Filecoin Mini-class: Block Rewards

A key component of the Filecoin economy is block rewards, which reward storage miners for providing reliable and useful storage capacity and maintaining the Filecoin blockchain.

The Filecoin blockchain grows through successive rounds of leader elections, and any miner who wins the leader election and is therefore selected to mine a new block will receive a certain number of Filecoin tokens as a block reward.

But Filecoin’s block reward system is unique, both in the way it determines who wins the block reward and in the incentives used to earn it. This increases the usefulness of the Filecoin network to miners and clients and ensures its long-term health.

Miners: Earn block rewards by storing data

Miners gain storage capacity by allocating hard drive space to the Filecoin network through a process called "sealing." Sealing divides storage space into multiple sectors dedicated to storing data on Filecoin. The more storage sectors a miner adds to the network, the more client data they are able to store, and the more Filecoin they are eligible to earn.

Miners earn the right to participate in leader elections by providing storage capabilities to the network. Block rewards are awarded based on the storage capacity that Filecoin storage miners are able to provide based on the quality multipliers of different transaction types in their storage.

Miners receive a block reward proportional to their quality adjustment power; a miner who contributes 1% of the network's overall quality adjustment power can expect to receive approximately 1% of block rewards over time.

Unlike traditional proof-of-work blockchains that require miners to perform computationally intensive but useless tasks to win block rewards, Filecoin miners earn block rewards by proving that they provide reliable and useful storage to network clients.

Anyone can contribute storage resources to the network and start earning block rewards immediately.

Block rewards strongly incentivize miners to store useful data, and cryptoeconomics greatly subsidizes storage for actual customers on the Filecoin network. This incentivizes legitimate use cases and emphasizes Filecoin's core mission of storing humanity's most important information.

Client: Using block rewards to subsidize reliable storage

The Filecoin network is designed to provide reliable and useful storage to customers, which requires Filecoin miners to provide continuous storage services to their customers in accordance with their contractual agreements. If a Filecoin miner goes offline while under contract with a customer, it will damage the value of the service to the customer and harm the health and reputation of the network.

In order to incentivize miners to provide stable services, the Filecoin network requires miners to use their block rewards as collateral. If a miner terminates the contract prematurely or goes offline, the miner will be penalized and the collateral will be "slashed".

The Filecoin protocol uses block rewards to incentivize miners not only to store data in the first place, but to do so in a durable manner and keep their promises to their clients and the network.

Storage customers have the right to share in the products and offerings of the Filecoin network because miners are incentivized to meet customer needs. It is also in the best interest of storage miners to meet demand and build applications and tools on top of Filecoin to better meet customer needs.

Network: Minting block rewards based on network utility

Many blockchains incentivize early adoption by applying an exponential decay model to the rate at which miners receive block rewards. This means that mining becomes exponentially more profitable in the early stages of a blockchain's lifecycle, when participation and utility are typically lowest and then decline rapidly. This model incentivizes storage miners to overinvest in hardware as quickly as possible during the closed phase of mining, with little regard for the reliability and utility of their storage. Additionally, this results in the majority of network subsidies being paid out based purely on time, rather than on the actual amount of storage (and therefore value) provided to the network.

To encourage consistent storage enablement and long-term storage investment, rather than just fast sealing, Filecoin introduces the concept of network benchmarks. The concept of “network time” is defined based on the progress the network has made in meeting its benchmarks. Rather than minting tokens based solely on elapsed time, rewards are scaled based on elapsed “network time”. This preserves the shape of the original exponential decay model, but softens it in the early days of the network.

The overall result is that Filecoin’s rewards to miners are more aligned with the utility they and the network as a whole provide to clients.

Specifically, a hybrid exponential casting mechanism is introduced, in which part of the reward comes from simple exponential decay, i.e. "simple casting", and the other part comes from the network baseline, i.e. "baseline casting". The total reward for each period will be the sum of the two rewards. With this mechanism, mining Filecoin should be more profitable.

A simple minting allocation would disproportionately reward early miners and create counter pressure to shocks. A baseline minting allocation would mint more tokens when more value is created for the network. When the network can unlock greater potential, more tokens will be minted to facilitate greater transactions. This will lead to increased value creation for the network and reduce the risk of minting too quickly.

There are many features that can make passing baselines more efficient and economical, and unlock more baseline minting. The community can come together to achieve the following goals:

• A higher performance Proof of Replication algorithm with a smaller chain footprint, faster verification times, cheaper hardware requirements, different security assumptions resulting in longer sector lifespans, and sector upgrades without the need for resealing.

• A more scalable consensus algorithm that can provide greater throughput and handle larger volumes with shorter finality times.

• More trading capabilities allow industries to continue for longer periods of time.

Finally, it is important to note that while block rewards incentivize participation, they cannot be viewed as a resource to be exploited. They are a common subsidy pool that seed and expand the network to benefit the economy and participants. Below are examples of different stages of the economy and different sources of subsidies.

in conclusion

Block rewards are one of the many cryptoeconomic constructs that Filecoin uses to fulfill its mission of building a reliable and useful storage economy, in which participants convert raw materials into valuable storage-related goods and services. Through a unique block reward structure, the Filecoin protocol aligns the incentives of miners and clients with the long-term utility of the network.