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The unique economic design of the Filecoin network aligns incentives between participants and rewards the efficient operation of Filecoin nodes. A key component of the Filecoin economy is the block reward, which rewards miners who provide reliable and useful storage capacity and maintain the Filecoin blockchain.
Most blockchains use cryptocurrency to reward miners who successfully mine new blocks in the chain, and the Filecoin network does the same. The Filecoin blockchain grows through successive rounds of first selection, and any miner who wins the first selection 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 how it determines who wins the block reward and in the incentives used to earn it. This increases the usefulness of the Filecoin network for miners and clients and ensures its long-term ecological health. Let’s see how this works.
For miners: Earn block rewards through effective mining Storage power is the "engine" of the Filecoin blockchain. Miners gain storage power 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 the first selection by providing storage power to the network. Block rewards are awarded based on the storage power 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, which 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 rewards immediately. In addition, miners are heavily incentivized to store useful data - cryptoeconomics heavily subsidizes storage for actual clients on the Filecoin network. This incentivizes legitimate use cases and emphasizes Filecoin's core mission of storing humanity's most important information. So, for example, datasets that help us study the universe or cure diseases can be given more weight on the network.
For clients: Using block rewards to subsidize reliable storage
The Filecoin network is designed to provide reliable and useful storage to clients. In traditional proof-of-work, blockchain miners are free to go offline at any time. In this case, they no longer earn block rewards, but are not affected. In contrast, Filecoin miners must provide continuous storage services to their clients in accordance with their contractual agreements. If a Filecoin miner goes offline while under contract with a client, it will damage the value of the service to the client and harm the health and reputation of the network.
In order to incentivize miners to provide stable services, the Filecoin network requires miners to pledge their collective rewards as collateral. If a miner terminates the contract prematurely or goes offline, the miner will be penalized and the collateral will be "cut". In this way, the Filecoin protocol uses block rewards to not only incentivize miners to store data, but also to store it in a persistent manner and abide by their commitments to the client and the network.
Storage customers have the right to share the products of the Filecoin network to incentivize miners to meet customer needs. It is also in the best interests of storage miners for miners to build applications and tools on top of Filecoin to better meet customer needs.
For the network: minting block rewards based on network utility
Many blockchains incentivize early mining 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.
There are many features that can be made more efficient and economical and release more Filecoin. The Filecoin community can unite to achieve the following goals together:
1. A higher performance Proof of Replication algorithm with a smaller chain footprint, faster verification times, cheaper hardware requirements, different security assumptions, allowing sectors to have a longer lifespan, and sector upgrades without the need for resealing.
2. A more scalable consensus algorithm that can provide greater throughput and handle larger volumes with shorter finality times.
3. More trading capabilities allow industries to last longer.
Finally, it is important to note that while the block reward incentivizes participation, it cannot be viewed as a resource to be exploited. It is a common subsidy that seeds and expands 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, where participants convert raw materials into valuable storage-related goods and services. Through a unique block reward structure, the Filecoin protocol aligns the rewards of miners and clients with the long-term utility of the network.
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