What is Filecoin? All you need to know

What is Filecoin?

Filecoin, a highly anticipated decentralized storage solution, raised a record $257 million in its 2017 ICO, the largest in history. Although still in development without an alpha release, early testers are assessing the network. Backed by respected industry figures and venture capitalists like Y Combinator and Andreessen Horowitz, Filecoin's legitimacy is bolstered by its experienced team. This article examines whether the project lives up to its hype.

The challenges of file storage and data utilization

Existing centralized data storage solutions such as Amazon and Google are vulnerable to attacks, as evidenced by high-profile breaches like the Equifax hack. Moreover, the exponential growth of data creation poses a persistent challenge. Humanity is set to generate more data this year than in the past 5,000 years combined, indicating an unabated demand for storage.

Filecoin aims to address this demand by leveraging blockchain technology to establish a decentralized network of storage nodes. However, it faces competition from platforms like Storj and Sia, which have already entered the market and are establishing user bases. Decentralized storage is gaining momentum as a more secure storage option.

Filecoin's unique proposition lies in user control. While platforms like Storj and Sia dictate pricing, Filecoin introduces a marketplace where uploaders and hosts engage in bidding. This incentivized marketplace is poised to drive down storage costs over time. Additionally, Filecoin grants users the flexibility to prioritize factors like speed, redundancy, or cost when placing orders.

Two types of nodes

A significant aspect of Filecoin's value proposition lies in its distinct architecture. While many networks typically employ a single, standardized type of node, Filecoin presents a dual solution.

1. Storage nodes

This concept will resonate with those familiar with Storj or Sia. Individuals can lease out spare hard drive space on their computers, which Filecoin will utilize to store encrypted segments of other users' files.

Filecoin aims to incentivize mid-sized storage nodes, as large data centers would introduce centralization, contrary to Filecoin's objectives. Conversely, small operators could pose challenges due to irregular connections and limited available space.

2. Retrieval nodes

Filecoin introduces retrieval nodes, a distinct feature of its system, which must be in close proximity to the storage nodes on the network. However, retrieval nodes also require high bandwidth and low latency to operate effectively. They receive compensation when they quickly locate and retrieve a file for a user.

In practical terms, this suggests that the most successful retrieval nodes will likely operate on fast connections in densely populated areas where numerous storage nodes operate concurrently.

How Filecoin works?

As a Filecoin user, you'll specify the file for upload and pay a nominal fee to list your upload request on the Filecoin exchange. There, storage nodes will compete to secure the rights to store your file through a bidding process designed to secure the lowest price for the uploader. The Filecoin exchange operates as a decentralized platform, with its order book residing entirely on the Filecoin blockchain.

Subsequently, Filecoin encrypts your file and divides it into multiple segments. These segments are then distributed to various points on the network that have bid to host your file. The precise locations of all segments are recorded on the Filecoin blockchain in an allocation table. To retrieve all segments of your file, you must possess the file's private key. Only the file owner has access to the private key, ensuring that only they can locate, reassemble, and decrypt the file.

Distinctive consensus protocol

Filecoin's developers have devised a unique consensus mechanism tailored specifically for the platform. Consensus mechanisms serve as incentive structures for securing the network. In Bitcoin's proof of work consensus, the incentive lies in providing substantial processing power for the hashing algorithm.

Filecoin's innovative approach involves using consensus to incentivize hard drive space rather than computing power. The proof of replication consensus model mandates that miners demonstrate to a verifier their creation of multiple copies of various files on the network. This enhances redundancy and reliability while encouraging storage nodes to contribute additional disk space to the network.

While the comprehensive version of the proof of replication consensus mechanism remains undisclosed to the public, making it challenging to delineate its specifics, the development team has issued a white paper containing preliminary explanations.

Protocol labs

A significant portion of the enthusiasm surrounding Filecoin stems from its development team. Protocol Labs is highly regarded in the realm of peer-to-peer technology, responsible for projects such as IPFS, libp2p, IPLD, Multiformats, and CoinList. Filecoin capitalizes on these existing technologies, particularly IPFS, which already provides much of the infrastructure for peer-to-peer file transfer and storage.

The team boasts extensive experience in blockchain technology, having a deep understanding of open-source deployment and familiarity with the code bases of other projects in the field. They have specifically acknowledged Ethereum and Zcash as influences on their approach to implementing Filecoin's blockchain and smart contracts.

Before the Filecoin ICO, Protocol Labs operated with a relatively modest budget of $3.5 million, successfully developing these various projects with limited resources.

Filecoin Token (FIL) ICO

The Filecoin ICO stands as the largest token sale to date, amassing an impressive $257 million. Both the pre-sale and ICO collectively represent 10% of the total token allocation.

Exclusive to accredited investors, as defined by U.S. regulations, the ICO targeted individuals with incomes exceeding $200k or net assets surpassing $1 million. While Filecoin aimed for regulatory compliance, many community members felt marginalized by the exclusion of smaller investors.

Investors had the option to vest their tokens over varying timeframes to secure a discount on the initial purchase. Sold under a SAFT (Simple Agreement for Future Tokens) arrangement, no FIL tokens currently exist, and they will remain nonexistent until Filecoin launches its genesis block. Any claims of ownership or offers for sale of FIL tokens are fraudulent.

Token allocation

At genesis, 30% of the allocation will be generated and distributed: 15% allocated to the development team, 10% to investors, and 5% to the Filecoin Foundation. The substantial 15% team allocation, coupled with an additional 5% to the Foundation, appears relatively high, particularly given the substantial funds raised.

The remaining 70% is earmarked for mining rewards, which miners will earn with every block as compensation for replicating files on the network.

In conclusion, Filecoin possesses both the team and the financial resources to make a significant impact in the decentralized storage space. Nevertheless, it faces competition from established players in the market. The ultimate success or failure of Filecoin will hinge on the usability and resilience of its product.