What is Filecoin A Guide to Decentralized Storage

In the universe of cryptocurrencies and blockchain technologies, new projects are emerging, which seek to offer unique and innovative solutions to solve existing problems. The familiar cryptocurrencies are only the most superficial layer of what can be done with blockchain and decentralization. Another obvious path leads to decentralized custodial services lying within the area of Filecoin`s specification, i.e. the cryptocurrency, which review is the subject of this article.

Understanding Filecoin

Based on blockchain and using its native FIL token, the Filecoin facility offers a breakthrough to data retention problems, aiming to become an “Airbnb for data”. Made simple, it is a pool where anyone can rent a certain hard disk space and get paid for it.

What is Filecoin?

Filecoin is a system of decentralized storage for files of various formats, including NFT developed by Protocol Labs. The target of the project is to move away from the traditional scheme of storing information on centralized servers of large corporations. A decentralized approach increases the security of the process and allows bypassing censorship.

To create such a system, Protocol Labs has offered to use the free memory of users’ computing devices around the globe. In return for connecting to the system, equipment owners can earn cryptocurrency. This approach allows the optimization of the market of data storage space rental and reduces the fees of services.

The system keeps the information about the file transfers and their recipients on the blockchain. The technology protects records from falsification.

The project is based on the InterPlanetary File System (IPFS), which integrates a network of peer-to-peer nodes, each of which stores only a portion of the total files of the entire system. Thus, IPFS provides data storage, and the Filecoin network allows you to rent out free space on your computer’s hard disk in exchange for FIL rewards. 

What is File coin?

FIL is the Filecoin project’s native token, which is used as an economic incentive to store data and other Filecoin participants. Moreover, FIL is engaged in retrieving data, paying block rewards to validators, and charging commissions. FIL holders are also allowed to vote on the offers for the future of the Filecoin network. The FIL token is freely traded on most major crypto exchanges and can be purchased for cryptocurrency or fiat.

How does the Filecoin network work?

The developers divided the project’s audience into three categories. 

1. Clients. In this category, the developers have included users who place requests for storing their data in the system.

2. Storage providers, i.e. participants of the system, which are responsible for storing data. The information is received by them in a hashed form. Storage miners place data on their hard disks and record information about it in the blockchain. Clients, in turn, receive private keys to access the data.
3. Retrieval providers, i.e. participants of the system that are engaged in returning data from the storage miners to the owners of the files.

The project works based on Proof-of-Replication (PoRep) and Proof-of-Spacetime (PoSt) algorithms. Proof-of-Replication algorithm is responsible for synchronizing different copies of data in the project system. PoRep helps the platform confirm the number of copies of files in storage with miners. In case of violation of the programmed conditions, it is thanks to Proof-of-Replication that the system provides the evidence necessary to sanction a network participant. 

Proof-of-Spacetime algorithm helps the system to check whether the miner has the files that were transferred to him for storage.

The Filecoin blockchain supports smart contracts, moreover, the Filecoin Virtual Machine (FVM) allows smart contracts to be ported to the Ethereum Virtual Machine (EVM).

Key Features and Advantages

Filecoin’s Key Features

The decentralized architecture allows data to be distributed across a global network of nodes, reducing the risk of data loss and increasing privacy.

The network’s consensus mechanisms ensure secure data storage and retrieval, maintaining the integrity of stored files at all times. This contrasts with traditional cloud storage providers that rely on centralized servers, which are vulnerable to security breaches, outages, and monopolistic practices. Crucially, outages in Web3-centric platforms, undermine user trust and satisfaction and can lead to lawsuits.

Filecoin’s network participant incentive model encourages users to provide their unused storage capacity in exchange for FIL tokens. This approach incentivizes network boosting, resulting in increased storage capacity and highly competitive сustody prices.

Filecoin offers a decentralized operating model and robust consensus mechanisms to ensure high security of stored data. Over and above, another key advantage of Filecoin lies in its scalability. The network grows organically as more users join the ecosystem. This ensures that storage capacity remains available even as demand increases.

Detailed exploration of Filecoin’s features

The Filecoin ecosystem consists of several key components that work together to provide a decentralized storage network.

1. IPFS, on top of which Filecoin is built to create a decentralized storage network.
2. Filecoin network, which consists of nodes that provide data storage and retrieval services in exchange for FIL tokens. Nodes earn FIL by renting out their unused storage space to other users in the network.
3. Filecoin mining, when miners earn FIL based on the amount of storage they provide.
4. Filecoin market, where storage providers and users can buy and sell storage space on the network, and prices are set based on the amount of custody space available as well as the demand for it.
5. Filecoin community, which consists of developers, users, and enthusiasts who support the growth and development of the Filecoin network.

Advantages and disadvantages of Filecoin?

