Filecoin Ecosystem Overview

This report is an ecosystem overview of Filecoin commissioned by ProtocolServices member Filecoin through Messari and written by other authors.

Core Viewpoint

Filecoin provides decentralized storage and cloud services on the global open market. It has the largest market share in terms of used storage and network capacity.

The ecosystem has grown from 40 projects at the beginning of 2021 to more than 330 projects. Various applications have emerged, including NFT, Web3, games, metaverse, and audio/video.

Filecoin aims to stand out through verifiable storage, content retrieval, computation, and programmable applications, providing the foundation for data-intensive Web3 services.

Filecoin’s main challenge is to pass the test of time and prove its reliability.

Data availability and integrity

Almost every Internet user relies on centralized services to store and process data. This has two major drawbacks: users no longer have full control over their data, and it is difficult to verify the integrity of the data. To address these drawbacks, a new generation of protocols and peer-to-peer networks enable distributed storage and cloud services. One prominent such protocol is Filecoin, which provides a crypto-economic where data is stored and accessible at any time. In short, Filecoin is a peer-to-peer version of AWS that regularly verifies the availability and integrity of data.

Open market transactions

Storage transactions are similar to service level agreements (SLAs) implemented on the Filecoin blockchain. Storage transactions are agreements where users pay storage providers to store their data. The transaction terms include storage fees and storage transaction terms.

The open market incentivizes storage providers to offer their storage capacity in an efficiently priced manner. That is, prices are determined by supply and demand dynamics, rather than a fixed pricing structure. To incentivize storage providers to participate in transactions, Filecoin rewards them with the network's native token (FIL).

Filecoin has two features to keep data safe. First, it uses crypto-economic guarantees to verify storage through zero-knowledge proofs. Second, it uses economic penalties: if data cannot be retrieved or storage fails, the storage provider will be punished by locking up collateral. To enforce this, the Filecoin protocol requires storage providers to submit two ongoing verifiable cryptographic proofs. Proof of Replication first verifies that the data has been fully replicated. After this initial check succeeds, the storage provider uses Proof of Spacetime every day to prove that random data will remain stored and available for retrieval throughout the life of the transaction. Any failed proof results in a penalty.

To retrieve data, users pay retrieval providers to obtain the data. Unlike storage transactions, which are processed on-chain, retrieval transactions may occur off-chain. This can increase the speed of the data retrieval process.

technology

Filecoin is built on top of the Interplanetary File System (IPFS) as the distributed data storage and sharing layer of the Filecoin network. Although some people use Filecoin and IPFS interchangeably, there are important differences between the two.

In short, IPFS is like Steroids torrents. Similar to torrent trackers, IPFS uses fingerprints of data. Unlike torrents, IPFS leverages a single global peer-to-peer network. IPFS essentially tells users where their data is, but it lacks a built-in mechanism to incentivize data storage, which led to the development of Filecoin in the first place. Therefore, Filecoin complements IPFS and promotes an open storage market through guarantees, essentially making Filecoin the incentive layer for IPFS.

IPFS can be thought of as a peer-to-peer version of HTTP, but with an important twist. Traditional URLs and file paths identify files by their specific geographic location on a server. IPFS uses content addressing to decentralize data storage. It references files by what is in them, i.e. what they are. Content addresses are unique and are the result of a hash, which is essentially cryptographically compressing the content into a long string of characters. When retrieving a file, the network only needs the file's hash value to locate the node that stores that file's content.

Network Dynamics

Thanks to its open market policy and incentive mechanism, Filecoin is able to attract a large amount of storage capacity. Regardless of recent market conditions, Filecoin's committed storage capacity has steadily grown to over 16,000PiB, which is equivalent to approximately 65,000 Wikipedias or 1,600 Netflix movie archives as of March 2022. The network capacity comes from more than 3,900 decentralized storage providers distributed around the world.

What is the demand for Filecoin?

The demand for Filecoin comes from storage applications specific to Web2 and Web3. Adding up the storage capacity bound in transactions can quantify the demand for Filecoin. However, when analyzing the underlying content in storage transactions, it is difficult to distinguish between useful storage and generated randomness as a way for storage providers to abuse the network.

In order to increase the useful storage capacity on Filecoin, the Filecoin Plus incentive program was developed. The program incentivizes storage providers to participate in validating transactions by gradually increasing their share of block rewards.

Storage transaction inflows have grown from 400 TiB (1 PiB = 1024 TiB) in October 2020 to more than 7,600 TiB in March 2022, with Filecoin Plus contributing to this growth. Since the fourth quarter of 2021, there has been a transition from regular Filecoin transaction inflows (unverified data) to primarily Filecoin Plus-verified transaction inflows.

