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Launched in 2017, Filecoin is a decentralized, peer-to-peer (P2P) storage network. The network allows users to buy and sell unused storage space, thus creating a market for storage on the internet. The protocol incentivizes miners to provide storage space and retrieve files by rewarding them with FIL, the Filecoin network’s native cryptocurrency. Miners are also rewarded for providing additional services, such as data replication and verifying the integrity of stored data.

Filecoin is suitable for a wide range of use cases, including secure backup, distributed applications, and content distribution. Its decentralized storage network makes it possible for data to be securely stored across multiple nodes without the risk of data loss or downtime. Furthermore, users can be assured of data privacy and protection from censorship, as the network is designed to prevent unauthorized access and manipulation of stored data.

Primary Use Case

The Filecoin network’s primary function is to generate a market for data storage on the Internet. Digital storage is an essential part of modern computing infrastructure. As data are created each day, the need for reliable, efficient, and cost-effective storage continues to grow. Despite being the largest network within the blockchain ecosystem, Filecoin joins a growing space of highly valued entities.

Data Storage Market

There are two broad categories of digital storage: centralized and decentralized. Centralized storage is provided by large cloud services providers, such as Microsoft, Google Drive, Amazon Web Services, and others. 

Decentralized storage is a blockchain-based approach that involves storing data on a network of nodes instead of a centralized server. Decentralized storage offers several advantages over centralized storage. First, it provides greater data sovereignty, as users can maintain control over their own data. Second, it's more resilient to cyberattacks and outages, as the data is distributed across a network of nodes. Finally, it can be more cost-effective, as users only pay for the storage space they use.

Decentralized vs. Centralized: Costs

Decentralized storage providers have begun to compete with centralized providers on several metrics, including cost. For example, AWS charges $23/TB/month for up to 50 TB of data stored using its standard S3 storage product. In contrast, decentralized storage networks offer a lower price point.

In relative terms, decentralized storage networks are generally cheaper than their centralized counterparts. Decentralized storage networks, such as Storj, range from 70% to 99% cheaper than Amazon S3. Sia and Filecoin achieve lower costs by leveraging an open marketplace model where the price of storage is a function of supply and demand cycles. Storj, however, uses fixed pricing for storage use on its network. Arweave, which guarantees perpetual storage, prices its storage with a ~200-year time horizon, making its upfront costs higher than those of its decentralized competitors.

In contrast to cloud storage, which relies on huge data centers located far from end users, Filecoin helps storage providers to offer decentralized storage services through unused space on computers and hard drives. The growth of data generated globally has created an industry valued at over $46 billion in 2019. Content delivery networks (CDNs) are valued at over $12 billion, as they provide data storage closer to users and improve content delivery speed.

The current market for cloud storage is highly concentrated, with the top-five providers controlling 77% of the global IaaS market, making it difficult for new entrants to compete. Small entities face challenges in competing with established providers due to their reputation, infrastructure, and network effects.

In addition, the data stored on Filecoin vary in terms of access frequency. While some data is accessed frequently and needs to be readily available with low latency, most data is rarely accessed and users only require assurance that it's available when needed.

Access layers, such as Filebase for Sia and Bundlr for Arweave, abstract away the complexities of interacting with the underlying storage provider. However, some providers may charge a premium for ease-of-use services, while others may choose to subsidize costs to grow their user base and increase demand.