Why are foreigners not optimistic about Filecoin?

Author: Nico Deva

Compiled by: Savage

Produced by: Gyro Finance

After raising 200 million US dollars and three years of development, Filecoin transitioned from the verification network to the main network. Less than 24 hours after its launch, miners began to strike and the topic of forking also continued to ferment.

Why did this happen? Why are foreigners not optimistic about such a project initiated overseas? Here are some foreigners' complaints, which may give us a glimpse of the situation.

The hardware configuration requirements are quite high

Filecoin is very complex and requires high hardware configuration, with a minimum memory threshold of 128GB. (Translator's note: A certain e-commerce platform has the highest configuration of computer hosts, 64G memory, and a price of 67,000 yuan) For example, according to the configuration data of 6block2, a mining machine is equivalent to 3 servers, 2 of which are used for computing and 1 for storage. The market retail price is also quite high, including hosting and maintenance. The price of one machine is 40,000 US dollars, and the regular minimum price is 20,000 US dollars for 350TB.

The chicken and egg economic structure

The packaging speed is the bottleneck of mining machine efficiency. Although a large amount of space can be provided, in the case of two computing servers, 336TB of storage space can only seal about 1TB per day, and it will take about 210 to 350 days to fill up.

On this basis, miners also need to pledge FIL coins (Filecoin tokens) as a commitment to provide storage space. If the space commitment is not fulfilled, these tokens may be surrendered. The purpose of doing so is to ensure that the data is not lost. This is an economic model with a "chicken and egg" situation, which will cause a problem. If there are no FIL tokens available for pledge, no one can start mining.

The testnet actually solves this problem. As the final testnet, the "space race" rewards early miners who invest in expensive hardware for testing. They basically bear all the risks. Miners who participate in mining can get 1.5 million Filecoins, which will be distributed in 540 days. The testnet also allows miners to start storage packaging without providing a pledge.

Sounds good so far, let’s see what the data says.

If a miner starts packaging from the test network on August 27, at a rate of 1TB/day, he will have packaged about 50TB of data (about 1/7 of the total capacity) when the main network is launched on October 15. Then, he will need 5 FIL/TB=5FIL/day as collateral to continuously increase until the full capacity is reached.

The current mining return rate is around 0.25-0.27 FIL/day (data source: filfox.info/en/ranks/power). According to the SAFT agreement, the vesting period of these mining rewards is 180 days. Therefore, this 50TB mining machine not only improves mining capacity, but also improves global returns. On the 50th/180th day, he can get a 50/180 reward in proportion, 0.075/TB/day, and the reward for 50TB is 3.75 FIL tokens.

In addition to purchasing mining machines at high prices, miners must also buy coins

Can I continue to store and package FIL tokens if the amount is less than 5 per day?

Yes, miners must constantly “buy FIL tokens” to increase to full capacity, or choose to stay at 1/7 of capacity.

In China, people are disgusted by this practice. The word "disgusting" is mentioned repeatedly. A napkin calculation shows that the starting threshold for building a mining system requires 20,000 yuan of hardware, and this mining system will force you to buy more FIL tokens. In this country where "Ponzi economics" is an art, the post boy who was known to everyone in 2017 was ble.

Take the best-performing mining machine for example, with 40 PiB of storage space, their storage ratio is about 1/7, which means they have prepared 280 PiB of storage space, with a total price of 16 million. (Data source: filfox.info/en/ranks/power) The current total network capacity is about 600 PiB, and based on the installed capacity of 4200 PiB, it is hardware worth 240 million US dollars. (Data source: filfox.info/en)

Pause here and read the previous sentence again.

$240 million worth of hardware ready for mainnet launch, not including what is still waiting to be installed. This is not a market valuation, this is real money, real servers, and this is a conservative estimate.

Miners invested so much hardware early on, but are unable to continue to increase production capacity because they are forced to buy tokens valued at $250 billion.

There may be deviations in the calculations, but what is certain is that many miners have stopped adding capacity and the drives are idle. As can be seen in the figure below, the daily power growth of many top miners is 0.

While all coins are said to have vesting periods ranging from a minimum of 6 months to 6y for team tokens, 1.5 million FIL coins have already been sent to Huobi and OkEx, a question that was sarcastically raised by Justin Sun.

Miners provided huge support to the Filecoin team during the development of the project, but now they are being beaten back. The much-anticipated Filecoin launch turned into a shit show, which was disappointing and gloomy.

Filecoin’s first week of launch video chat is looking a bit grim right now. A conversation like “How did I win the space race” might turn into “How did I come to invest $16 million in useless servers”.

25% of miners’ rewards will be released directly?

FIL004 Filecoin Improvement Proposal proposes that 25% of the storage miners' block rewards be released directly, and the other 75% of the rewards will still be released linearly on a 180-day basis. This proposal has been accepted.

After the proposal update is released, a 50TB fully loaded mining machine can earn 6 FIL tokens per day, and miners can lock 5 of them to continue to increase production capacity. Spend 1 FIL/day on your 20,000 yuan hardware, or sell everything directly at the current diluted market value.

It seems that the miners have been hit hard. This matter can be regarded as news in China, but almost no one talks about it in the West. In short, it is terrible.

Is this really worth it?

A netizen commented below and asked why people should use Filecoin when they only need to run an IPFS node. This would be much cheaper and based on the same technology.

According to the recent performance of the crypto market, FIL tokens have fallen from 200+ USD when they were first listed to 30+ USD, a price drop of 85%. Who is pushing up the price of FIL tokens and who is dumping the market? There is also news that test coins can actually be sold as mainnet coins.

After reading this analysis by a foreigner, should we consider whether such a project, which is highly sought after by domestic manufacturers, is really worth it?