Hey guys :) I’m back with another comprehensive Q&A piece, this time for the decentralized file storage solution – Filecoin (FIL).
Filecoin is a decentralized blockchain-based storage network designed to “store humanity’s most important information.” The project is highly anticipated among crypto veterans to be one of the most important use cases for decentralized, censorship-resistant blockchain technology.
Hope you enjoy!
The list of Q&A is kind of long so first comes the list of questions that I have prepared the answers to:
- What is Filecoin?
- Who and When Created Filecoin?
- What is $FIL Token Used For?
- How Filecoin is Better than Amazon Web Services?
- Can One Shut Down Filecoin?
- How to Store on Filecoin?
- How Storage Providers Earn $FIL?
- Where to Store $FIL?
- Where to Buy & Sell $FIL?
1. What is Filecoin?
Filecoin website homepage
Filecoin is a decentralized file storage network that enables anyone to buy and sell unused storage space on an open global market. It enables users to rent out spare storage space on their computer to other users who want to store files, data, documents, etc.
The Filecoin storage network is decentralized, meaning users don’t need to trust one company with their important data and information. Instead, they can split up and store files around the world on different computers. Additionally, Filecoin is also censorship-resistant, meaning no government or centralized authority can stop you from storing, sending, or retrieving your files.
Now let’s dive into the inner workings of Filecoin:
The Filecoin protocol serves as an incentivization layer on top of the peer-to-peer InterPlanetary File System (IPFS).
The protocol’s design allows users to rent storage on available devices using the network’s native cryptocurrency, Filecoin (FIL). People who help with providing file storage on the network are rewarded $FIL tokens and are referred to as storage miners.
Simply put, users pay with $FIL for their files to be stored while storage miners are rewarded with $FIL for their work.
Storage miners compete with one another to offer the lowest price for storage and as the network grows in usage, the open Filecoin storage market will be “hypercompetitive” and thus be cheaper than centralized data storage such as Amazon Web Services (AWS).
Furthermore, in addition to users paying storage miners for file storage, the Filecoin protocol incentivizes miners to provide storage for a chance to receive $FIL token rewards from the network. The more storage they offer the network, the better their chances of receiving a reward.
However, becoming a storage miner is more complex than simply providing users with your idle storage. Miners must perform computationally intensive processes (called proofs) to prove to the network that they are reliably storing the data they claim to have.
If they do so reliably and provide enough storage, then they can continuously mine blocks on the Filecoin blockchain and receive network rewards and transaction fees for doing so.
2. Who and When Created Filecoin?
Filecoin creator, Juan Benet
Filecoin was created by Protocol Labs and its CEO Juan Benet who founded Protocol Labs and started the Filecoin project in 2014. However, the Filecoin network only recently started operating with the launch of its mainnet on October 15, 2020.
Protocol Labs is a software company dedicated to building the next generation of the internet. Its goal is to build out the infrastructure for Web3, which is an advanced software development architecture that eliminates centralization.
Since its inception, Protocol Labs has created IPFS, lib p2p, Filecoin, and other protocols, tools, and services that aim to radically improve the speed of the internet. The company is made up of more than 100 members who work remotely.
Juan Benet, CEO of Protocol Labs and founder of Filecoin is a highly experienced technologist who obtained his MS and BS in Computer Science from Stanford University and has immense experience working in software engineering and computer science research.
Prior to founding Protocol Labs and Filecoin, Benet founded two technology companies, Athena and Loki Studios, and worked as a computer science researcher at Stanford University.
When founding Protocol Labs, Benet participated in the Y Combinator startup accelerator to get his company off the ground. Since then, Protocol Labs has received funding from notable investors like Digital Currency Group, Stanford University’s startup accelerator StartX, Coinbase co-founder Fred Erhsam, and AngelList founder Naval Ravikant.
Further funding secured by Benet and his company comes from Filecoin’s initial coin offering (ICO), which ran from August to September 2017. They raised $257 million from notable investors and venture capital firms including Sequoia Capital, Andreessen Horowitz, and Union Square Ventures.
3. What is $FIL Token Used For?
Filecoin (FIL) token logo
The native cryptocurrency of Filecoin’s decentralized file storage network is $FIL and its primary use case is to pay for storage and retrieval of files, and for any other transactions on the network.
In order to understand how $FIL is used within the network, we must look at the main actors of the Filecoin economy and how they participate and use the $FIL token.
There are 5 main actors in the Filecoin economy:
- Clients (regular users) - who store and retrieve data via applications
- Developers - who build applications on top of the protocol
- Retrieval Services - which deliver files to clients on demand
- Storage Miners - who store files and help maintain the Filecoin blockchain
- Token Holders - who use $FIL as a store of value and medium of exchange
Clients use Filcoin $FIL tokens to pay for the storage and retrieval of files.
Developers build applications to improve clients’ access to Filecoin’s storage and retrieval markets. $FIL tokens held by Protocol Labs and the Filecoin Foundation are used to fund the development and deployment of such applications.
Retrieval miners and services ensure files stored on Filecoin are efficiently available and can be delivered to clients. These miners and services are paid by clients with $FIL to retrieve data and to perform services that speed up the transmission of data. Clients can use $FIL payment channels to pay for retrieval of data in tiny increments.
Storage miners $FIL for their services in three ways:
- Deal Fees - which are direct payments from clients for storing data over time.
- Block Rewards - miners are rewarded with $FIL from the Filecoin protocol for participating in Filecoin consensus and providing reliable long-term storage.
- Network Message Transaction Fees - clients can message miners to prioritize their transactions and an extra $FIL fee for doing so is paid to miners.
