What is Filecoin (FIL)?

Filecoin is a peer-to-peer network that stores files, with built-in economic incentives and cryptography to ensure files are stored reliably over time. In Filecoin, users pay to store their files on storage providers. Storage providers are computers responsible for storing files and proving they have stored them correctly over time. Anyone who wants to store their files or get paid for storing other users’ files can join Filecoin. Available storage, and the price of that storage, are not controlled by any single company. Instead, Filecoin facilitates open markets for storing and retrieving files that anyone can participate in.

Filecoin is built on top of the same software powering IPFS protocol, which is a peer-to-peer distributed storage network that leverages content addressing to allow permanent references to the data, and avoids relying on specific devices or cloud servers for addressing the content. Filecoin is different from IPFS because it has an incentive layer on top to incentivize contents to be reliably stored and accessed.

Filecoin enables several use cases, from Web3 native NFT and metaverse/game assets storage, incentivized permanent storage, to archiving Web2 datasets as a cheaper alternative to cloud storage. For example, NFT.Storage utilizes Filecoin to provide a simple decentralized storage solution for NFT contents and metadata, while Shoah Foundation and Internet Archive leverages Filecoin to backup their contents. Filecoin also supports a wide range of formats of data, including audio and video files, allowing Web3 platforms such as Audius and Huddle01 to leverage Filecoin as the decentralized storage backend for music streaming and video conferencing.

How does Filecoin (FIL) work?

Filecoin operates as a decentralized, peer-to-peer data storage network, leveraging the InterPlanetary File System (IPFS) protocol for its foundation. In this network, users seeking to store their personal data engage with storage miners, compensating them in FIL tokens to securely host their files. These miners, functioning as the backbone of the Filecoin ecosystem, are crucial in maintaining the network's security and integrity.

The decentralized framework of Filecoin allows for a trustless storage mechanism across its peer-to-peer network. This setup provides users with a variety of storage options, enabling them to select miners based on factors like cost efficiency, data redundancy, and retrieval speed. This flexibility ensures that users find storage solutions that align perfectly with their specific data requirements. Additionally, Filecoin's compatibility with decentralized applications (dApps) further extends its utility, allowing these applications to store data seamlessly with any miner within the network. Miners, in return for facilitating these diverse storage needs, earn fees and are rewarded with FIL tokens. The network dynamically appends a new block to the blockchain every 30 seconds, during which miners receive their respective FIL rewards.

For users to ascertain the reliability and accuracy of their stored data, Filecoin incorporates a system of publicly verifiable proofs on its blockchain. These proofs are cryptographic challenges, consistently and automatically presented by the network's miners. The Proof of Replication (PoRep) is a key component here, ensuring that a miner has uniquely coded and received the complete data, distinct from other miners—even for identical data sets, the encoding on different disks is unique. This system offers a trustless and timestamped confirmation of data receipt. Furthermore, the network utilizes the Proof of Spacetime (PoSt), obligating random miners to periodically validate the storage of random data segments. This mechanism ensures the continuous and secure storage of data throughout the duration of the storage agreement.

History of Filecoin

• Protocol Labs, a company based in California, established the groundwork for Filecoin in 2014, coinciding with the debut of the initial consensus draft of the Proof-of-Work platform concept.
• From 2014 to 2017, Protocol Labs embarked on an ambitious journey to develop the InterPlanetary File System (IPFS), a decentralized network protocol that marked a significant advancement over traditional torrent networks for file storage and distribution. Juan Benet, the founder of Protocol Labs, was the driving force behind the creation of IPFS.
• IPFS was designed to replace conventional Internet protocols like HTTP and HTTPS. In the IPFS system, file addresses are uniquely identified with the prefix ipfs://.
• One of the early adopters of IPFS technology was the OpenBazaar protocol in 2016, which developed into a decentralized marketplace before its closure in 2021.
• In 2017, the Filecoin project achieved a significant milestone, successfully raising $257 million through an Initial Coin Offering (ICO) on CoinList, a platform collaboratively established by Protocol Labs and AngelList. This ICO was notable for its compliance with financial regulations, adhering to the Simple Agreement for Future Tokens (SAFT) framework.
• The culmination of these efforts was the launch of the Filecoin decentralized storage network's mainnet in October 2020, marking a new era in decentralized data storage solutions.
• In a notable development in February 2022, Tiger Global Management, a significant investment firm, was reported to be investing in various crypto projects, including Filecoin, indicating growing institutional interest in the platform.

