What is Filecoin? And how does Filecoin mining work?

Our most valuable resource in this day and age is information. Filecoin is building a way to securely store more information.

What is Filecoin?

Filecoin is the Airbnb of data storage. Created by Juan Benet, the founder behind IPFS, Filecoin has essentially established an efficient marketplace for storage space with bids/asks matching.

Filecoin incentivizes ‘miners’ to offer their hard drives and offer it up to the network and in exchange get $fil currency to incentivize storage. The argument is that decentralized storage can unlock spare, unused capacity at zero marginal cost. Data is stored encrypted by its owner, such that the storage provider can’t access it.

With a market cap of $5 billion and a circulating supply of 139 million coins, Filecoin is backed by the Sequoia, A16z and the Winklewoss Twins (the same guys who allegedly got cheated out of Facebook)

What is the problem Filecoin is trying to solve?

Like most of the web 3 and decentralized ecosystem, Filecoin is fighting primarily an ideological battle with the monopolization of tech in the hands of few companies.

So the key problems that Filecoin is trying to solve:

1)      3-5 providers have an oligopoly on data storage

2)      Users don’t have full control of their data and its usage

3)      Data storage pricing is not transparent and is largely determined by what the tech giants decide

4)      Data storage is not protected from deep fakes

5)      Storage capacity across the world is not being optimized to its most efficient usage

Arguably, not a lot of the above problems seem particularly pertinent currently. Are these edge cases, concerns of a few technies? Hard to say. But what is niche today, could very well be mainstream in 5 years.

The good thing is that data storage via Filecoin is roughly 1/20th the cost of a typical data storage company.

How filecoin mining works?

Filecoin is a proof of storage network built on IPFS. Tradition proof of work consensus mechanisms incentivize miners to buy ASICs or GPUs.

Filecoin mining is unlike Bitcoin or other blockchain currency mining. Miners in Filecoin contribute storage capacity that is used on ‘deals’ with people looking to store data. There are 2 types of miners – Storage miners and Retrieval miners. Storage miners earn Filecoin when they store data and offer cryptographic proof of their data storage from time to time. Retrieval miners act like the veins and efficiently deliver the content stored to the end-user.

This Twitter thread does a good job of simplifying it.

How does Filecoin mining make it more secure than AWS?

AWS or Dropbox offer contractual protection that your data is safe and untouched. Filecoin obviously can’t do the same.The inherent challenge with decentralized storage tech is that the integrity and security of data must be offered up through the blockchain mechanism.

To verify storage on Filecoin’s decentralized network, you need to cryptographically prove two things.

·         You need to prove that the right set of data is stored in a given storage space. (Proof of Replication)

·         You need to prove that the same set of data has been stored continuously and consistently over a given duration of time. (Proof of Spacetime)

Read more here if you are interested in the technicalities

What is the bull-case for Filecoin?

59 ZetaBytes of data was generated in 2020. This is predicted to grow to 175ZB by 2025. For context, 1 zettabyte is 8,000,000,000,000,000,000,000 bits.

95% of the data generated is deleted. Why? Because storage is expensive. After a point of time, even day-to-day mild users of mobiles will need to start paying for data storage as their photos and videos stack up.

So the addressable market for Filecoin is significant, and it isn’t necessarily competing with AWS. It is unlikely that enterprise users are going to be using decentralized and distributed storage anytime soon when they can use AWS.

Filecoin though, allows smaller data centres to compete with the likes of AWS by offering an aggregated alternative. Eventually Filecoin really widens the market size of data storage that the company is going to store.

In additional, an entire ecosystem of dApps will need storage space and using a centralized provider like AWS may just be against their core ethos.

Any competitors?

There are other coins that take a similar off-chain storage, on-chain record of the storage deal but on the ethereum network such as Storj.