Filecoin: A Worthy Investment Or Risky Business?

Filecoin is a decentralised file storage network that uses blockchain technology to allow users to rent unused hard drive space. It is a form of digital cryptocurrency, also referred to as FIL Coin. The project raised $200 million in its Initial Coin Offering (ICO) in 2017 and officially launched its main net on October 15, 2020. Filecoin has been popular in China since 2018, and Chinese investors have been speculating on the price of FIL tokens. The price of Filecoin has been volatile, shooting up to $269 after its release, but also experiencing a significant downward trend. In this context, it is worth examining the potential of Filecoin as an investment opportunity.

Filecoin's potential to revolutionise the cloud and data storage industry

Filecoin is a decentralised file storage network that leverages blockchain technology to create a decentralised file storage system. It was developed by Protocol Labs and built on the InterPlanetary File System (IPFS) as an incentive layer. Filecoin allows users to rent unused hard drive space, with the owners of this free storage rewarded with the project's token, FIL.

The decentralised nature of Filecoin allows for peer-to-peer file storage and retrieval design. The platform has a native virtual currency, FIL, which is used to reward miners. The network is inspired by Web3, an advanced software development architecture that eliminates centralisation. Filecoin can provide file storage services to other decentralised platforms as well. Furthermore, the network projects a way to enable transaction interaction with other blockchain platforms, promoting interoperability.

Filecoin splits each user's data into fragments and spreads it across the network using secure communication. Each Filecoin miner has a tiny fragment of the data, which only the data owner can access with a passkey. To ensure that each Filecoin miner upholds the tenets of the network and does not act maliciously, Filecoin requires each miner to have enough space to store clients' data and hold them throughout the lifetime of the deal. Filecoin can ensure these two steps are upheld by using the Proof of Replication (PoRep), which requires miners to prove that they have stored the data in a unique way that no other miner can replicate or copy.

One advantage of Filecoin is its ability to decentralise data across several nodes while making it easily accessible and affordable. Another is that users can boycott centralised platforms like Amazon Web Services (AWS), enabling a better user experience and overall satisfaction.

Filecoin raised $200 million in its Initial Coin Offering (ICO) in 2017, with top names in venture capital like Sequoia Capital and Andreessen Horowitz investing. The ICO was followed by testnet postponement until 2019. Filecoin's mainnet launched in October 2020, and it is currently available on over 30 exchanges, including Binance, Coinbase, and Kraken.

Filecoin's decentralised network for digital storage could potentially revolutionise the cloud and data storage industry by providing users with a platform to rent out their spare capacity and receive filecoins as payment.

Filecoin's liquidity problems

Filecoin's token, FIL, has faced liquidity problems, forcing some miners to borrow the token at high rates. The Filecoin blockchain, from Protocol Labs, includes decentralized file storage (the Interplanetary File System, or IPFS) and a content distribution network. Miners require FIL tokens as collateral to complete "deals" to provide storage for users. The more space miners provide, the more tokens they need.

The lack of liquidity in tokens required to mine on the proof-of-stake storage network is forcing desperate miners to borrow FIL rather than going into the open market to purchase tokens. The token's price skyrocketed to $114 when the mainnet launched on October 15, 2020, settling at around $28 as of press time. However, that is still too expensive for many miners who have already invested a lot of money in hardware rigs to support the network. Miners are paying large investors an annual percentage rate as high as 40% to borrow FIL.

The Filecoin network's economic model has been called into question due to this dynamic, with some arguing that the project is being insanely greedy. Protocol Labs and the Filecoin foundation are keeping twice the number of coins that investors will get. For example, investors paid a maximum of $0.75 per coin in an advisor sale, while the ICO price started at $1.3, almost double the advisor price.

To address liquidity issues, a proposal was made to allow a substantial fraction of block rewards to be immediately available for withdrawal, providing greater liquidity and decision freedom for storage miners. This proposal was accepted and implemented, with the hope of improving the liquidity situation for miners.

Filecoin's token sale and economy

Filecoin's ICO, which began in 2017, raised over $200 million in investment via CoinList, a joint project between Filecoin developer Protocol Labs and startup investment platform AngelList. The ICO was followed by testnet postponement until 2019.

The launch day brought a large influx of Simple Agreements for Future Tokens purchases (claims on tokens once the Filecoin network went live), and quite a few technology issues due to the hurry by accredited investors over-running the CoinList website. Only the most accredited investors were able to join in on this opportunity, including Union Square Ventures, Sequoia Capital and Andreessen Horowitz.

The Filecoin blockchain, from Protocol Labs, includes decentralized file storage (the Interplanetary File System, or IPFS) and a content distribution network. It went live on October 15, 2020.

Every day a smart contract on the Filecoin blockchain gives investors a small amount of FIL over the course of six months, one year, or three years. It depends on the vesting agreed to by investors.

