Detailed explanation of the calculation logic of Filecoin mining costs and benefits

At the end of 2020, as the price of Bitcoin repeatedly hit record highs, funds in the digital cryptocurrency market began to shift to mainstream currencies. This is the time when major investment institutions are brewing new layouts. Filecoin, as the project with the most hope for practical application, has also become one of the mainstream projects favored by investors.

Filecoin’s economic model is too complex and involves many variables. In addition, the project is still in its early stages and the mining rules have also changed accordingly. Therefore, many miners do not know how to calculate Filecoin’s economic accounts.

So, how to calculate the costs and benefits of investing in Filecoin mining? This article will explain in detail the calculation logic of the costs and benefits of Filecoin mining from the perspective of cluster mining.

Filecoin mining input calculation logic

According to the economic structure design of Filecoin, users contribute their idle storage space to provide other users with continuous and stable storage services to earn income. When users start to participate in Filecoin storage mining, they need to publish their service details, that is, how much storage space they provide, how long the storage time is, and the service fees charged for the storage service.

The storage duration is divided into 180 days and 540 days in the economic architecture design of Filecoin. The selected duration will determine the mining cycle. The data provided to the outside world will also involve the calculation of Filecoin mining costs. In simple terms, Filecoin mining costs are divided into three parts: hardware facilities, GAS fees, and pre-staking.

The cost of hardware facilities is mainly divided into two parts, one is the purchase cost of the machine facilities, and the other is the network overhead cost. At present, the price difference given by hardware service providers on the market mainly lies in the machine configuration and IDC room network service.

GAS fee: In terms of setting up the gas mechanism, Filecoin has introduced ETH's EIP1559 mining fee mechanism. The GAS fee will increase with the increase of the computing power of the entire network. As of January 4, 2021, the GAS fee for encapsulating 1T computing power is 9.5552 FIL.

Pre-staking: In order to ensure the security of user data storage and the ability of storage service providers to provide storage services in a continuous and stable manner, Filecoin has set up a pre-staking mechanism. Pre-staking will provide a certain amount of pledged coins to the network based on the size of the storage space provided by the miners. According to the data on January 4, 2021, 1T computing power requires 8.368 FILs to be pledged.

Taking the 4P mining plan of China Computing Power as an example, 40T is sealed every day and it takes 90 days to be fully stored. Then the investment cost of Filecoin mining is:

5.23 million (hardware facilities) + 5.42 million (GAS fee, based on the GAS fee on the day of writing) = 10.65 million

The pre-stake is 4.76 million (based on the pledged coins on the day of writing, the pre-stake will be fully returned after the mining cycle ends)

Note: The digital amounts are calculated in RMB.

Filecoin mining revenue estimate

From the above we can see that due to the addition of pre-staking and GAS fee mechanisms to Filecoin’s economic structure, the cost for miners to participate in Filecoin mining is very huge.

So in the face of huge costs, what are the profits from Filecoin mining?

Like the cost of Filecoin mining, the mining income of Filecoin also involves multiple factors. The effective computing power of the entire network, the network baseline, the effective computing power of individuals, the daily output of the entire network, and linear release will all affect their own mining income.

Here, we can simply divide Filecoin's mining income into two parts: current day mining income and future mining income.

The mining income of the day mainly involves personal effective computing power, the effective computing power of the entire network on the day, the output of the entire network on the day, linear release, and the currency price on the day. The calculation formula is as follows:

Mining income on the day = personal effective computing power / effective computing power of the entire network on the day × daily output of the entire network × currency price on the day (calculated in USDT)

Taking the 4P mining plan of China Computing Power as an example, 40T is sealed every day and it takes 90 days to be fully stored. The income of Filecoin mining is (based on the data on the writing date):

3600T (effective computing power) ÷ 1.726EiB × 242,907 FIL × 21.33 U = 10306 U

According to Filecoin's linear release rules, 25% of the revenue will be released immediately, and the remaining 75% will be released within 180 days.

The calculation model for future mining revenue is much more complicated than the current day mining revenue. In addition to the above factors, it will also involve related factors such as the incremental computing power of the entire network, the baseline mechanism, and the time decay mechanism.

Therefore, if you want to calculate your future income, you need to first calculate the future growth of the network's computing power and the total daily output of the network in the future. The logic for calculating these variables is roughly as follows:

• Effective computing power of the entire network + daily computing power increment → Future growth of computing power of the entire network

• Future network computing power growth + baseline mechanism + time decay mechanism → total daily output of the entire network in the future

• Personal effective computing power ÷ effective computing power on the future day × total daily output of the entire network in the future → future mining income

Since there are many variables and unpredictable factors involved in calculating future returns, manual calculations are very complicated and time-consuming, so we need to use a professional economic model calculator to perform modeling calculations.

Based on data modeling and calculation based on the China Computing Power 4P mining plan, it is predicted that the payback period of the entire plan is 240 days.

Note: All variable factors are based on ideal value data range.

Summary: Filecoin Benefits and Risk Analysis

Currently, the effective computing power of the Filecoin network is increasing slightly every day. It is expected that around May 2021, the computing power of the entire network will reach the network baseline, and the daily coin production will be 100% mined.

Combined with the above data, only from the perspective of mining, the yield of Filecoin mining is much higher than that of the current mainstream BTC and ETH mining. However, as the year is coming to an end, most of the funds in the market flow to mainstream currencies. BTC and ETH have both grown significantly, while FIL, on the contrary, has declined slightly. In addition, the implementation of Filecoin faces huge challenges in terms of current technology.

But in the long run, as long as the fundamentals of the data storage problem remain unchanged, the development of Filecoin and IPFS technology and ecology will inevitably promote the application value of the Filecoin network. Moreover, Filecoin's economic architecture design plays a significant role in maintaining FIL market circulation and prices. Short-term declines will not affect the future trend of FIL.