Filecoin and its underlying blockchain technology offer several unique features and advantages over traditional storage solutions:

• A decentralized data storage scheme with increased reliability and availability;
• Ability to earn FIL tokens for keeping data, which incentivizes network participants to contribute their resources;
• Variety of mining mechanisms that allow a user to choose the best earning method;
• Great usage potential in numerous industries such as media, healthcare, finance, etc.;
• Large investors and experienced developers on the team.

Like all projects, Filecoin (FIL) also has some drawbacks:

• The project is quite complicated to comprehend for inexperienced users;
• There are still few practical examples of Filecoin being applied in real life.

Investment and Mining

Is FIL a Good Investment?

Filecoin crypto trading carries the potential for a significant return on investment (ROI) and the associated risks. Despite having some competitors in the context of a decentralized storage service, Filecoin has managed to retain many of the features that make it unique and superior to other names on the market and engage more customers.

An optimistic forecast suggests that FIL could reach $90 in 2024, supported by increasing demand and growth in the decentralized storage solutions market. While the upside outlook is attractive, the path to $90 may be covered with uncertainties, including overall market sentiment and broader economic factors that affect all cryptocurrencies.

How to Mine Filecoin

Filecoin is mined using a consensus mechanism called Proof of Space-Time using specialized hardware called Filecoin miners.

You will need specialized Filecoin miners equipped with fast storage devices. Filecoin Miners use Lotus software to participate in the mining process.

Before you can start mining, you will need the following:

• A powerful processor

A computer with a CPU with virtualization support and more than 8 cores, such as an AMD EPYC, Intel Xeon Scalable, or IBM Power9 processor. The contribution of processing power makes Filecoin mining more profitable.

• Large disk space

At least 1TiB of NVMe-based disk space is required to store the cache.

• Powerful RAM

RAM of at least 128 GB (along with 256 GB of swap).

• Efficient internet connection
• Filecoin wallet

You can create it using either the official Trust Wallet app or an online platform such as Coinbase.

The Future of Decentralized Storage

The bulk of information on planet Earth is growing rapidly and following Seagate estimations by 2025 it will amount to 175 zettabytes. Sooner or later, humanity will have to find a more efficient way to store information. The big question is whether decentralized data retention will catch on. Customers may start using such a decentralized storage service only if it is as easy for them similar to what competitors offer in the form of Amazon, Dropbox, and so on.

However, decentralized storage technologies still have a future. People who have a free hard disk space can be rewarded in cryptocurrency for storing files belonging to others without compromising privacy. Considering how many web pages and files that existed in the early days of the Internet are now lost, decentralized storage can help prevent our digital “legacy” from disappearing without a trace in the perspective.

Conclusion

The Filecoin ecosystem is a powerful and flexible tool for storing data in today’s world. Thanks to its unique blockchain technology and active community, Filecoin continues to evolve, offering new opportunities for users and developers. Applications and services on the platform promise to revolutionize many areas of life, making data storage not only secure but also profitable. Filecoin is not just a project, it is the future of record keeping.

FAQ

How can I use Filecoin for decentralized storage?

How does Filecoin work? The process is as follows:

• A client pays a fee and leaves a request to store the information.
• Miners offer their fees for storage.
• The user chooses the appropriate miners.
• The file is to be broken into many fragments, which are encrypted and sent to the selected miners.
• Information about where the fragments are placed and how to reassemble them is stored on the blockchain.
• To reassemble the file from the fragments, one must possess a secret key that is held only by the owner of the file.

Customers without intermediaries buy space from miners to preserve their files. The miners compete based on price, reputation, and speed.

What is the Filecoin marketplace?

Filecoin offers app developers significantly cheaper options for storing data in a secure, unique format.

Filecoin is more than a simple blockchain project as it allows the blockchain to be used outside the financial sector as well. After all, Filecoin can store any array of data: for example, documents, video and audio content, chats, and social network data.

Who are the main competitors of Filecoin in the decentralized storage space?

Besides Filecoin, there are other solutions for decentralized data storage. The main competitor is BitTorrent. This network for file swapping was created back in 2001. In July 2018, it was acquired by the TRON platform and continued to develop as a blockchain project.

Another major blockchain for data persistence is Arweave. The main network was launched in 2018. Before Filecoin, it was Arweave that was used in combination with the IPFS protocol. For example, IPFS in conjunction with Arweave was for a long time the only way to securely store files from NFTs.

Disclaimer: Please keep in mind that the content of this article is not financial or investing advice. The information provided is the author’s opinion only and should not be considered as direct recommendations for trading or investment. Any article reader or website visitor should consider multiple viewpoints and become familiar with all local regulations before cryptocurrency investment. We do not make any warranties about reliability and accuracy of this information.