Filecoin appeared in the cryptocurrency market out of nowhere in 2020. This was due to the launch of the Filecoin MainNet. What is Filecoin, and what does IPFS stand for? You’ll find all the necessary information about Filecoin from this article.
Filecoin is a different kind of platform
Let’s first place Filecoin into the right category. We divide cryptocurrencies into three main categories: currencies, platforms, and tokens.
The currency category includes Bitcoin, Litecoin, Bitcoin Cash, Monero, and other similar projects. These are purely P2P currencies and have few features besides being digital money.
Platforms are entire ecosystems. They provide a framework for developers to create smart contracts and decentralized applications (Dapps). The most famous platforms are Ethereum, Cardano, and Solana.
Tokens are always issued on platforms. Most of the popular tokens have been issued on Ethereum. These include projects such as Chainlink, Aave, and Uniswap. Tokens don’t have their own blockchain.
Filecoin fits best in the platform category. However, it is not a competitor for Ethereumor the other platforms mentioned above. Filecoin focuses on a small niche, which is the decentralized storing of digital information. It is also known as a DSN – Decentralized Storage Network.
Below is a project presentation video from 2017.
Other projects in this category include SiaCoin and Storj. Hence, Filecoin is not the only players in this sector. The basic idea in all these projects is the same – to provide decentralized data storage.
Filecoin, known as FIL, is the native token of the system. It is used for all value transfers (transactions, block rewards, staking) inside the ecosystem.
History of Filecoin and Protcol Labs
Filecoin became a publicly known project in the fall of 2020. It is a long-running project nevertheless. Filecoin just hasn’t made the headlines earlier. Juan Benet, Protocol Labs, and IPFS are essential names in Filecoin’s history.
Juan Benet is an American computer science researcher and a startup entrepreneur. Benet is only 32 years old at the time of writing the article, but he has already been involved in many projects. His career began in 2010 as a game developer at Loki Studios.
Benet talks about the IPFS protocol in the following video.
Benet has been interested in decentralized networks for a long time. He also focused on this sector in his studies in computer science at Stanford University. In 2014, Benet set up Protocol Labs.
Protocol Labs focused on the development of the IPFS protocol and Filecoin in the beginning. Over the years, the company has also had other accomplishments. It was the InterPlanetary File System (IPFS) that made Benet famous. This protocol is also the backbone of Filecoin. Both will be introduced later in this article.
The white papers of IPFS and Filecoin were published in the summer of 2014. You can find a timeline of all events on the Protocol Labs website. In the summer of 2017, Filecoin underwent some technical updates and released the white paper V2.
Filecoin shook the market first time in the ICO boom of 2017. This was a historic case since Filecoin was the first ICO to be officially approved by the SEC. This meant that only accredited American investors could participate.
SEC stands for the United States Securities and Exchange Commission. SEC has ruled that most ICOs held between 2017 and 2018 were illegal because Americans were allowed to invest. SEC has been chasing ICOs in recent years and handing out fines.
The Filecoin ICO was held using the Simple Agreement for Future Tokens (SAFT) model. Investors purchased a portion of the tokens to be launched in the future. This means that in the autumn of 2017, Filecoin did not launch a FIL token on the Ethereum platform as almost all other ICOs did.
Filecoin’s ICO made history by the amount of money it collected from investors. The project raised $200 million in less than an hour, and Filecoin had already raised $52 million in the past. Filecoin ICO was the largest on the market at the time.
Filecoin’s FIL token was not launched until October 2020. This is when the project’s MainNet, a production-ready blockchain, was released.
The FIL token has had a lot of ups and downs on the market since its release. Many of the ICO investors have taken cash out after years of waiting. On the other hand, new investors have also jumped in.
At the time of writing, there is still so little data available that it is difficult to do a deeper analysis.
IPFS – InterPlanetary File System
The IPFS protocol is the engine of the Filecoin ecosystem. It’s originated from Juan Benet’s idea to create an efficient and fast system capable of managing versions of scientific data.
IPFS has since grown much larger than its original idea. It is not just a solution for managing individual files. It is a completely new operating model for the whole internet. Protocol Labs is also planning to store blockchain data from other cryptocurrencies into the IPFS network.
BitTorrent is familiar to many of us. This is software that allows users to share files P2P with each other. Files are not stored on any central server. BitTorrent can also download parts of files simultaneously from multiple users.
It is important to understand that files are not stored in blockchain. All files on an IPFS network are stored in a decentralized manner on the hard disks of servers. Anyone can share their hard drive space and start offering it to the network. This is where the Filecoin protocol comes in.
Below is a good video explaining how IPFS works.
IPFS resembles BitTorrent in many different ways. It takes care of the different version of the files as well as the location on the IPFS network. A unique hash is created for each file.
Internet currently operates using a location-based addressing model. If you want to download an image from the URL website.com/photo.jpg, you will download it from the hosting server of the site. If that server is down, you have no access to the file.
IPFS is using content-based addressing. Here’s how the idea works. When you want to download a photo.jpg, the protocol searches the file from the network based on its hash. Since the hash of each of billions of files is unique, the IPFS knows exactly what you are looking for.
