What is Filecoin (FIL)?

Filecoin is a cryptocurrency designed to power a global network of computer operators who provide file storage and sharing services.

The project’s founders envision it becoming the fastest and most cost-effective way to store data on the internet—if widely adopted. Importantly, Filecoin’s decentralised nature ensures that its file exchange process is free from reliance on a central authority, making it resistant to censorship by governments or other entities.

The network operates through miners who dedicate computing resources to support the system. These miners earn payments in Filecoin for offering storage space to users. Conversely, users pay miners for storing, retrieving, or distributing their data.

Filecoin is built on top of the Interplanetary File System (IPFS), another decentralised protocol for managing files. While IPFS is free to use, it doesn’t provide financial incentives to participants. Filecoin, however, introduces a monetary model, making it a potentially profitable platform for miners.

It’s worth noting that Filecoin is one of several protocols competing in the decentralised storage and file-sharing space, each aiming to leverage cryptocurrency to disrupt traditional data storage solutions.

How Does Filecoin (FIL) Work?

Data Storage

‍Users pay miners to store their data on the Filecoin network. The cost is determined through an open market, where miners compete to offer the lowest price. Filecoin anticipates this “hypercompetitive” environment will drive prices lower than centralised options like Amazon Web Services.

Incentives for Miners

‍Miners are rewarded in Filecoin tokens for providing storage. The more reliable and extensive their storage offerings, the higher their chances of earning rewards.

Proofs of Storage

‍To ensure trust, miners must complete computational processes to prove they are storing data as claimed. Filecoin uses two unique mechanisms:

Proof-of-Replication

Verifies that the miner has stored the promised copies of the data.

Proof-of-Spacetime

Confirms that the data has been stored securely over the agreed period.

Filecoin’s Storage Markets

The Filecoin network introduces a marketplace for storage akin to financial markets, where:

• Users bid for storage based on their needs.
• Miners compete based on price, capacity, and reliability to offer storage space.
  This creates a dynamic ecosystem where supply and demand dictate prices.

Mining on Filecoin

Filecoin miners fall into two categories:

1. Storage Miners: Provide disk space for storing user data. Anyone with spare hard drive capacity can join by running Filecoin’s software.

2. Retrieval Miners: Focus on retrieving data and enhancing its delivery speed through services like caching or content delivery networks.

By combining decentralised storage with blockchain technology, Filecoin offers an innovative alternative to traditional cloud storage, rewarding participants while ensuring transparency, efficiency, and security.

What Is the History of Filecoin (FIL)?

Filecoin is an open-source software developed by Protocol Labs, the creators of innovative technologies like IPFS and Libp2p, designed to replace traditional internet protocols. For instance, IPFS aims to revolutionise how web addresses work by offering an alternative to the Web’s hypertext protocol (http://).

Protocol Labs was founded by Juan Benet, a Stanford-trained computer scientist who previously co-founded Loki Studios, a game development company acquired by Yahoo in 2013. Following this, Benet launched Protocol Labs through the prestigious Y Combinator startup accelerator.

The company has garnered significant backing from renowned investors, including Digital Currency Group, Stanford University’s StartX accelerator, Coinbase co-founder Fred Ehrsam, and AngelList founder Naval Ravikant.

In 2017, Filecoin made waves with its record-breaking initial coin offering (ICO), raising $257 million between August and September. This fundraising effort attracted prominent venture capital firms like Sequoia Capital, Andreessen Horowitz, and Union Square Ventures, marking the largest ICO at the time.

What Gives Filecoin (FIL) Value? 

Utility through Proofs

Unlike traditional mining, Filecoin miners earn rewards for providing disk storage—offering a service that directly supports the network's function. Proofs of storage and spacetime ensure that miners are performing their roles reliably.

Competitive Pricing

Filecoin positions itself as a cost-effective alternative to centralised storage providers like Amazon Web Services, thanks to its open and competitive storage marketplace.

Decentralisation Benefits

Filecoin’s network is designed to be resistant to interference from corporations or governments, providing a secure and tamper-proof platform for data storage. This could attract users who value privacy and distrust centralised services.

FIL Supply and Value Proposition

Like Bitcoin, FIL has a capped supply, with a maximum of 2 billion tokens ever to be created. If Filecoin’s network grows and more users adopt it for data storage, the demand for FIL will increase. With a fixed supply, this rising demand could drive up FIL’s value over time.

Filecoin’s innovative approach to decentralised storage, paired with its capped token supply, positions it as a potential game-changer in the cryptocurrency and cloud storage industries.