Filecoin Review 2021 – [Are All Its Decentralized Features Worth It?]

Filecoin Review 2021 – [Are All Its Decentralized Features Worth It?]

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It has been almost four years since Filecoin’s ICO and seven months since its mainnet went live. Few projects ever made it out of the ICO craze between 2017-2018, but thankfully, Filecoin was one of those few crucial projects that are sorely needed. Unlike other cryptocurrency projects that focus on the crypto space itself, Filecoin has its eyes set on the internet itself.

Given how relatively new the project is, it is not surprising that the price of FIL, Filecoin’s native token, has only had modest gains. However, this does not mean that the project is running out of steam, far from it. What Filecoin is trying to solve could completely revolutionize the internet and provide greater security and control to its users. Not only that, Filecoin’s role could allow this new internet to be used between planets, literally!

How is that possible, and just what is Filecoin trying to achieve? Is this project really that good? That is what this Filecoin Review article is going to attempt to answer and more. This review will take a look into the dynamics of Filecoin and its increasingly crucial role in remaking the internet and why you should consider adding some of that FIL tokens to your portfolio.

What is Filecoin?

According to their website, Filecoin is a decentralized storage network. As the name suggests, the project seeks to provide data storage in a decentralized manner. Its mainnet went live on October 15, 2020, after over three years of development. The project was founded by Protocol Labs, a well-respected research and development company. Protocol Labs is also behind the development of InterPlanetary File System or IPFS, Multiformats, Protoschool, among others.

The main end of Protocol labs is to completely decentralize the whole of the internet. Currently, the internet is operated and maintained by just a few tech giants. All internet contents are stored in centralized data servers, which can be ‘single point of failure.’ This means that if these data servers were ever breached or if they were somehow shut down, or if a malicious tech corporation wanted to manipulate with it, a good portion of the internet will become subject to any of these scenarios. The trade-off is a faster, high-quality internet connection at a very low price.

As such, Protocol Labs laid the groundwork for two projects to address these issues. The first project is the InterPlanetary File System or IPFS or short, which was released in 2015. Without getting too technical, it allows anyone to receive and host web content. What differentiates IPFS from the traditional, centralized controlled HTTP is that IPFS uses content-addressable storage (CAS) while the latter uses location-addressable storage (LAS). IPFS attaches a content identifier to all data and files and addresses the file by what’s in it the content, not by its location.

In addition, IPFS relies on a network of nodes instead of centralized servers, hence making it completely decentralized. The way this works is that instead of storing most – if not all – web content on a single server, they are distributed throughout the network. Nodes installed onto the network can allow certain files or data to be picked up by someone researching it. This serves three key points:

  • Supports a resilient internet.
  • It makes it harder to censor content.
  • Can speed up the web when you’re far away or disconnected.

It is because of this decentralization nature that can allow the possibility for users to one day experience good quality experiences on other planets. This is because it will not be necessary to refer back to centralized servers that are located too far away for communication and connection. All you will need is just one or few nodes on, let’s say, Mars, to have the file or content you are looking for to be able to research and find it.

Filecoin Review

Don’t let the graph above overwhelm you. The IPFS was designed to function as the internet we are all used to. Meaning that the interface of a website looks like any other HTTP content. If you would like more information about IPFS, then please click here.

Now, what does all of this have to do with Filecion? Well, this is Protocol Labs’ second project. Filecoin was designed to incentive those who partake in the IPFS network by rewarding in stored and retrievable data and files via its blockchain and token. This puts it in direct competition against powerful cloud storage tech giants such as Amazon and Google.

How Does it Work?

Filecoin is like most other typical cryptocurrencies. It has its own blockchain, which was built on top of the IPFS, its own native token, consensus mechanism, and mining rewards.

The blockchain itself does not store any data or files. What it does store are the transactions that take place and record wallet address balances. The blockchain also stores information and agreements between the miners and clients who wish to utilize the Filecoin’s storage for certain data that they would like to be stored for a certain period of time.

