Want to become a Filecoin storage provider? Start by understanding its underlying economy!

Becoming a storage provider on the Filecoin network is a way to participate in preserving humanity’s most valuable information. This is not just idealism, but real and paid rewards.

The Filecoin community is a rapidly growing ecosystem of storage providers of all sizes and geographies, most of which have achieved steady growth in storage provider revenues by successfully applying different strategies and settings.

If you also have this need, it is necessary to understand the economics of the Filecoin network for storage providers. We will introduce how storage providers can become active members in the Filecoin economy and some basic concepts that should be familiar. You can also check out other articles of Interstellar Cloud Storage to learn more about the Filecoin network.

FIL Token

Filecoin's island economy consists of the interactions between five different sectors: clients, developers, token holders, ecosystem participants, and most importantly, storage providers (i.e. miners).

All activities of these people are transacted with each other through FIL utility tokens, and storage providers are no exception. Therefore, all economic operations they participate in within the network are denominated in tokens. It gives holders the right to use the network.

Profit and Loss Statement (P&L) of Filecoin Storage Providers

Storage providers have two main sources of income in the Filecoin network: one is to charge end users for storing and retrieving data, and the other is the opportunity to earn block rewards in FIL.

The first applies to all storage providers who meet the hardware requirements to participate in the network . These storage and retrieval fees are an important part of the Filecoin economy because they are determined by each storage provider, creating a free storage and retrieval market that provides equal competition for large and small participants.

The second is limited to storage providers who can participate in the network as consensus nodes . They must meet a committed storage capacity of at least 10TiB, and only when this condition is met will they have the right to verify the next block in the Filecoin network in exchange for rewards, just like miners receive Coinbase transactions in the PoW network. The chance of receiving this reward is proportional to the committed capacity they contribute to the total available storage capacity provided in the network .

In terms of cost, storage providers need to consider many factors, including but not limited to purchasing and maintaining high-performance hardware setups, optimizing sales and marketing operations, power consumption, and other expenses and interest payments on borrowed FIL, etc. Some of these, such as hardware setup and power consumption, are not fixed.

Revenue : Fees collected from end users + (block rewards * FIL price)

Cost : Hardware + Marketing/Sales + Human Resources + Daily Expenses + Venue Rental + Interest on Borrowed FIL

Staking

Another economic concept that is important to understand is staking. This is the amount of FIL that a storage provider must stake before providing storage to guarantee that they are storing it in good faith and that their incentives are aligned with the rest of the economy.

If the storage provider fails to fulfill its responsibilities to the network, that is, fails to meet the storage requirements previously promised, their stake will be reduced or even confiscated , which means they will lose part of their FIL .

Collateral is a different part from the cost in the profit and loss statement , because the staked FIL will be repaid after successful storage and trading. However, it is still an important factor to consider, and as a storage provider, you need to consider it as part of your initial investment.

There are three types of pledge:

Barriers to entry

The Filecoin community strives to make the network and its economy accessible to any participant, so its network is designed to be permissionless. By taking into account the total storage capacity of each storage provider, potential barriers to entry, such as high collateral, can be mitigated through this data.

However, aspects such as minimum hardware requirements and setting up nodes is a technical undertaking, raising the barrier to entry for aspiring storage providers.

The community has addressed these issues in different ways, including writing educational materials specifically designed to optimize small and personal hardware setups. Attending ESPA's Storage Provider Bootcamp is also a great way to help get started as a storage provider.

tool

Because the Filecoin network is constantly changing and expanding, metrics such as storage provider costs, block reward amounts, and FIL prices change frequently. The storage provider community relies on a set of important tools to help determine how participating in the Filecoin economy may or may not work for them.

You can also try other avenues such as sites like Filfox and Fgas.io , which are great sources of information that can help storage providers optimize their decision-making process. Filfox tracks a wide range of in-depth metrics, while Fgas tracks the real-time cost of providing storage, taking into account both staking and gas fees.