Filecoin ($FIL) is created by Protocol Labs and aims to provide a real use case for blockchain technology outside of finance. As the name suggests, it’s all about files. But, since the system is decentralized, how does it guarantee security and availability? Also, are those storing files paid? Here, we look at what Filecoin is, plus the reasons why it has become quite a sensation in China.
- Filecoin is a decentralised file storage network. Users pay for their files to be stored whilst those that help with storage are rewarded with $FIL tokens.
- The project raised USD$200 million in its Initial Coin Offering (ICO) in 2017. Mainnet launch will be around 3:00pm (UTC) on 15th October 2020.
- Filecoin has already been on the Chinese radar since 2018 where Chinese firms have started marketing Filecoin cloud mining services. It is considered easier to mine because specialised mining devices are not required.
- Filecoin is also popular in China because of speculation on the price of $FIL tokens. Some exchanges already offer $FIL trading on an IOU basis.
What is Filecoin ($FIL)?
Filecoin is a decentralised file storing network that rewards users who store files. Those who keep files are referred to as storage miners. Users pay for their files to be stored while storage miners are rewarded for their work.
Its distributed nature allows for peer-to-peer file storage and retrieval design. The platform has a native virtual currency called FIL, which is used to reward miners.
The network is inspired by Web3, an advanced software development architecture that eliminates centralization. Filecoin can provide file storage services to other decentralized platforms as well. Furthermore, the network projects a way to enable transaction interaction with other blockchain platforms promoting interoperability.
What is Filecoin Token $FIL?
Filecoin token $FIL is the platform’s native virtual currency which is used to reward miners. Note that Filecoin mainnet has not launched yet and FIL tokens are not in circulation. However, as will be seen below a few exchanges are already trading FIL on an IOU basis. This means that users will only receive FIL tokens in the future. However, this has not deterred enthusiasts, with FIL having more than USD$100 million in trading volume every 24 hours and prices seemingly on an upward trajectory.
Upon the Filecoin mainnet launch (see below), Huobi Global will launch $FIL and open trading, deposits and withdrawals. Other exchanges have also rushed to list one of the most talked-about Chinese projects since 2017 such as Binance and FTX exchanges.
Filecoin Mainnet Launch
Protocol Labs spearheaded the project’s ICO in 2017. Backed by top names in venture capital like Sequoia and Andreessen Horowitz, $200 million was raised.
The ICO was followed by testnet postponement until 2019. Protocol Labs initially promised the mainnet launch in the first quarter of 2020.
Filecoin mainnet has now launched at epoch 148,888- at around 3:00pm (UTC) on 15th October 2020. You can check the status of the chain here.
How Filecoin works
Users on the platform are charged for file storage. However, storage charges vary depending on whether a user chooses speed over redundancy and vice versa. Also, storage prices are affected by availability and demand.
For storage miners/providers
On the Filecoin protocol, a storage provider can either be an individual or an organization. And the only criteria for becoming a miner is having a free hard disk space and an internet connection. Miners will also have access to the entire pool of Filecoin users.
For smooth usage, the network provides a standard application programming interface for miners and advertises their availability. Without individual marketing, storage providers rely on speed, storage space, and reliability to woe users and attract rewards.
Filecoin has a self-healing feature that automatically checks if files on the blockchain are stored correctly. Additionally, the feature enables the network to detect faulty miners and their loads to be distributed to other miners.
The process of self-healing generates tracks showing a miner’s history on the network. A good reputation earns them more storage opportunities hence more rewards. The system uses proof-of-file and proof-of-storage mechanisms that are not energy-intensive, like the proof-of-work mechanism employed by Bitcoin (BTC).
Apart from general storage miners, there are also retrieval miners. These type of miners need to have a strong internet connection as they pre-fetch the most downloaded files and deliver them to users who are in close proximity. Afterward, they are rewarded for facilitating a smooth traffic flow on the network.
China is all-in on Filecoin
Miners are seriously considering Filecoin
Although the protocol does not require specialized mining devices for access, China is eyeing developing Filecoin mining hardware. Furthermore, Chinese investors are already speculating on FIL’s price. In fact, the Chinese have already been into Filecoin since as early as 2018, and with the mainnet launch being potentially weeks away, the hype is only getting stronger.
For example, when Protocol Labs announced an incentive program in early June 2020, Chinese firms started marketing cloud mining services that users can contract and use to provide storage to Filecoin users.
With the popularity of cryptocurrency mining in China, it is not surprising that these firms attracted a minimum of $500,000 in sales in the first few days. In addition, data from blockchain explorers revealed that the leading storage miners on Filecoin are located in China. Cumulatively, these miners account for over 80 percent of the network’s testnet storage mining power at roughly 15 petabytes (15,000 terabytes).
However, the tremendous uptake of storage mining in the Asian country can be attributed to the country’s love for Bitcoin and other cryptocurrency mining activities. Although Bitcoin trading is banned in China, most of Bitcoin’s mining power is still concentrated in the country at approximately 65 percent.
Also, even before Filecoin went live, mining hardware companies were already hyping their products in anticipation. Andy Tian, the co-founder of 1475, a hardware manufacturing company, thinks that China’s Filecoin mining hype is partly driven by the fact that the idea behind the mining is simpler to retail miners compared to mining BTC where ASICs are used.
The anticipation in China is so high that more than $15 million worth of Filecoin mining software and hardware has been stashed by mining pools waiting for investors and self-mining. Other large BTC mining companies like RRMine reportedly sold $15 million in cloud computing contracts “within minutes.” RRMine is also accumulating FIL mining hardware.
Unfortunately, it’s not the amount of free space you provide to the network that matters more, but the amount of sealed data. While accessing the FIL protocol does not require massive processing power, sealing data on a hard drive does.
The sealing can be done by harnessing power from a CPU or a GPU hardware. However, throwing a piece of specialized equipment in the mix makes it faster, allowing miners to seal more data in a day. In return, they also get more rewards.
Chinese Companies are also speculating on Filecoin
But it does not stop at mining. Close to 50 cryptocurrency exchanges in the Southeastern Asian country, including Biki Exchange and MXC Exchange, have FIL futures served with Tether (USDT) on their menu. Note however that this is only an IOU, as the token hasn’t actually been released yet.
Cryptocurrency data aggregator platforms like CoinMarketCap, Feixiaohao, recorded roughly $100 million in trading volume in 24 hours. The price of Filecoin futures, however, has been fluctuating from $11 to $28 to $18 within days.
Some firms dealing in cloud contracts, e.g., Mars Finance, project a 300 percent annual return for FIL miners without providing the amount of FIL tokens each terabyte of contracted space can bring.
Although the mainnet and the rules governing storage mining are yet to be released, the Chinese community has long gravitated towards Filecoin. Some of the reasons behind this craze can be because of China’s uneven domestic investment landscape that has alienated middle-class individuals looking for attractive investment opportunities.
Also, China’s rigid stand on capital controls has led Chinese investors to seek reputable cryptocurrency or blockchain-based projects that can facilitate financial interaction with the rest of the world. Filecoin’s association with leading venture capital firms makes it attractive to the Chinese community. Also, its storage mining tag makes it simple for retail miners and investors.