Filecoin (the name of the cryptocurrency is FIL) is a P2P data storage network that allows users to trade disk space in a decentralized marketplace on blockchain. Created in 2017 by Protocol Labs, the same team behind IPFS, it has funded itself through one of the largest ICOs, having raised more than $ 250 million.
The ease of use and popularity of cloud data storage has led to the growing adoption of this technology, both for occasional users and for companies with large storage needs. This has led to the emergence of huge centralized data silos managed by tech giants like Amazon (with its AWS and S3 services), Microsoft, IBM, and Google. However, this centralization in the hands of a few actors poses systemic risks for the entire Internet infrastructure. Every time there is an interruption to AWS services, a large part of the web is affected.
The decentralization of cloud storage over P2P networks can have a major impact on this sector. The objective of Protocol Labs, the start-up of Juan Benet, is to support web3 through IPFS and Filecoin, the basis of a P2P infrastructure. The potential benefits are lower cost, network resilience, data speed, and last but not least, censorship resistance. The latter is a growing problem, as YouTube channels are often blocked for no real reason.
How does Filecoin work?
Filecoin is based on IPFS, a protocol for storing distributed data. IPFS is based on the experience gained over the years with different protocols such as HTTP, FTP, BitTorrent, etc. However, while great from a storage decentralization point of view, IPFS lacks an incentive layer.
This is where Filecoin comes in, essentially providing a layer to encourage the use of IPFS. The Filecoin blockchain stores the hash address generated by IPFS in a smart contract. To retrieve the file, all you have to do is find the hash address of the blockchain and query IPFS for the relevant file. Filecoin then acts as a ledger for FIL transactions and Filecoin wallet address balances, and stores the agreements made between the miners that store the customer data and the customers who requested the storage of that data.
To protect the network from attacks, in addition to their commitment to provide storage capacity, miners must have a certain number of FIL tokens. In this way, an attacker not only has to have the hardware resources but also a sufficient number of tokens, which makes attack attempts economically disadvantageous.
Users who wish to store certain data on the Filecoin network must pay a miner to do it. The storage price is determined in an open market where miners compete with each other to offer the lowest price. For this reason, Filecoin should offer more competitive prices than centralized services like Dropbox, Amazon, etc.
The protocol fragments data before storing it, so that a malicious user trying to access files stored on the network sees only meaningless data. The more storage space miners offer to the network, the higher the chances of receiving a reward.
Filecoin uses two new types of evidence to verify that miners are actually storing the data they claim to keep. Replication test (PoRep) shows that a miner has stored the only copy of the customer data, while Space test–weather (PoST) shows that a miner has been storing data for the agreed period of time. If miners reliably provide this evidence and provide the storage space they have committed to, they can create new blocks on the Filecoin blockchain and receive the network reward and transaction fees.
These tests allow users to trust the miners. The Filecoin storage market is therefore similar to a financial market where users can bid and request offers, allowing storage space to be exchanged and providing an incentive to those who provide it.
The incentive system seems to work: according to statistics from the file.app portal, Filecoin's data storage of 1GB per year is currently 23627% cheaper than Amazon S3 (rare data access). However, there are several users who question the validity of these calculations.
Filecoin competitors and developments
The project is in direct competition with Amazon Web Services, Google Drive, Dropbox, and all other centralized storage services. Its direct competitors on the blockchain are Skynet's Sia (SC), NeoFs (NEO blockchain), Swarm (Ethereum), Storj, and Safe Network. Each with its own quirks, these projects represent a major innovation in cloud storage. However, the full range of possible application scenarios is at this time still experimental.
Filecoin is a infrastructure for dApps who will use their technology. The development of these decentralized applications is supported by the incentives provided by the project.
Slingshot is a competition for developers and storage customers that rewards the storage of real and valuable data on their network, which has so far attracted 167,559 offers on the network. Another incentive program is Filecoin Launchpad Accelerator II, a program designed to help startups build tools, infrastructure, and applications for the web3.
Some Filecoin-based open source storage systems are Slate, Starling, and Livepeer. Slate is dedicated to end users and seeks to facilitate file storage and sharing. Starling, on the other hand, is designed for use in archival environments, where the ability to demonstrate the authenticity of a file over time is of utmost importance. Livepeer is a decentralized video storage and live streaming protocol based on the Ethereum blockchain, which launched the file.video platform with Filecoin.
These dApps make it easier to use the Filecoin network and over time should attract more and more users, increasing the number of storage agreements on the network. More applications are expected to arrive this year with a positive impact on the development of the ecosystem.
The team is also putting a lot of emphasis on integration with other blockchain projects, such as using Chainlink to connect with Ethereum, MetaMask integration, and NFT video support through collaboration with VideoCoin. The growth of your ecosystem certainly also depends on how many other projects start using your network.
However, the economic model suffers from several problemsFirst of all, the volatility of the FIL token, which does not allow a storage cost. The governance of the protocol is fully managed by Protocol Labs, at a time when all blockchain projects are moving to DAO. The roadmap is not clearly defined, but perhaps this is due to the fact that Filecoin is just one cog in the ecosystem that Protocol Labs aims to create.
It should also be noted that many details about this project are still being worked out. The mainnet launch got off to a very positive start by offering the most storage space of any existing decentralized data storage provider, combined with the growth of its ecosystem.