Filecoin: Worthy Investment Or Digital Dead End?

Filecoin (FIL) is a decentralised file storage and sharing network that leverages blockchain technology. It is designed to solve the problem of centralised data storage, which is currently dominated by major firms such as Amazon Web Services. Filecoin's decentralised approach to storage puts users and storage providers first, with faster data retrieval speeds than industry leaders. It also has the potential to become the fastest and cheapest way to store data on the internet. Filecoin is rapidly generating interest in the cryptocurrency world, with investors betting that it can disrupt other top tokens like Bitcoin. However, it is hard to predict whether the price of Filecoin will go up or down, and there are risks involved in trading virtual currencies.

Filecoin's value and its potential to increase

Filecoin (FIL) is a decentralised cloud platform that lets users rent out storage space on their computers. It is an open-source cryptocurrency and decentralised storage system. It incentivises users to store as much data as possible by linking data storage with block rewards.

The value of FIL is underpinned by supply and demand forces, akin to a commodity. As of July 2024, the price of Filecoin was $4.34 USD. Crypto analysts have predicted that the price of FIL could reach $9.10 by 2025, with an average trading price of $8.15.

The demand for Filecoin comes from three key actors: storage miners, customers, and investors. Storage miners provide the infrastructure for the Filecoin ecosystem and are incentivised by rewards in the form of FIL tokens. Customers who want to use Filecoin storage need to acquire FIL to pay for their storage contracts. Investors will also play a key role in the demand for FIL, particularly in the initial stages of network development.

The supply of FIL comes from early investors and from 'block rewards', which are the incentive mechanism to encourage the build-out of the Filecoin network infrastructure.

Filecoin's decentralised approach to storage puts users and storage providers first. The platform has data retrieval speeds that outrank industry leaders like Amazon. As the market grows, its infrastructure is designed to improve its responsiveness, with the potential to become the fastest and cheapest way to store data on the internet.

Filecoin's unique value proposition, heavily subsidised contracts, and the increasing demand for data storage solutions, all contribute to its potential for growth and value increase.

Filecoin's incentive system

Filecoin's incentive structure is constructed through a mining system where network miners, decentralised storage providers, and customers all benefit from each other:

• Storage miners receive coins by providing storage and can be either individuals or organisations.
• Retrieval miners receive coins by serving data and act as pre-fetchers of data, delivering the most downloaded files to users in close proximity.
• Clients pay to store and retrieve data, using Filecoin tokens to pay for the storage and retrieval of files.

Filecoin also introduced the concept of a network baseline to its system. This means that instead of minting coins based on how much time has elapsed, block rewards increase as the network's total decentralised storage power grows, ensuring that mining rewards more closely match the utility provided to clients.

In addition, Filecoin uses a combination of existing crypto-economic structures and new ones to meet the network's unique requirements. For example, the introduction of committed capacity sectors allows miners to store proven but empty sectors, demonstrating their readiness to provide storage and allowing them to begin earning block rewards while waiting for client data.

Another key feature of Filecoin's incentive system is the verification of stored data. Sectors with verified data are awarded more storage power and, therefore, more block rewards. This provides an additional incentive for storage miners to store client data.

Filecoin's safety and security

Filecoin is a decentralised file storage and sharing network that uses blockchain technology. It is designed to be secure, scalable, and reliable. However, as with any blockchain-based system, it is vulnerable to security threats.

Security Measures

Filecoin has a number of security measures in place to protect data and the network:

• Encryption: Data stored on the network is protected from unauthorised access through encryption.
• Authentication: Users can authenticate themselves using public and private key cryptography.
• Authorisation: This is enforced through smart contracts.
• Auditing: Regular audits are conducted to ensure data integrity and that it has not been tampered with.
• Proof of Replication: This mechanism ensures that storage providers are storing the files they claim to be and that they are doing so efficiently and securely.
• Proof of Space-Time: This mechanism requires storage providers to prove they still have the file after a certain period, for the duration of the contract.
• Trusted Setup: A mechanism that securely generates cryptographic keys.
• Fault Tolerance: The network can continue to function even if some nodes fail or are compromised.
• Attack Resistance: Built into the protocol to prevent malicious actors from disrupting the network.