Uniquely, Filecoin uses not one but two consensus mechanisms. That first one is called Proof-of-Replication (PoRep), which is proof that a given piece of data is being stored by a miner. The Miner must write the proof on the blockchain upon the creation of a data storage agreement with a client. The PoRep proof ties together: i) the data itself, ii) the miner actor that performs the sealing, and iii) the time when the specific data has been sealed by the specific miner.

The second consensus is called Proof-of-Spacetime or PoSt. This procedure is proving that the miner is still storing that piece of data for the client. The mechanism does this by giving miners cryptographic challenges that can only be correctly answered if the miner is actually storing a copy of the sealed data. There are two types of challenges that miners do;

  • WinningPoSt is used to prove that the miner has a replica of the data at the specific time when they were asked.
  • WindowPoSt is used as proof that a copy of the data has been continuously maintained over time.

When it comes to Filecoin mining, all a miner needs is a good computer, reliable internet connection, and plenty of hard drive storage. Unlike traditional mining, miners will be competing with others to private data storage for various clients, called storage mining. For more information on the hardware requirements for Filecoin mining, please click here.

On top of this, miners must also stake some FIL tokens in order to participate as well as to incentivize miners to continue acting honestly. Violations or acts of malicious intent can result in slashing.

To secure the network for long-term growth, block rewards and Filecoin are dependent on the size of the network. The more the network grows, the more tokens there are from each block. The rewards a miner receives are proportional to how much storage space hat miner is contributing to the network.

For example, if a miner is contributing to 1% of storage for the whole network, that miner will receive 1% of all block rewards. Miners are paid in both as a ‘base wage’ and ‘commission.’ Just by participating on the Filecoin network, miners will receive block rewards.

The FIL tokens miners receive from clients for storing their data is the ‘commission’ side. Depending on the network condition and size of your hard drive, Filecoin miners can earn quite a hefty commission for storing data for clients.

How Would a Client Use Filecoin?

So for a client, how will they be able to store their data? Let’s go through an example.

Suppose a client has an amount of data and files they wish to store somewhere. That client needs to hop on over to a decentralized storage application (Dstapp). These are similar to any decentralized application that are found on Ethereum and many other blockchain platforms.

The difference is that these decentralized storage applications are built on top of Filecoin, and since Filecoin is on top of IPFS, these applications act more like typical websites. In addition, using these Web3 applications can be done without using a crypto wallet like MetaMask. For a list of decentralized storage applications that Filecoin offers, please click here.

These Dstapps will let you set the conditions of your storage contract, including the duration of the contract, how much storage you will need, how many times you would like the data to be replicated when it is stored, and how much you are willing to pay in FIL tokens for those conditions.

Once the contract is submitted, a miner will pick up the contract, and if he/she accepts the terms, the acceptance of the contract is written on the blockchain, along with the balance of FIL tokens on the client’s and miner’s wallet.

During this time, the network will ask that miner to continually submit proof that it still contains that stored data. Upon the completion of the contract, the client, via the Dstapp, sends a signal to the network where retrieval miners retrieve the data for the client. The client, in turn, pays these retrieval miners in FIL, and depending on how urgent the client needs, it will determine how much he/she is willing to pay to have the minder retrieve it as soon as possible.

Once this is completed, all the client needs to do is download the file back onto his/her computer, and voila! That’s it.

Tokenomics

Filecoin has robust tokenomics and FIL is their native token. It has a maximum supply of 2 billion. Excitedly, it is a deflationary token since FIL tokens are burned when paying for network fees or when a miner faces slashing. Using economics, assuming the demand for FIL remains constant, the smaller the supply, the greater its price goes up.

Of the 2 billion, 70% has been set aside for Filecoin miners. 15% will go to Protocol Labs, while 7.5% were given out to investors during the ICO.

Governance

Filecoin has a Filecoin Improvement Protocol that contains a set of fundamental governing principles for the whole network. Although there is no specific mention of what principles the network will follow, it is expected that the community will be the one to outline them in the coming months. In essence, Filecoin Improvement Protocols or FIP is a mechanism by which members of the community can submit, discuss, and approve changes. These FIPs can be classified into three categories:

  • Technical FIPs
  • Organizational FIPs
  • Recovery FIPs

Founders

As mentioned, Filecoin was started up by Protocol Labs. The Founder of Protocol Labs is Juan Benet, an American computer scientist who studied at Stanford University. Since its founding in 2014, Protocol Labs has expanded from a few dozen employees to up to 130 by the time of its incorporation.

