Understanding Filecoin’s Token Destruction in One Article

On the Filecoin blockchain browser, we can not only see the Filecoin network block height, 24-hour output, effective computing power of the entire network, etc., but careful friends will find that there is also a category called FIL destruction amount. According to the blockchain browser, 4,007,587 FILs have been destroyed so far.

What is token burning?

Coin Burning refers to the permanent removal of tokens from circulation. The destroyed tokens are equivalent to being permanently frozen and can no longer flow into the market.

The most common method of token destruction is to send the tokens to a black hole address.

We can figuratively understand a black hole as a bottomless abyss that you can only go in but not out of. Once you enter, you can never get out.

The black hole address (Eater Address) on the blockchain is a special address. So far, no one has their private keys, and it is almost impossible to do so in the future. These addresses are like black holes, which can only go in but not out. Any tokens that are deposited into the black hole address will be almost impossible to transfer out and enter the market circulation.

Famous black hole addresses include:

• Bitcoin black hole address 1BitcoinEaterAddressDontSendf59kuE

• Ethereum’s black hole address 0x0000000000000000000000000000000000000000

The wealth in these two addresses is very attractive. However, due to the characteristics of cryptocurrency, to brute force the private key of an address, one needs to collect Bitcoin private keys from a collection that is 10 to the 37th power more than the number of grains of sand on Earth, and then try them one by one. You can imagine how difficult it is.

Therefore, we can directly regard the coins that enter the black hole address as non-existent.

About FIL destruction

Regarding the destruction of Filecoin, it first appeared in the article "Creating the Filecoin Economy" published at the end of August.

Section 6 of the article details Filecoin's new token distribution system, and uses a small amount of space to describe Filecoin's related destruction mechanism. In general, the total supply of 2 billion has not changed, but its specific distribution method has changed.

• Miners: 55%, released linearly through block rewards to reward maintenance of blockchain and running contracts;

• Miner Reserve: 15%, used by the network to provide incentives to other categories of miners, such as retrieval miners and maintenance miners;

• Protocol Labs: 10.5%, as the R&D and operating expenses of the Protocol Labs team, released linearly over 6 years;

• PL team contributors: 4.5%, mainly referring to the Protocol Labs team and other major contributors;

• Investors: 10%, allocated to investors participating in private and public offerings, and released linearly over 6-36 months;

• Foundation: 5%, used as the cost of long-term community construction, network management, etc., to be released linearly over 6 years;

Although the mining portion by miners has changed from 70% to 55%, most of the FIL is still produced by miners. In the process of Filecoin mining, miners may have problems such as storage failure and consensus failure. If they cannot be repaired in time, the miners will be punished. These FILs punished by the system do not belong to the official, nor are they retained in the system, but are directly destroyed.

In layman's terms, if the mining machine loses power or network connection, if there is an interruption during data packaging, if a sector fails, or if a transaction is terminated prematurely, the system will punish the miner, and the FIL deducted by the system as a penalty will be used for destruction.

In addition, according to the EIP1559 protocol, Filecoin's message on-chain fee consists of two parts. One fee is paid to the miners who package the messages, and the other is the fee directly burned according to the protocol. This part mainly includes network transaction fees for on-chain computing and bandwidth. These two fees are also directly destroyed.

We can see on the Filecoin browser that 1,140,566 messages can be generated in 24 hours. From this point of view, the on-chain transaction fee for the messages is also a considerable fee.

The destruction of tokens is a common method to create a deflation model. After all, according to the law of conservation of energy, the less data, the higher the price when the value remains unchanged. Therefore, to some extent, it can motivate holders to continue holding or purchasing more tokens, thereby creating a virtuous cycle.

Today, Filecoin's ecosystem is also developing efficiently at a speed visible to the naked eye. As the ecosystem continues to expand and become more active, the demand for FIL will become greater and greater.

When FIL has completed its full release, due to the support of the destruction mechanism, the circulation of FIL will continue to decrease. At this time, the demand for FIL in the Filecoin ecosystem is getting higher and higher. Therefore, the future of FIL will definitely be upward and sunny.