Additional Security Considerations

Filecoin also has a strong security culture, with a focus on secure code development and testing, working with external security specialists, and encouraging security researchers to identify and report bugs.

As a decentralised peer-to-peer network, Filecoin has no single point of failure, and all data is encrypted to the highest standards.

Risks and Challenges

While Filecoin has robust security measures in place, it is not without its risks. Like any blockchain-based system, it is vulnerable to 51% attacks, Sybil attacks, and eclipses.

A 51% attack can occur when a single entity gains control of more than half of the network's computing power and misuses it to create fraudulent transactions or deny legitimate ones. Sybil attacks involve an attacker creating multiple identities or nodes to gain control of the network, while eclipse attacks involve an attacker gaining control of a node's connections to other nodes, manipulating its view of the network.

In addition, as a storage provider, you are responsible for managing Filecoin wallets and running systems with 24/7 uptime to avoid losing collateral. This means that a security intrusion could result in downtime or loss of access to systems and storage. Therefore, maintaining proper security and staying up to date with the latest security trends and technologies is crucial.

Filecoin's consensus mechanism

Filecoin is a decentralised file storage and sharing network that leverages blockchain technology. It is an open-source cryptocurrency and decentralised storage system. Filecoin's consensus mechanism is achieved using the Expected Consensus (EC) algorithm, a Byzantine fault-tolerant consensus protocol.

The EC algorithm works by electing a leader from a weighted set of miners, with the probability of a miner being selected being proportional to its currently used storage relative to the rest of the network. This ensures that the amount of storage provided is also used as proof of computation. The EC algorithm has several key properties:

• Each epoch has multiple elected leaders who may propose a block.
• A winner is selected randomly from a set of network participants, weighted according to their storage power contribution to the Filecoin network.
• All proposed blocks are grouped together in a tipset, from which the final chain is selected.
• A block producer can be verified by any participant in the network.
• The identity of a block producer remains anonymous until they release their block.

The EC algorithm involves the following steps:

• A storage provider checks if they are elected to propose a block by generating an election proof.
• Zero, one, or multiple storage providers may be elected. If no providers are elected, a new election is run in the next epoch.
• Elected storage providers must generate a WinningPoSt proof-of-storage to be eligible to submit a block.
• Each potential block producer generates a storage proof using WinningPoSt within a short time window.
• All potential block producers who fail to generate a storage proof are not eligible to produce a block.
• Blocks generated by eligible block producers are grouped into a tipset.
• The tipset that reflects the biggest amount of committed storage on the network is selected.
• The chain state is propagated using the selected tipset.
• The process returns to step one in the next epoch.

Filecoin's use cases

Filecoin is a decentralised file storage and sharing network that leverages blockchain technology to provide users with new opportunities in the market. It is built on the InterPlanetary File System (IPFS) protocol, a peer-to-peer distributed storage network. Filecoin has an incentive layer on top of the IPFS protocol to incentivise contents to be reliably stored and accessed.

Filecoin enables several use cases, including:

• Web3 native NFT and metaverse/game assets storage
• Incentivised permanent storage
• Archiving Web2 datasets as a cheaper alternative to cloud storage
• Decentralised storage for NFTs
• Music and video streaming
• Metaverse and gaming
• Audio and video

For example, NFT.Storage utilises Filecoin to provide a simple decentralised storage solution for NFT contents and metadata. Shoah Foundation and Internet Archive leverage Filecoin to back up their content. Filecoin also supports audio and video files, allowing Web3 platforms such as Audius and Huddle01 to leverage Filecoin as the decentralised storage backend for music streaming and video conferencing.

Frequently asked questions