Who is This Product For?

Filecoin is for anyone wishing to participate on the network by becoming a miner and provide data storage. In turn, anyone (individuals, institutions, other decentralized applications, blockchain platforms) who wish to store their data or files in a secured storage compound can use the Filecoin network.

Competition

In addition to competing against traditional cloud storage giants, Filecoin is also in competition with other decentralized data/file storage protocols such as Siacoin and Storj. So, how is it competing against them?

Siacoin and Storj seem to provide data storage in a decentralized manner by economically incentivizing anyone who has extra hard drive space to utilize it as a way to make money. Filecoin, on the other hand, is just one piece of the puzzle that Protocol Labs is congruing up. Filecoin does not simply wish to store data but to become the go-to layer for all Web3 application data and files, including data from other cryptocurrency blockchains. This is the major reason why it took more than three years for Filecoin to launch its mainnet.

As a result of this ambitious goal, Filecoin is well suited for rapidly scaling. However, its Achilles’ heel is in the lower barrier of entry that Siacoin and Storj offer in terms of hardware and stake. This could limit Filecoins’ capacity to expand. However, unlike its competitors, Filecoin has a massive war chest.

Its ICO brought a whopping $257 million, 10 times more capital than both Siacoin and Storj combined! This can no doubt help it in marketing, expansion, establishing partnerships, and making massive upgrades.

In addition, Filecoin’s network also has up to 5.191 EiB of storage power and 2240 active miners at the time of writing this article. That’s a massive amount of storage space available, and it is relevant because this means you can get some storage for a relatively good price. With more than 2000 miners, this increases the likelihood of them competing to give you a better price to store your data.

Other Relevant Information

The Filecoin Foundation

Not long after its mainnet launch, the Filecoin Foundation was established. Their philosophy is to help guide the Filecoin community with any problems or issues they face and provides leadership, coordination, and financial support.

They help coordinate all Filecoin stakeholders, including miners, users, and developers. Any changes made to Filecoin will be done through the FIP process.

The Board of Directors and Advisory Board include many well-known people who have been active in the crypto industry for quite some time.

Filecoin Plus Principles

One of the FIPs drafted is the FIP 0003 or the Filecoin Plus Principles. This FIP is significant because it seeks to address an unexpected problem for Filecoin. As already mentioned, storage miners receive rewards from committing computing power and storing client data. The thing is, there’s no way of knowing if the data stored comes from a unique third party or from the miner him/herself. This makes it easy for miners to take advantage by stuffing their hard drives with their own data. It is expected that as the network grows, these bad storage deals will worsen.

Filecoin Plus is intended to provide a social layer of trust to prevent these bad deals from happening.

Ecosystem Expanding

The decentralized storage project has been on a tear in establishing partnerships and collaborations, and its ecosystem is not even a year old!

In October 2020, Filecoin partnered up with Live Peer to bring decentralized video streaming to the IPFS. In December of last year, the Huobi Exchange announced it would be investing $10 million to support Filecoin’s research and development.

OKE’s newly founded Block Dream did the same in providing another $10 million in funds to support the Filecoin ecosystem. On April 29, 2021, Filecoin announced it would be supporting NFT. Storage, free, decentralized storage for NFTs!

I think you get the point.

Filecoin Review – Conclusion

Filecoin is one of the few cryptocurrency projects that is trying to change the world, and it actually has something to show for it. When you consider the current state of the internet and all data based as very centralized and vulnerable to hacking and outages, this all makes Filecoin that much more valuable.

It took many years for Protocol Labs to get Filecoin to where it is today, and despite a few setbacks, this is not surprising when you take into account the massive undertaking the project has over its shoulders.

And while the project has certainly achieved a lot since its mainnet launch, it still has a long way to go. Partnerships and funding are all great, but they mean nothing if the project is being utilized for mass adoption. Currently, that does not seem to be an issue, but the project will have to do more if it wishes to achieve its goal of becoming the world’s number #1 data storage for a decentralized internet.