$FIL token holders provide a bridge between the Filcoin economy and the global cryptocurrency markets. They also provide liquidity for both miners and clients and promote the usage of the Filecoin storage system.
Filecoin (FIL) Token Distribution
The total capped supply of Filecoin is 2 billion $FIL which will be released through block rewards over the subsequent decades.
Filecoin (FIL) distribution is as follows:
- 70% - Filecoin miners (rewards)
- 15% - Protocol Labs (6 year linear vesting)
- 10% - Investors (6 month to 3 year linear vesting)
- 5% - Filecoin Foundation (6 year linear vesting)
4. How Filecoin is Better than Amazon Web Services?
Amazon Web Services (AWS) logo
Filecoin has a number of advantages over centralized data storage solutions such as Amazon Web Services (AWS).
The main advantages include:
Filecoin storage prices are determined by a hypercompetitive open market that produces cheaper and cheaper prices as the Filecoin network grows. AWS prices are set by corporate pricing departments.
Filecoin can bring million of individual computers together from around the world to create an absolutely massive storage network. AWS storage potential is limited to a handful of large companies they partner with.
Filecoin makes use of idle computer storage around the world rather than building new storage computers. AWS uses specialized data centers built specifically for file storage instead of utilizing the abundant file storage already out there.
Centralized databases like AWS can be more easily hacked than decentralized networks like Filecoin because they have no single point of attack, making it harder to compromise.
File storage stats on Filecoin can be independently checked by the network and is publicly verifiable, while file storage stats on AWS are self-reported and non-verifiable by centralized companies.
Applications can access all storage providers using the Filecoin protocol but with AWS, applications must implement a different API for each storage provider.
Filecoin can have storage miners located anywhere in the world, providing local storage options to anyone who needs it. AWS storage on the other hand is limited to where the provider’s data centers are located.
5. Can One Shut Down Filecoin?
The short answer is no, you can not shutdown Filecoin because it is decentralized, similar to Bitcoin.
On Filecoin, your documents and data can be split up and saved around the world on different computers that are connected through a distributed, peer-to-peer blockchain network that does not rely on a central authority.
That said, the distribution, exchange, and storage of files on Filecoin can not be censored by governments or other actors. Filecoin is a decentralized and censorship-resistant file storage network that can not be shut down.
6. How to Store on Filecoin?
At the time of writing (October 28, 2020), Filecoin does not yet have an easy-to-use drag and drop upload layer for regular users to upload their files. This sort of feature will be developed in due time, as the Filecoin network only recently launched on October 15, 2020.
For now, only people who are familiar with clients based on command lines will be able to store files on Filecoin.
Here’s how it works:
People who want to store files on Filecoin (storage clients) propose storage deals with storage miners that they feel can meet their storage needs. The storage miner can then choose to accept or reject that deal. If the miner accepts, the client then sends over the data, and the storage deal officially begins.
In order to facilitate this process, you must ensure a Filecoin node is installed and currently running.
An in-depth guide outlining the steps required to store on Filecoin can be found here.
7. How Storage Providers Earn $FIL?
Storage providers, otherwise known as “storage miners” can earn $FIL in the following ways:
- Deal Fees
- Block Rewards
- Network Message Transaction Fees
Miners receive direct $FIL payments from clients for storing data over time. The miner can set their price for storage by creating an ask order and Clients propose deals to miners for the files they want to store.
Miners are rewarded with $FIL from the Filecoin protocol for participating in Filecoin consensus and providing reliable long-term storage. The more reliable storage they offer the network, the better their chances of receiving block rewards and transaction fees.
Network Message Transaction Fees
Miners can earn network message transaction fees from clients who want to prioritize their transactions. These miners retrieve data and perform services that speed up the transmission of data, (ie. caching or participating as a node in a content delivery network).
8. Where to Store $FIL?
Filecoin (FIL) is the native cryptocurrency of the Filecoin network and resides on top of the Filecoin blockchain rather than on the Ethereum blockchain. That said, $FIL is not currently supported by most of the widely known cryptocurrency wallets that support ERC-20 tokens.
$FIL crypto wallets must support the Filecoin blockchain codebase and infrastructure which is different from Ethereum and Bitcoin’s blockchain infrastructure.
That said, there aren’t as many crypto wallets supporting $FIL just yet, but as Filecoin grows in popularity, you can expect to see many more wallets offering its support.
Popular Filecoin (FIL) Wallets:
- Trust Wallet - (mobile)
- MetaMask w/ FilSnap plugin - (web)
- imToken - (mobile, desktop)
- Lotus Wallet - (web)
- Math Wallet - (mobile/desktop/web/hardware)
8. Where to Buy & Sell $FIL?
Filecoin (FIL) can be bought and sold on a peer-to-peer (P2P) basis but the most popular way to buy, sell, or trade $FIL is through centralized and decentralized cryptocurrency exchanges.
You can buy and sell FIL with cryptocurrency or fiat currency at the following top DEXes and exchanges. In most cases, you will be able to buy FIL with BTC, ETH, or stablecoins.
- Binance - BTC, USDT, BNB, BUSD
- Huobi Global - BTC, USDT, ETH, HUSD
- Gemini - USD
- Kraken - USD, EUR, XBT, ETH
- Bitfinex - USD, USDT
In addition to the exchanges listed above, Filecoin (FIL) is also traded on a wide variety of other exchanges and platforms that enable people to buy, sell, or trade cryptocurrencies.
Hope you enjoyed that read :) Let me know if I have missed something in the comments.