Tokenomics

The native currency of Filecoin, FIL, is a utility token used to incentivize persistent storage on the Filecoin network. Storage providers mine FIL by providing reliable storage service or committing storage capacity on the network. It has a maximum circulating supply of 2,000,000,000 FIL, meaning that no more than 2 billion Filecoin will ever be created.As a utility token that aligns participants’ incentives with the long-term growth of the network, Filecoin issuance is aligned with the overall provable utility of the network. The majority of Filecoin supply would only be minted if the network achieved growth and utility targets at scale.Specifically, Filecoin uses a dual minting model for block reward minting:Baseline mintingUp to 770M FIL tokens are minted based on the performance of the network. These tokens would only fully release if the Filecoin network reached a Yottabyte of storage capacity in under 20 years, estimated to be ~1000x larger than today’s cloud storage capacity.Simple minting330M FIL tokens are released on a 6 year half-life based on time, meaning that 97% of these tokens will be released in approximately 30 years time.Additionally, 300M FIL tokens are held back in the mining reserve to incentivize future types of mining.VestingMining rewards undergo a vesting schedule to encourage long-term network alignment. For example, 75% of block rewards earned by miners vest linearly over 180 days, while 25% are made immediately available to improve miner cash flow and profitability. And the remaining FIL tokens are vested to Protocol Labs teams and Filecoin Foundation over 6 years and SAFT investors over 3 years.Collateral and slashingTo encourage good behavior from network participants, during block reward mining, storage providers must lock Filecoin tokens as pledge collateral for consensus security, storage reliability, and contract guarantees. Pledge collateral is determined by projected block rewards that a miner would earn. Collateral and all earned rewards by storage providers are subject to slashing throughout the lifetime of a sector if the storage does not pass a reliability check.

Why Is Filecoin (FIL) Valuable?

Filecoin stands out in the digital storage landscape by offering a decentralized, peer-to-peer network for data storage, which significantly enhances resilience against censorship, system outages, and security breaches. Unlike traditional, centralized storage systems where users' data is controlled by a single entity, Filecoin empowers users to be the custodians of their own data. The platform's blockchain technology underpins a unique incentive structure, motivating participants to engage actively and honestly within the network.

A distinctive aspect of Filecoin's design is its dual-node architecture, setting it apart from many networks that rely on a single type of node. In Filecoin's ecosystem, storage nodes are dedicated to preserving data on the network, with an emphasis on incentivizing medium-sized users to foster decentralization. Alongside these, Filecoin employs retrieval nodes, strategically placed in proximity to storage nodes for optimal performance. These retrieval nodes must possess high bandwidth and low latency to efficiently locate and deliver data. They earn compensation based on their speed and effectiveness in retrieving files for users.

Filecoin's innovative business model further differentiates it in the market. It facilitates an open, competitive bidding process for storage services, where both data uploaders and hosts participate. This dynamic marketplace naturally drives prices, reflecting real-time market conditions and the availability of storage. Such a model not only encourages competitive pricing but also incentivizes participants to gradually reduce the cost of storage over time, benefiting the entire Filecoin ecosystem.

Highlights

2014 - Foundation and Conceptualization: Protocol Labs lays the foundation for the Filecoin blockchain, aligning with the publication of the first consensus version of the Proof-of-Work platform concept.

2014-2017 - Development of IPFS: Protocol Labs develops the InterPlanetary File System (IPFS), setting the stage for Filecoin's integration with this advanced, decentralized file storage system.

2017 - ICO and Fundraising Success: Filecoin conducts one of the largest Initial Coin Offerings (ICO) in the crypto space, raising $257 million. This event marked significant investor interest and financial backing for the project.

Post-2017 - Implementation of Consensus Mechanisms: Filecoin introduces innovative consensus mechanisms like Proof-of-Replication (PoRep) and Proof-of-Spacetime (PoSt) to ensure secure and continuous data storage.

2020 - Mainnet Launch: In October 2020, Filecoin's mainnet goes live, marking a significant milestone in offering a decentralized storage network to the public.

2020 Onwards - Market Expansion and Decentralization: Following its mainnet launch, Filecoin sees growth in its decentralized storage market, with increasing participation from global storage providers and clients.

2021-2022 - Community and Ecosystem Development: Continuous development efforts and community support lead to improvements in the platform and increased adoption in various use cases.

2022 and Beyond - Ongoing Developments and Innovations: The platform continues to evolve, focusing on enhancing its storage and retrieval marketplace, improving user experience, and integrating further with decentralized applications.