Used storage on the network (i.e., active storage transactions) has steadily grown from 0.25PiB in October 2020 to 45PiB in March 2022. As shown below, over 26PiB came from FilecoinPlus transactions, which account for 57% of the total active transactions on the network. The recent rollover of Filecoin regular transactions by FilecoinPlus transactions shows that the proven data incentive mechanism is working as planned. The sudden drop in active Filecoin regular transactions in December 2021 was the result of several storage providers going offline. As of January 2022, other storage providers have increased and contributed to the growth of FilecoinPlus active transactions, making up for the losses. As a result, total transaction volume has fully recovered.

While supply greatly exceeds demand, storage capacity is only one side of the story. Equally important is the amount of storage being used on the network. Filecoin has 45PiB of used storage, 16,000PiB of storage capacity, and a storage utilization rate of 0.3%. To put these network metrics into perspective, competing decentralized storage providers, such as Sia and Storj, have 6PiB and 14PiB of network capacity, respectively. Total storage usage for Sia and Storj is 2.2PiB and 8.6PiB, respectively. In terms of storage utilization, Sia and Storj outpace Filecoin by 36% and 60%, respectively. Although Arweave stores 0.05PiB of data, it is not included as the data it stores is insignificant compared to other storage networks, although it is currently growing from a relatively small base.

While the launch of the FilecoinPlus program is the first step forward, there is a concerted effort to incubate new businesses and applications built on Filecoin. The Filecoin ecosystem is being guided towards a variety of use cases: from decentralized storage of NFTs to music and video streaming, to the metaverse and gaming.

Ecosystem for developers and builders

Filecoin is actively supported by multiple organizations with the common goal of growing the Filecoin ecosystem. Together, these organizations form the Ecosystem Working Group. The responsibilities of Ecosystem Working Group participants include maintaining and upgrading the underlying protocol, supporting the development of the ecosystem, and promoting governance. The most notable organizations in this group include Protocol Labs, Filecoin Foundation, and Outercore. An overview of the main participating organizations is shown below.

These organizations have been actively developing a pipeline of developers and builders through activities such as hackathons, accelerators, grants, mentoring, and growth support. Aims to help early-stage projects and teams get to the point where they are ready to receive funding and investment. As a result, there are currently over 330 projects being built on Filecoin and IPFS. Below is a graph showing the progress of projects over time, grouped by maturity.

The main goal for 2022 is to enable as many early-stage projects in the ecosystem as possible to transform into mature businesses by advancing from the initial stage all the way to Series D and beyond.

Overall, the ecosystem has grown significantly in terms of integrations with applications and clients, developer tools, and infrastructure. Recently, the Ecosystem Working Group has prioritized making it easier for end users and developers to use Filecoin. This has led to the development of services such as Textile Powergate, Estuary, and NFT.Storage. A map of participants in the Filecoin ecosystem is shown below.

Source: Filecoin

In terms of major initiatives for 2022, the upcoming Filecoin Virtual Machine (FVM) is worth highlighting. The FVM is set to unlock programmable storage primitives (e.g., storage bounties, auctions), cross-chain interoperability bridges (e.g., to Ethereum, Solana, NEAR), data-centric DAOs, and layer 2 solutions (e.g., reputation systems, data availability sampling, computational structures, and incentive-aligned content delivery networks).

Key use cases for leveraging Filecoin

The Filecoin ecosystem is large and rapidly expanding, positioning itself as the backbone of the decentralized web. As demand for cloud storage continues to grow, Filecoin offers a decentralized alternative to popular centralized platforms. Many other use cases have emerged, and new ones are guaranteed to emerge in the near future. Four major categories have seen high demand: (1) NFTs and Web3 storage, (2) permanent storage and Web2 datasets, (3) the metaverse and games, and (4) audio and video.

NFT Storage

In the summer of 2021, NFTs entered the mainstream spotlight. Driven by network effects, NFTs dominated the crypto space in the form of social media profile pictures, fine art, collectibles, music, and more. Interestingly, a large number of NFTs often point to off-chain storage locations for their metadata, as storing it on-chain is not feasible. Soon after the 2021 hype, it became clear that much of the NFT metadata was not stored in a decentralized, immutable manner, putting the content and value of the NFT at risk. To address this shortcoming, NFT.Storage was developed.

NFT.Storage uses Filecoin and IPFS to provide a simple decentralized storage solution for NFT content and metadata. It focuses on achieving permanent redundant storage through dedicated IPFS servers managed by NFT.Storage and Filecoin. By participating in the FilecoinPlus incentive program, NFT.Storage is able to provide unlimited storage space for NFTs for free.

