Filecoin: Not something you should play with

Found something very strange.

After the entire market has experienced several huge market trends including public chains, DeFi, BTC breaking through 6.9K, and NFT, Filcion has demonstrated a unique influence among domestic retail investors.

Many friends may not know those DeFi blue chips that have increased by hundreds of times; they may not pay attention to Cryptopunks and BAYC that have increased by more than a thousand times; they may not hold BTC and ETH. But from the community and readers, we always hear two questions: one is "Can FIL mining machines still be purchased?", and the other is "Is there still a chance for FIL?"

Seven out of ten people have mining machines, and two are still making moves.

This is true for small investors and KOLs alike.

What I heard was that the KOLs were all using a tone of "let me say something fair" to constantly describe the beautiful imagination of Filecoin's present and future. For example, "Grayscale has a position in Filecion", "IPFS is a super track" and even "How rich the Fil team is".

Another meaning of " Let me be fair " is "I'm sorry, they really gave too much."

Of course, this does not mean that we have received any benefits from the project party, but the interest chain behind it is so entangled that we have to work together to carry the sedan chair.

Regarding filecoin, I should have just used the "Zhihu style" of "the water is too deep" and "if you know, you know, if you don't know, there is nothing you can do" to get over it. Later, I thought that being a "prophet" is also good, so I still plan to write an analysis of Filecoin.

There are two perspectives for analysis:

1. From an investment perspective, look at Filecion and its ecosystem.

2. From an industry perspective, look at the pitfalls everywhere in the Filecion ecosystem.

Is the Filecion project feasible?

From an investment perspective, the top-down analysis of whether a project is worth investing in is:

1. Whether the track in which the project is located has the logic of long-term development;

2. Whether the track industry has formed a leading effect through integration;

3. Consider whether the project itself can always play a key role (moat) in the development of the track.

This is especially true for the Crypto industry.

Filecoin is on the IPFS track. Many people mistakenly regard Filecoin as IPFS, but it is not. This is very important. Filecoin is not equal to IPFS.

IPFS, or "Interplanetary File System", is essentially distributed storage. To put it simply, it is a network that is ready to realize decentralized storage and sharing of data. The path to achieve this goal is to let more people contribute their own memory to complete it.

If we look at the long-term development of the Crypto industry, distributed storage is one of the key infrastructures.

Because as long as the narrative imagination of web3.0 and the metaverse is based on decentralization as ideology, it will inevitably require the decentralization of data storage.

Even from the most basic common sense logic, if data storage cannot be decentralized and permanently stored, it means that the decentralization emphasized by the application layer is a castle in the air - because the metadata is not secure, it may be leaked, and it may be lost due to operator outages.

Once the core competitiveness of IPFS is confirmed, it is necessary to evaluate the market of the track.

Over the past decade, cloud storage has evolved from traditional local servers to a new cloud model, giving rise to giants such as Amazon Web Services, Alibaba Cloud, Microsoft Azure, and Google Cloud Platform (GCP).

Judging from the 22.3% annual growth rate of cloud storage in the past, the global cloud storage market size will be close to US$140 billion in 2025, and the market imagination is huge.

However, can IPFS match cloud storage?

The answer is no, this is not the path for IPFS.

For example, many people think that the value of BTC is to become a global non-sovereign currency and digital gold, so they use BTC to benchmark the market value of gold.

Think about it, would any sovereign country allow something as decentralized and limited as BTC to become a currency?

Either aliens invade the earth and everyone forms an organization similar to the Earth Federation; or people's quality and material conditions are sufficient to not need a "country" to maintain the operation of society.

Otherwise, don’t even think about BTC becoming the real-world monetary system.

So does BTC have no value? Obviously not.

The greatest narrative value of BTC is to become the monetary system and value storage of the decentralized global virtual economy such as web3.0 (metaverse).

Do you understand? As the core framework of web3.0, IPFS’s market is also in the world of web3.0, not the world of web2.0.

Therefore, the current global cloud storage market size can be used as a reference for the size of the web3.0 decentralized storage market, but it does not mean how much market share IPFS will occupy in traditional cloud storage.

This point must be made clear.

Well, IPFS is very important, and its broad market in web3.0 can be foreseen from the scale of traditional cloud storage. Does this mean that Filecoin is worth investing in? Not really.

Simply put, when centralized storage is converted to IPFS, the previous business model will be overturned due to the change in storage methods. This means that the business model of IPFS will change from centralized operators providing storage and charging operating fees to everyone providing storage and distributing profits in proportion.

Because users will not generate electricity for love.

The function of Fliecoin is to provide an incentive layer for the IPFS network.

For example, all idle hard disks in the world can be connected to IPFS to provide storage and retrieval functions for any user on this network. Users who use the service pay FIL, and users who provide the service receive FIL rewards. This is the entire ecological closed loop of Fliecoin.

But what is the actual utility? Let’s assume that we are a user who does not trust traditional cloud storage service providers and pursues lower storage costs . Now I need to store on IPFS.

First, I want to use Lotus to join the Filecoin "family". Lotus cannot be installed on Windows, but only on macOS and Linux, and the computer requirements must be an 8-core CPU and 32GIB RAM.

If I were not a pure miner, the price of configuring such a computer would be 20,000 to 40,000. However, the current mainstream configuration price of home hosts is between 2,500 and 4,000, which means that I need to increase the computer configuration expenditure by 10 times to participate in IPFS storage....

