"Filecoin on Ethereum"? Swarm still has three problems

Wu said author | Shulden

Editor of this issue | Colin Wu

SWARM is backed by "IPFS+FILECOIN" on Ethereum and the endorsement of Vitalik Buterin and the Ethereum Foundation, but it also faces problems such as unclear economic model, uncertain mining mechanism and questionable application value.

Recently, Swarm, a distributed storage project claimed to be developed by Vitalik Buterin (founder of Ethereum), has become popular in the mining circle. When many mining machine manufacturers promote Swarm nodes, they label Swarm as: "Incubated by the Ethereum Foundation", "Developed by Vitalik Buterin", "The next Filecoin", "Luxury investment team", etc.

A series of eye-catching labels have indeed made Swarm a hot topic nowadays. However, behind the project's halo, there are many uncertain risks that are easily selectively ignored.

Swarm is positioned as a decentralized content storage and distribution network for the Ethereum ecosystem. When Swarm was launched in 2015, it was one of the official projects of the Ethereum Foundation. In the early stage, it was incubated by the Ethereum Foundation. After that, the project was separated from the Ethereum Foundation and gradually developed and financed by an independent team.

It is reported that Swarm has completed two rounds of financing, with the latest private round amounting to 6 million US dollars. The average subscription price of the token BZZ is about 0.25U, and the subscribed investment institutions include KR1, HashKey, NGC Ventures, etc. Judging from the public list of institutions, the lineup of investment institutions is not very luxurious.

Swarm is currently in the final stage of the testnet. Since the testnet has a 1 million BZZ airdrop reward, it has attracted many miners to participate. As of now, the number of active nodes in the Swarm test has exceeded 270,000, and the nodes are widely distributed around the world (see the figure below for details). After the testnet miners create a node, they will receive checks of different values, which can be used to exchange BZZ in the mainnet stage. The mainnet launch time is uncertain.

Building swarm test nodes has become a hot business. Many swarm miners are selling swarm nodes to retail investors. The price of a single node varies, but mainly ranges from 10,000 to 30,000.

In addition, not long ago, many cryptocurrency investors were reselling the BZZ shares subscribed by institutional investors, and the price of private placement of BZZ over the counter has reached more than 30 US dollars. If calculated based on the average price of 0.25 US dollars during the private placement of BZZ, the early institutional investors have made a hundred times the profit.

Early investors sell private placement shares, retail investors snap up BZZ shares or swarm test nodes over the counter, and miners actively participate in the test network and sell swrm nodes. These seemingly contradictory phenomena are worth pondering. Is Swarm really worth investing in? Before answering this question, you may wish to think about the following three questions.

Swarm's economic model is unclear

From the information released by Swarm so far, we can find little information about the economic model. The initial issuance of BZZ is 62.5 million (initial issuance, there may be additional issuance), and the distribution is as follows:

The Swarm Foundation used 50% of the initial BZZ for fundraising and 20% for the team. And no BZZ was distributed to miners, which is quite different from the route of many other storage projects.

The economic model determines the life and death of a blockchain project to a certain extent. So, what is the position of BZZ in the swarm network, what role does it play? What value does it have? There is no explanation in the white paper published by swarm, but the sale of BZZ private tokens is extremely hot at this time. The unclear economic model hides great risks.

Mining mechanism is uncertain

At the current testnet stage, as long as the nodes of the Swarm network are connected, they have the opportunity to receive checks and then exchange them for BZZ. Checks of different denominations mean different probabilities of exchanging for BZZ.

The mechanism of the Swarm test network gives miners a greater chance to cheat. It is reported that since the BZZ node does not need to occupy too much storage and computing resources, Swarm miners have opened multiple virtual machines on one machine and run multiple swarm nodes. Then different nodes are connected to each other to obtain more tickets. This means that the cost of running Swarm nodes for miners is extremely low, and many Swarm nodes purchased by retail miners are not independent swarm mining machines.

From the public monthly report of swarm, we know that there will be some differences between the main network stage and the test network. In the initial stage of the network, 35 nodes with high connectivity will be selected from the test network nodes as "queen bee" nodes. The "queen bee" nodes serve as the main force of the network to ensure the stability of the network.

In the future mainnet stage, 35 nodes with high connectivity will be selected from the testnet nodes as "queen bee" nodes. The "queen bee" nodes serve as the main force of the network to ensure the stability of the network. Swarm miners are only effective if they are connected to the "queen bee" nodes, which is quite different from the current testnet mechanism.

Whether data needs to be stored in the main network phase, whether it takes up too many computing resources, whether the node bandwidth requirements need to be adjusted, etc. all determine the configuration of the mining machine. It is impossible to estimate how long it will take to get back the investment if you buy the popular virtual machine nodes in the market.

Is Swarm's application valuable?

Swarm started from Ethereum and provides data storage and shared bandwidth services for dapps in the Ethereum ecosystem. This is how the outside world perceives Swarm. As a storage protocol adapted to Ethereum, Swarm’s consensus process and infrastructure are all designed based on Ethereum. This means that Swarm’s versatility is limited.

Swarm is more like IPFS protocol + filecoin, more suitable for hot data storage, more dependent on bandwidth resources, and will have greater value for Dapp data transmission and storage in the Ethereum ecosystem. However, the number of Dapps and the size of data are currently limited to a certain extent by the performance of the Ethereum public chain.

In addition, Ethereum already supports the IPFS protocol at the data layer. Data on Ethereum can be stored in the IPFS network (not the filecoin network). Swarm is in competition with the IPFS protocol to a certain extent.

How to determine its own positioning and application scenarios, better provide data storage services for Ethereum, and accept challenges from external competitors will be the problems that Swarm will continue to face. At the same time, how to empower its services to the token BZZ determines the long-term value of BZZ.

However, at the business level, Swarm data storage and bandwidth sharing services have not yet been launched, and BZZ cannot capture value; at the consensus mechanism level, it is not clear how BZZ participates in mining and consensus reaching; how can BZZ's short-term value be supported solely by consensus, and who will be the main force of this support?

Back to the title of this article, should you invest in Swarm mining? Benefits and risks often coexist. Based on the information disclosed by Swarm, please confirm whether you can accept the many uncertain and unclear risk points. Behind the crowd, the mining machine you bought may be someone else's harvester.

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