What is Filecoin? Full Beginner’s Guide

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by Adedamola Bada · 7 min read
What is Filecoin? Full Beginner’s Guide
Photo: Depositphotos

Find everything you might need to know about Filecoin – a DeFi project that had been in the works for three years, and the native token of which rose 30-fold in just three months – in this guide.

Filecoin is a storage and filing network built upon a blockchain that employs the use of a decentralized network to convert cloud storage to a pseudocode market. As a decentralized financial (DeFi) system, it is an upcoming service in the digital currency sector. Unlike most centralized systems it provides a seamless transaction experience without the need for a third-party system.

Most centralized systems are usually not as protected and encrypted as decentralized exchanges, which is why they incur losses in millions yearly. Given the rate at which data is being created, with this year’s data surpassing the combination of several thousands of years’ data, it is only logical that the demand for extra storage space keeps increasing.

On the service, the users pay a particular sum to keep their files. Users can not only generate revenue by mining the Filecoin token, but also by lending others their hard=drive space to keep files and documents. The transaction is not operated by the Organization, it only provides the platform for several users to meet, lend, and borrow space for files.

Although it is still currently being developed, with the unforeseen coronavirus pandemic slowing down the progress of the project which was officially launched on the 7th of August 2020. However, there have been some interested individuals testing the service.

Filecoin Network: History

The Filecoin network was started in 2017 as a much needed storing solution. The sales of the token, conducted in October 2020, generated the highest ICO recorded so far, raising over $250 million, with the first $150 million generated in less than one hour. Prior to this, there were pre-launch sales that were made that garnered over $50 million for the establishment from up to 150 different investors in the project, although the tokens were sold at a discount three-quarter of the dollar, sparking criticisms from the public; especially given that only those who had raked in at least $200,000 per annum were given access to participate.

At the launch, 70% of all the tokens available for disbursement were allocated to paying space providers on the platform as rewards, with half of the rest going to the team of developers and founder, and the other half divided between the investors and the establishment’s foundation in the ratio 2:1.

The Filecoin network works alongside the IPFS for the filing aspect of the establishment; and the two systems have several similarities and dissimilarities, with the major difference being that the IPFS does not charge users any fee to use, but it does not generate revenue for the user either. The Filecoin charges a fee, but it can also be used to earn money on the platform, usually in the form of the home token digital currency.

There are also other renowned platforms in the same line of business that have network capacities in petabytes, but Filecoin has the anticipation and resources available to surpass even Storj and Sia. Both of which currently boasts of 100 and 2 petabytes in network space respectively.

Using the blockchain on the service, users can contact miners, negotiate a deal, and ensure that their information is properly stored given that the transaction is transparent. For the miners who supply the space to those in need, not only do they get paid for each person that borrows storage from them, they also get a reward from the service for supplying extra space on the internet.

How Does Filecoin Work?

The process entails one user contacting another to pay some amount to store information. The price to be paid is usually gotten through an open selection where all the space providers try to compete with one another for the cheapest rates to charge the user to store a particular data volume.

Two kinds of deals can take place on the platform: Storage and Retrieval. In the former, during storage, the provider will have to keep submitting evidence in installments in earlier dates of discussion that the information kept is intact. The payment will then be made on the due date when the owner wishes to retrieve said information. In the latter, modes of negotiation are almost the same, with the distinction being that the payments would be made in agreed milestones instead of at the end of the contract.

This benefits both parties because the miners earn income through the users and also get rewards from the online service, while the users benefit because the amount to be paid is usually less than what centralized platforms like Apple Cloud and Amazon Web Services charge for storage space.

To ensure transparency and avoid fraud, the space providers must submit periodic proofs to the service to show that they store the data given to them by the users. Once the miners can provide substantial proof of their activities, they are allowed the right to sublet more space and receive their payment.

These proofs must contain the following:

  • Evidence of the reception of data and its encryption to prevent duplication by another storage provider. The evidence must be provided at the beginning and the end of the contract.
  • Evidence that the data is still securely stored must be provided periodically, depending on the type of contract, with some having agreed-upon dates and others being completely random.

Failure to provide proofs when required attracts varied penalties, ranging from the slash in payment to the outright dissolution of the contract.

Execution of messages and transactions on the platform requires a pull on its resources, which is why fees are charged upon every message and transaction. For the messages, the fees incurred by both the lender and borrower of storage space are fixed and usually very minimal, while for the contracts, it is not quite so.

Depending on the data size and duration of the contract, fees are incurred by both parties to the network, with more being from the user as some of it will be directed to the miner’s reward, while the miner incurs lesser fees for every payment received under the contract. The reward gained by the space providers is usually in the form of Filecoin network’s native digital currency – FIL.

Buying FIL is quite easy as they are available on several popular decentralized exchange platforms. They can also be stored on the wallets on the service or other popular wallets that support it.

The conversations between people and miners on the service platform is done through peer to peer communication via protected channels. The transfers between customers are done via two nodes, Storage, and Retrieval nodes:

Storage Nodes are common to most storage platforms. The service rents extra space on people’s hard drives. Using this method can be quite challenging given the limited space available on disk drives; but the service cannot begin to employ data centers, because it would mean a centralized system.

Retrieval Nodes are Filecoin specific. They possess a wide bandwidth and must be closely located to the other nodes on the server. They are intended to swing into action on high network speed, especially when several nodes are active. They act mainly as support for the storage nodes.

Conclusion

Cryptocurrency is the future of the tech and finance world, which is why even more people are looking to get in on the next big thing that can provide revenue.

Filecoin network was a project that had been in the works for three years prior to its official launch. Most centralized exchanges are predicted to fall out of favor with their users, creating an avenue for platforms like this to take the shine. With more and more people supplying storage space for rent, the value of the FIL token is only going to keep increasing. Moving from $1 to nearly $30 in the space of three months is highly impressive.

It is however imperative to note that while projections are in the positive, it could decline due to unforeseen reasons, which is why those with low-risk tolerance shouldn’t invest in new business.

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