at the major players in the Filecoin economy and how they participate and use the FIL token.
There are 5 main participants in the Filecoin economy:
- Clients (regular users) – who store and receive data through the application;
- Developers – who create applications based on the protocol;
- Search Services – Delivers files to clients upon request;
- Storage miners – who store files and help maintain the Filecoin blockchain;
- Token Holders – who use the FIL as a store of value and medium of exchange;
Customers use FIL tokens to pay for file storage and retrieval.
Developers are creating applications to improve customer access to the Filecoin storage and retrieval markets. FIL tokens, owned by Protocol Labs and the Filecoin Foundation, are used to fund the development and deployment of such applications.
Search miners and services provide efficient access to files stored on Filecoin and the ability to deliver them to customers. These miners and services are paid by customers using the FIL for extracting data and performing services that accelerate data transfer. Customers can use FIL payment channels to pay for data extraction in tiny steps.
Storage miners receive rewards for their services in three ways:
- Transaction fees are direct payments by customers for storing data over time;
- Block rewards – miners are rewarded in FIL from the Filecoin protocol for participating in the Filecoin consensus and ensuring reliable long-term storage;
- Network Message Transaction Fee – Clients can inform miners of their transaction priorities and additional fees are paid to miners.
FIL token holders provide a bridge between the Filcoin economy and the global cryptocurrency markets. They also provide liquidity for both miners and customers and facilitate the use of the Filecoin storage system.
Filecoin Token Distribution (FIL)
The total limited supply of Filecoin is 2 billion FIL tokens, which will be issued in block rewards over the next decades.
The Filecoin (FIL) distribution is as follows:
- 70% – Filecoin miners (awards)
- 15% – Protocol Labs (6 years linear transition)
- ten% – Investors (linear transitions from 6 months to 3 years)
- five% – Filecoin Foundation (6 years linear transition)
Why is Filecoin better than Amazon’s web services?
Filecoin has several advantages over centralized storage solutions like Amazon Web Services (AWS).
The main advantages include:
The cost of storing Filecoin is driven by a hyper-competitive open market that produces increasingly affordable and cheaper prices as the Filecoin network grows. AWS pricing is set by the corporate pricing department.
Filecoin can connect millions of individual computers from all over the world to create an absolutely massive storage network. AWS’s storage potential is limited to a few large companies with which they partner.
Filecoin uses idle computer storage around the world rather than building new storage systems. AWS uses dedicated data centers designed specifically for storing files, rather than using extensive file storage that already exists.
Centralized databases like AWS are easier to hack than decentralized networks like Filecoin because they don’t have a single point of attack, making it harder to hack.
File storage statistics on Filecoin can be independently verified by the network and publicly verified, while file storage statistics on AWS are self-rated and not subject to centralized companies review.
Applications can access all storage providers using the Filecoin protocol, but with AWS, applications must implement different APIs for each storage provider.
Filecoin can have vaults located anywhere in the world, providing local storage options to anyone in need. On the other hand, AWS storage is limited by the location of the provider’s data centers.
Can Filecoin be disabled?
The short answer is: no, you cannot turn off Filecoin because it is decentralized, just like Bitcoin.
With Filecoin, your documents and data can be shared and stored around the world on different computers connected through a distributed peer-to-peer blockchain network that is independent of a central authority.
However, the distribution, exchange and storage of files on Filecoin cannot be censored by the government or other entities. Filecoin is a decentralized and censorship-resistant file storage network that cannot be turned off.
How to store on Filecoin?
At the time of writing (March 26, 2020), Filecoin does not yet have an easy-to-use drag-and-drop upload layer for regular users to upload their files. Such a feature will be developed shortly as the Filecoin network was launched quite recently, on October 15, 2020.
At the moment, only people familiar with command line based clients will be able to store files on Filecoin.
This is how it works:
Users who want to store files in Filecoin (storage clients) are offering miner storage deals that they think can meet their storage needs. The storage miner can then accept or reject this trade. If the miner agrees, the client then sends the data and the storage deal officially begins.
To facilitate this process, you must ensure that the Filecoin node is up and running.
A detailed guide describing the steps required to store on Filecoin can be found here.
How do storage providers earn FIL?
Storage providers, also known as storage miners, can earn FIL in the following ways:
- Commission per trade
- Block rewards
- Network Message Transaction Fee
Commission per trade
Miners receive direct payments to FIL from clients for data storage. A miner can set their own storage price by creating a supply request, and customers offer miners deals for the files they want to store.
Miners are awarded the FIL from the Filecoin protocol for participating in the Filecoin consensus and providing reliable long-term storage. The more reliable storage they offer online, the higher their chances of receiving block rewards and transaction fees.
Network Message Transaction Fee
Miners can receive network message transaction fees from clients who wish to prioritize their transactions. These miners extract data and provide services that speed up the transfer of data (for example, cache or participate as a node in a content delivery network).
Where to store FIL?
Filecoin (FIL) is the proprietary cryptocurrency of the Filecoin network, which is built on the proprietary Filecoin blockchain. FIL is not currently supported by most of the well-known cryptocurrency wallets that support ERC-20 tokens.
FIL crypto wallets must support the Filecoin blockchain codebase and infrastructure, which is different from the Ethereum and Bitcoin blockchain infrastructure.
However, there are not many crypto wallets that support FIL yet, but as the popularity of Filecoin grows, you can expect many other wallets to offer their support.