This enables two important things. First of all, the hash makes sure that you always get the exact right version of the file. Secondly, a single server failure does not compromise the entire network. There are always multiple copies of the file distributed on nodes.
At the moment, the world is dominated by giants such as Amazon, Google Cloud, Dropbox and so on. These are all centralized and expensive operators. IPFS offers a decentralized (and a significantly cheaper) solution for data storage.
The downside of IPFS is that you need a separate browser that supports a decentralized file system. Standard Chrome or Firefox does not support websites built on top of IPFS.
Filecoin provides an incentive for IPFS
Filecoin and IPFS are tightly connected. Filecoin could not exist without the IPFS protocol. Filecoin can be seen as an add-on to IPFS that brings an incentive to use the protocol.
Of course, it’s worth noting that over five billion files have already been stored on top of IPFS. It hasn’t been a dead project, but Filecoin makes the use of IPFS even more attractive.
A user can be anyone who wants to store files in a decentralized manner. The submits a request for the miners to store files at a certain price for a certain period of time.
Miners store the files on the hard disks of servers in the network. Filecoin blockchain has information on the location of a file, not the file itself.
The Filecoin network continuously monitors the availability of the files. When a user needs access to files, a small transaction fee is paid to the miners. This is where Filecoin’s FIL token is used
Filecoin miners don’t act the same way as in other Proof of Work systems, where miners solve mathematical equations 24/7 and compete against each other. Filecoin’s miner is practically a server that stores files from clients. The correct term used here is storage mining.
Filecoin’s blockchain and the consensus algorithm
The Filecoin blockchain contains data of wallet balances and agreements for storing files. Filecoin uses two different consensus algorithms for system maintenance. They differ significantly from typical Proof of Stake and Proof of Work algorithms.
The first consensus algorithm is called Proof of Replication (PoRep). A server that performs storage mining must provide evidence of file replication (storage) to the blockchain, which is literally a proof of replication.
The second algorithm is called Proof of Spacetime (PoSt). It can be used to audit that a miner has stored a file for the required amount of time. These consensus algorithms make it possible for Filecoin users to verify that miners are performing as promised.
The world’s major cloud services offer storage space for a fee. These companies have therefore an incentive to take care of data security, keep servers running, and so on.
There may be active and avid storage providers on IPFS network, but nothing can stop these parties from shutting down their servers. Filecoin’s FIL brings the necessary incentive by rewarding miners.
Filecoin mining and nodes
Let’s go dig deeper into Filecoin’s overall policy and mining.
Filecoin is a decentralized repository from the point of view of the file storer. Filecoin is used through a separate DSN application, which is a bit like a DeFi app. Check out this link for DSN apps.
The DSN is used to enter into an agreement with the miner of storing files. This agreement is entered into the blockchain. After this, the storage is taken care of by the miner. You can become a miner by meeting the miner’s requirements, which basically means sufficient storage capacity.
You can find more info about Filecoin storage mining from the video below.
Staking is also required to become a miner. This ensures that the miners have skin in the game. The more storage space you provide, the more FIL tokens you need to stake. On the other hand, the more storage space you offer, the more fees you get from the system.
A retrieval miner is the second type of miner. Retrieval miners are also called nodes in the network. This means that Filecoin network operators are called both nodes and miners.
A retrieval miner takes care of retrieving the file from the storage when the user requests access to it. Such a miner needs a high-speed internet connection. If the user is in no hurry, they will receive the data almost free of charge. Faster access costs more FIL tokens.
Competitors of Filecoin
Filecoin is an interesting project that came to the market in late 2020. As already mentioned in the article, this project has been built for more than five years.
Filecoin has plenty of supporters. The $250+ million USD of funding they received in 2017 is evidence of this.
Filecoin’s major competitors are Storj and SiaCoin. Compared to this two, Filecoin is a different size project and raised ten times more funding than Storj and SiaCoin combined.
On top of that, Filecoin is just one piece of Protocol Labs’ plans. If online censorship increases and more people are excluded from centralized social media services, IPFS could become popular in the next few years. Decentralized internet is anything but a small goal. Filecoin could be a significant part of that.
Below you’ll find a video comparing Storj, Siacoin, Filecoin, and Arweave.
The biggest limitations of IPFS and Filecoin are in the technology. Ordinary people do not store holiday photos on the IPFS network. The process is laborious, and mining cannot be done by pressing a button.
It is therefore clear that the IPFS offers a solution to a niche. Who has an incentive and interest in storing information on a decentralized network that no authority can close?
The good thing is that IPFS has been running for years. Billions of files have been stored and mined into the system. Certain first steps have therefore been taken, but there is still a long way to go. At least the project has a very strong position in the DSN sector.
Filecoin price and how to buy Filecoin
The best place to buy Filecoin is Binance. It is the leading cryptocurrency trading platform with the best liquidity.
Since Filecoin’s MainNet has only just been launched, there is no extensive support for it in different wallets yet. The best option at the moment is Math Wallet, which can be found as an iOS and Android app.