Everything To Know About Filecoin (FIL)

What is Filecoin (FIL)?

Filecoin is a cryptocurrency that aims to incentivize a global network of computer operators to provide a file sharing and storage service. 

Project founders claim that if enough people adopt it, it could become the fastest and cheapest way to store data on the internet. What’s more, it would not rely on a central authority, meaning the exchange of its files could not be censored by governments or other actors. 

This is because Filecoin is maintained by miners who dedicate computing power to providing the computation that makes it work. Filecoin miners get paid for making storage space available to users. Filecoin users, in turn, must pay miners for storage, retrieval or distribution of this data. 

The Filecoin network operates atop another protocol for decentralized file handling called the Interplanetary File System (IPFS). The two systems share many similarities, though the main difference is that while IPFS is free to use, it won’t earn miners any money. Filecoin costs money to use, but could also generate revenue. 

Still, investors and traders should note Filecoin is not the only protocol that claims to offer a decentralized storage and file sharing system powered by cryptocurrency.

Competing protocols include Storj and Siacoin. Storj claims to have reached a network capacity of over 100 petabytes, while Siacoin reports a 2 petabyte network capacity, as of 2020. 

However, Filecoin may be the most widely anticipated of these cryptocurrencies, having raised $205.8 million in an initial coin offering in 2017, one of the industry’s largest funding rounds.

As of July 2020, Filecoin is in testing, with a formal launch expected by the end of August 2020.

How does Filecoin work?

Filecoin is a little like Dropbox, but powered by blockchains. Users who want to store some data on the Filecoin network must pay a miner to do so. 

How much they pay is determined by an open market where miners compete with one another to offer the lowest price for storage. Filecoin claims this market will be “hypercompetitive” and thus be cheaper than centralized data storage such as Amazon Web Services. 

Miners, in turn, have an incentive to provide storage because they stand a chance to receive rewards from the network in the form of Filecoin tokens. The more storage they offer the network, the better their chances of receiving a reward. 

But these rewards aren’t free. Miners must perform several computationally intensive processes (called proofs) to prove to the network that they are storing the data they claim to be storing, and that they’re doing so reliably over a period of time. 

If they do so reliably and provide enough storage, then they can create new blocks on the Filecoin blockchain and receive the network reward and the transaction fees.

Proof-of-Replication and Proof-of-Spacetime

Blockchains rely on mechanisms called proofs to ensure that all users of the network can agree on new transactions. The Bitcoin blockchain, for example, relies on a proof-of-work, where a miner must show it has performed a massive number of calculations to earn the right to add new transactions to the blockchain and claim newly minted Bitcoin.

Filecoin uses two new proofs to verify that miners are actually storing the data they claim to hold. Proof-of-Replication shows that a miner has truly stored the number of copies of data it claims to hold. Proof-of-Spacetime shows that a miner has stored the data over an agreed period of time. 

Together, these proofs allow users to trust that miners indeed hold the data they claim to hold. 

Filecoin Storage Markets

Using these technologies, Filecoin will offer a market for disk storage where users who wish to store data can bid on available storage offered by miners who offer disk-space. 

Miners who supply disk-space will also be judged based on their reliability as well as the prices of storage they are offering. Filecoin’s Storage Market will be similar to a financial market, where users can make bids and offer asks. 

Filecoin Mining

Generally speaking, Filecoin miners are users who offer storage. This means any user can plug in a hard-disk, run the Filecoin software, and start to offer disk-space in the Storage Market. These miners are known as Storage Miners.

But there is one more category of Filecoin miners, known as Retrieval Miners and Services. 

These miners are paid by users to retrieve data and to perform services that speed up the transmission of data, such as caching or participating as a node in a content delivery network.