Based on current storage costs, Filecoin's 1GB/year fee is 0.01% of Amazon's.

However, the Fil white paper does not give a detailed reason for reducing costs, but only vaguely states that "prices are determined by market supply and demand" and that "Filcoin can reduce costs by having participant users contribute idle storage space."

Then we can only assume that, under the premise that the cost of using IPFS for ordinary users is extremely high, Filecion’s current low storage cost comes from the decline in currency prices... and "welfare subsidies"?

How long will the subsidies continue?

Amazon can use economies of scale to reduce costs (large-scale procurement of hardware and electricity), but what about Filecoin?

In the Filecoin testnet, there are a total of 230PIB of storage, of which 145PIB is made up of the top ten miners. I don’t think these data centers consisting of medium-sized mining equipment can beat the most competitive super-large data giants like Amazon in terms of cost.

Therefore, from the beginning to the end, what Filecion emphasized, that relying on cost advantages to successfully compete with traditional giants in the "traditional cloud storage" track and gain a huge market share, is an unrealistic dream.

As mentioned earlier, the advantages of Filecoin and IPFS lie in their decentralized ideology and anti-censorship resistance, but sorry, this competitiveness is not in the real world, but in web3.0.

Even decentralization is not true. On Filecoin, you can see nodes with tens of PBs, which are outsourced and operated by storage service providers such as Alibaba Cloud, Huawei Cloud, Inspur, and Sugon.

Isn’t it ironic that they promote Filecoin as a replacement for centralized cloud storage while relying on them to run Filecoin?

It is worth mentioning that IPFS is not a new technology, its underlying technology is P2P. It is suitable for storing static data such as cold storage, such as videos, pictures or documents; but it has no advantages over traditional cloud storage technology in storing dynamic data such as games, dynamic web pages, etc.

To summarize my views on the value of the Filecion project:

1. The extremely high threshold blocks the value vision proposed by oneself (that is, allowing ordinary users to participate in the construction of IPFS with idle hard drives).

2. As an ordinary user, it is impossible to use IPFS at a low cost in a real sense.

3. Filecoin cannot compete with traditional cloud storage or replace traditional data storage providers through low cost and vision.

4. Without real users, IPFS and Filecoin can only entertain themselves.

For a project whose actual situation runs counter to its value vision and which cannot even find its true core moat, I don’t think it has any investment value at all - unless you are a gambler.

How many pitfalls are there in Filecion’s closed ecosystem?

Without an ecosystem of real users, all that is left is gambling and Ponzi schemes. You might think that you can make a fortune by participating in Fil mining and taking advantage of the trend? Is it really that simple?

Generally speaking, you only need to find a few hardware suppliers, maintain an operation and maintenance team, and design a set of currency-sharing software to set up a Filecoin mining machine company. Of course, some mining machine companies even outsource operation and maintenance, algorithms, and storage....

Mining machine companies earn income from two sources: the price difference of the machines and the service fee.

According to the data I mentioned earlier, the cost of a machine that can install Lotus is about 40,000 yuan, but the cost of the entire mining machine is as high as 200,000 yuan. This is the profit from the price difference of the machine;

Secondly, the mining machine company will also charge a service fee of 15~25%, which means that you only get 75~85% of the profits you produce.

Can ordinary users become mining machine vendors? No. How many people can afford a machine that costs 200,000 yuan? Most of the small investors who participate in Filecoin mining participate by crowdfunding cloud computing power.

Let me first say that you are affiliated with a real mining machine company, which greatly increases the cost and increases the payback period.

Is there a possibility that the Filecoin you are participating in is a scam?

Have you visited the mining machine company you are affiliated with to see if it really has mining machines?

Is the actual storage capacity promised to be delivered by mining machine companies really that large?

Are the coins given to you by the mining machine company really produced by mining? Or are they purchased separately?

Is the APP given to you by the mining machine company linked to real data, or is it their own internal disk?

If Filecoin can make investors make money, then the ranking must be protocol labs, miners, distributors, hardware vendors, software vendors, outsourcing service providers, storage service providers, IDC computer rooms, industry media and scammers.

The entire Filecoin mining machine market is too chaotic, so I can’t count a specific number, but after asking many deep participants in the industry, the data I got is tens of billions.

Have you ever thought about this: these people all want to make money, and there are no real consumers in this ecosystem, so where does the money come from? Where does the money come from? Where does the money come from?

Those retail miners and those who are ready to take over the market.

The reason why Filecoin is being hyped is that those who have already boarded the ship want to get off. Miners have deposited a lot of costs on equipment, and they can only pass the parcel, trying every possible way to make FIL valuable so that they can exit.

Tens of billions of mining machines, but a token market value of less than seven billion, isn't that ridiculous?

Perhaps the real winner is only Protocol Labs? They forced a lot of infrastructure costs on the original miners, and had to endure the unrestrained large-scale sell-offs by the project party after the project went online.

Mining machine manufacturers and upstream and downstream companies may also be making money. They are playing tricks of making money out of nothing and harvesting smaller retail miners.

The scammers may make money, as they built up CX and ZJ plates based on the fantasy bubbles blown up by these people who couldn't get off the boat.

And where are you? Maybe you believe that buying Fil is the best choice? Maybe you believe that the project owner and the big miners will manage the currency value to attract more people to buy it for you?

What will happen when no one buys mining machines and no one buys Fil for staking in this game of passing the parcel?

Filecoin is not something you and I should play with.

Don't touch something you don't understand, even if it looks tempting.