The Filecoin project's IPFS is a distributed rival to Amazon's S3 or Google Cloud storage product. While Amazon S3, for example, is centralized with a standard client-server model, Filecoin uses miners as its storage hosts. In return, miners are paid in Filecoin.

The Filecoin network is facing liquidity problems, forcing some miners to borrow the native token at outrageous rates. The lack of liquidity in tokens required to mine on the proof-of-stake storage network is forcing desperate miners to borrow FIL rather than going into the open market to purchase tokens. The token's price skyrocketed to $114 when the mainnet launched on October 15, 2020, settling at around $28 as of press time.

The Filecoin ICO was capped at 200M FIL. The price function, however, was unclear. It didn’t state whether a transaction amount impacts the total raised before or after the calculation of the price.

The ICO raised $52M in the presale, with a minimum of 69M and a maximum of 99M Filecoins sold. The advisor's maximum price was $0.75, leaving 131M-101M Filecoins for the public.

The price function was as follows:

• Price at $100M raised = $2.5
• Price at $200M raised = $5

The flaws in Filecoin's token sale were that they gave an amazing deal to their buddies and were being insanely greedy. Early clickers were incentivized, and the price was unknown. Protocol Labs and the Filecoin foundation are keeping twice the number of coins that investors will get.

Filecoin's popularity in China

Filecoin ($FIL), a decentralised file storage network created by Protocol Labs, has become a sensation in China. The project raised $200 million in its Initial Coin Offering (ICO) in 2017, and Chinese firms started marketing Filecoin cloud mining services the following year. Filecoin is considered easier to mine because specialised mining devices are not required.

The popularity of Filecoin in China can be attributed to several factors. Firstly, Chinese investors are speculating on the price of $FIL tokens, and some exchanges offer $FIL trading on an IOU basis. This has resulted in a trading volume of over $100 million in 24 hours, even before the Filecoin mainnet launch.

Secondly, China's love for Bitcoin and cryptocurrency mining activities has contributed to the uptake of Filecoin. While Bitcoin trading is banned in China, most of Bitcoin's mining power is still concentrated in the country. Chinese companies have also been actively developing Filecoin mining hardware, and Chinese investors have been speculating on FIL's price.

Thirdly, the uneven domestic investment landscape in China has alienated middle-class individuals looking for attractive investment opportunities. As a result, they have turned to reputable cryptocurrency or blockchain-based projects like Filecoin, which is associated with leading venture capital firms. The simplicity of Filecoin's storage mining tag also makes it appealing to retail miners and investors.

Furthermore, Chinese officials have encouraged Filecoin mining as its decentralised cloud storage purpose aligns with China's agenda to build out its own internet infrastructure and enhance its defence capabilities in the ongoing tech Cold War. Major Chinese companies, such as Xinyuan and Ninth City, have invested heavily in Filecoin mining, and Chinese retail investors have actively promoted FIL on social media apps like WeChat.

In summary, Filecoin's popularity in China can be attributed to a combination of factors, including investor speculation, the country's enthusiasm for cryptocurrency mining, and the support from Chinese officials and companies. The simplicity and potential of Filecoin as a blockchain-based project have also contributed to its success in the Chinese market.

Filecoin's price action and its implications

Filecoin's price has been volatile since its launch in October 2015. The price skyrocketed to $114 when the mainnet launched, settling at around $28. Prices shot up to $269 according to data from Binance, but the excitement was short-lived as it soon plummeted by 88%. The price currently sits at $33.04.

The unusual price action has led to criticism from the community, including crypto personality Justin Sun, who alleges that the phenomenon is an exit scam. Sun lambasted the Filecoin team for allowing tokens to be dumped on other exchanges without "community consent".

Filecoin's price action has also been influenced by liquidity problems, with miners forced to borrow the native token at high rates. This has created a lending market, with some paying an annual percentage rate as high as 40% to borrow FIL.

The price of FIL is also impacted by speculation, particularly in China, where it is considered easier to mine due to the lack of specialised mining requirements. Chinese firms have been marketing Filecoin cloud mining services since 2018, and Chinese investors have been speculating on the price of FIL tokens.

The price of FIL is also affected by the network's unique features. Filecoin is a decentralised file storage network that allows users to rent unused hard drive space, with the owners of this free storage rewarded with FIL tokens. The more storage a miner provides, the more tokens they need. Filecoin's self-healing feature, which checks if files are stored correctly and detects faulty miners, also impacts the price as it affects the distribution of loads to miners.

Analysts are sceptical about FIL's ability to sustain its current price, predicting that the downward trend will continue in the short term. However, Filecoin's potential as a game-changer in the crypto space, with its well-thought-out project and legitimate need for blockchain, could influence future price action.

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