NFT.Storage was launched in April 2021 and has supported over 40 million permanent uploads of NFT data, totaling over 260TB of data. The simplicity of the service enables a wide range of users, from individual artists to large marketplaces such as OpenSea, MakersPlace, MagicEden, Holaplex, Jigstack, and Galaxy, to take advantage of permanent NFT storage.

Web3 Storage

Filecoin aims to become the storage layer of Web3. To this end, Filecoin maintains ongoing collaborations and storage bridges with various major blockchain and smart contract platforms. One of the most recent examples is Polygon. The goal of the collaboration is to meet the storage and infrastructure needs of developers for gaming and NFT-related Web3 projects. Notably, Polygon developers can easily use Filecoin through the storage bridge. Filecoin is also gaining traction in the Solana ecosystem, with many protocols and NFT markets offering native support, including Metaplex, MagicEden, and Holaplex.

Source: Filecoin

To simplify building Web3 applications on Filecoin, the team launched Web3.Storage. It allows developers to store and retrieve data directly on Filecoin instead of dealing with complex decentralized storage networks. It redundantly stores data on multiple Filecoin miners and geographically distributed nodes on IPFS, run by the Web3.Storage team. In addition, the service provides unlimited free storage for unlimited data. The economics of the FilecoinPlus mechanism make this possible. In essence, decentralized storage can become a commodity for developers building applications on top of Filecoin. Overall, Web3.Storage has experienced steady growth since its launch, growing from 3 million uploads in August 2021 to 16 million in March 2022.

Persistent Storage and Web2 Datasets

Similar to Arweave, Lighthouse allows Filecoin users to store files permanently for a fixed price. In addition, the Filecoin Virtual Machine will enable permanent storage to be automatically entered into smart contracts. A prominent use case for permanent storage is data archiving. Given the scale of Filecoin, the goal is to make archival storage as cost-effective as possible, becoming a commodity. This allows the creation and preservation of humanity's information layer. In this sense, the Shoah Foundation is an important project that archives testimonies of genocide survivors. For large public datasets, the Internet Archive project uses Filecoin to store websites and documents for public access. In addition, Zarr and GainForest store large public datasets and aim to prevent natural disasters related to climate change. The Zarr project provides climate data to researchers for large-scale analysis. GainForest uses satellite imagery to combat the effects of climate change.

The Metaverse and Games

A new generation of metaverse and gaming use cases leveraging Filecoin and IPFS. The underlying commonality of these use cases is user monetization. In this sense, Blockbets and GalaGames support revenue generation and payments for gamers. In terms of artist monetization, Mona supports artists to showcase their high-end works in virtual spaces and sell them to collectors. MetaverseAI takes human interaction to a new level: it allows gamers to interact with and profit from other AI-driven virtual humans in games.

Audio and Video

Recently, some audio and video applications that leverage Filecoin and IPFS have gained huge attention. Take Web3 alternatives to Spotify or SoundCloud. Audius is a music streaming service that looks and feels like SoundCloud, but leverages IPFS. Currents.fm and InflowMusic support communities of music creators and curators. Huddle01 could be the next Zoom. It’s a low-bandwidth video conferencing platform tailored for remote meetings, with a focus on the NFT community.

The average user might not be able to tell that Audius, Currents.fm, InflowMusic, or Huddle01 are decentralized, or that they leverage Filecoin and IPFS specifically. Nonetheless, there is a shift toward Web3 streaming applications that users may not necessarily notice.

As the Filecoin ecosystem matures, more use cases are constantly being discovered. The development of the Filecoin Virtual Machine will unlock previously impossible use cases, creating an entirely new class of use cases.

in conclusion

While decentralized storage is still in its early stages, the Filecoin ecosystem has been thriving over the years. Filecoin and IPFS have been leveraged by multiple use cases, including NFTs, Web3, gaming, metaverse, and audio/video. In addition to Filecoin, alternatives such as Arweave, Storj, and Sia can use the foundation of IPFS at scale.

Smart contracts built on distributed storage solutions and integrations may open the door to new applications. An important milestone is getting major browsers to adopt IPFS. Open data initiatives and distributed computing may support the next generation of applications beyond storage.

The main challenge facing Filecoin is to prove its reliability as a storage provider and enabler of a wide range of data-intensive Web3 services. Filecoin and IPFS operate at the forefront of the Web3 paradigm and provide an important foundation for Web3 development. Their success depends on the applications built on these protocols.