Filecoin is officially launched. Here are some key points you must understand before investing

After repeated delays, Filecoin finally launched its mainnet on October 15, 2020. As a top-tier project in the cryptocurrency circle, its impact on the market deserves the attention of everyone. Looking back at the current market, after DeFi has completely driven the entire market out of a small bull market, it is currently entering an adjustment period. From the secondary market, it can be seen that large-cap currencies such as ETH and LINK have begun to adjust after experiencing a sharp rise, while previously popular currencies such as UNI and SUSHI are now also in a downward trend. With the gradual decline of DeFi concept currencies in the secondary market, we have also entered the post-DeFi era, and the market hotspots have entered a "lack of successors" stage. With the launch of Filecoin's mainnet, the new hotspots in the market seem to be "about to emerge", and combined with the background of Bitcoin's short-term strength, the market may be brewing a new wave of rising prices. Therefore, whether it is the top exchanges or the second- and third-tier exchanges, they are actively planning the launch and operation activities of Filecoin, and the media are focusing on reporting. Various live broadcasts and in-depth articles are igniting market sentiment, which directly reflects the market's recognition of the Filecoin project. As an ordinary investor, paying attention to key projects in the industry is not just about looking at the price. What is more important is to understand the value basis behind its price trend. This article will sort out several key knowledge points that you must know when investing in Filecoin.

What is IPFS

When talking about Filecoin, we cannot fail to mention IPFS. What are the differences and connections between the two is a very important step in understanding distributed storage.

IPFS, the full name of InterPlanetary File System, is an open peer-to-peer distributed file system that can connect all computing devices with the same file system. Simply put, anyone can use this protocol for free and create different types of applications based on the protocol. Through this underlying protocol, files stored on the IPFS system can be quickly obtained anywhere in the world. It is a network transmission protocol designed to create persistent and distributed storage and sharing of files. You can say it is a technology, namely distributed storage technology.

Distributed storage technology is data storage (such as Alibaba Cloud Storage, Tencent Cloud Storage, or it can be understood as a super large hard drive) that is carried out in a distributed manner using blockchain.

The original intention of developing the IPFS protocol is to supplement the HTTP protocol and solve its centralization problem. Therefore, the IPFS protocol itself is a decentralized network infrastructure. Its principle is to use content-based addresses to replace domain-based addresses. In simple terms, users are looking for content stored somewhere, not a certain address. They only need to confirm the hash of the verified content, so that they can obtain faster, safer, more robust and more durable web pages.

When we talk about IPFS, we are referring to the official website of this project, the IPFS project, and the technology.

What is Filecoin

Filecoin is the incentive layer of IPFS. It builds a decentralized storage network through the token incentive model of blockchain. Filecoin conducted an ICO, and the token name is FIL, with a total issuance of 2,000,000,000 FIL. Under the incentive model of Filecoin, a storage market and a retrieval market are built. Miners obtain FIL tokens paid by users by providing storage services and retrieval services.

70% reward to miners: linearly halved every 6 years;

15% to Protocol Labs: released linearly over 6 years;

10% for investors: linear release from 6 months to 3 years;

5% to the Foundation: released linearly over 6 years.

What is the relationship between Filecoin and IPFS?

The relationship between Filecoin and IPFS, from a project perspective, the two are two independent and closely related projects launched by Protocol Lab. Filecoin combines the characteristics of IPFS and blockchain technology, and is an application based on IPFS; in essence, one is an incentive system and the other is an underlying protocol. Filecoin is the incentive layer of the IPFS network, and the incentive mechanism is to use FIL tokens.

IPFS allows participants in the network to store, request, and transfer verifiable data to each other. IPFS is open source, can be downloaded and used for free, and is already used by a large number of teams. With IPFS, individual nodes can store the data they deem important, and there is no easy way to incentivize others to join the network or store specific data. To solve this critical problem, Filecoin is designed to provide a persistent data storage system. Under Filecoin's incentive structure, customers pay to store data at a specific level of redundancy and availability, and miners are paid and rewarded by continuously storing data and cryptographically proving data storage. In short: IPFS addresses content and makes it mobile; Filecoin is the missing incentive mechanism.

Filecoin also uses many features of IPFS. For example, Filecoin uses IPLD for blockchain data structures, Filecoin nodes use libp2p to ensure secure connections, and message passing between nodes and Filecoin block propagation use libp2p publish-subscribe. In addition, the Filecoin core team includes members of the IPFS core team. The compatibility between IPFS and Filecoin will be as seamless as possible.

What is Filecoin mining?

IPFS mining is mining Filecoin tokens. What we usually call IPFS mining machines are mostly Filecoin mining machines. The process of obtaining FIL tokens by contributing storage resources and bandwidth resources in IPFS. To understand the principle of Filecoin mining, the key is to start with the node behavior in the IPFS network, namely the three behaviors of "storage", "retrieval" and "block generation".

A node plays two main roles in the Filecoin network: storage and retrieval. The storage market and the retrieval market together constitute a verifiable market, which is a competitive market.

1) Storage Mining

Storage miners: Users (storage demand nodes) submit storage orders and pay FIL tokens. Storage miners submit committed storage space and pledge FIL tokens to be eligible to accept orders. The first batch of FIL miners can obtain the corresponding pledged coins for free.

Storage mining: Get tokens through storage.

Storage miner: a node that performs storage mining.

Storage order: An order submitted based on storage requirements.

Storage Market: A market consisting of storage orders.

Brief description: The storage miner's mortgage tokens are related to the size of the committed storage space.

For this type of miner, the network requirements are not particularly high, but the hard disk needs to be turned on 24 hours a day, so a hard disk that can run stably for a long time is needed to store files.

2) Retrieval Mining

Retrieval miners: Users submit retrieval orders and pay Fil tokens. Retrieval miners perform data queries, and only the fastest miners have the right to distribute files! Therefore, friends who want to mine FIL need fast Internet speed, low latency, and strong and stable mining machine performance.

Retrieval Mining: Get tokens through retrieval.

Retrieve miners: Retrieve mining nodes.

Retrieval order: An order submitted based on retrieval requirements.

Retrieval market: A market consisting of retrieval orders.

Brief description: Retrieval miners do not need to pledge tokens when providing retrieval services.

How to participate in Filecoin mining?

The entire FIlecoin mining type can be roughly divided into two categories: single mining machine mining and cluster mining. Cluster mining is further divided into simple cluster mining and complex cluster mining. The alias of complex cluster mining is "cloud computing power".

Single-miner mining: Similar to the early mining of Bitcoin, it is not very competitive, and ordinary computers can run mining software. However, the Filecoin mainnet has not yet been launched, but there has been competition in a small range, and the competitiveness of single-miner mining machines is shrinking. To improve competitiveness, it is necessary to continuously improve the configuration standards of hardware, which has considerable risks. Existing mining machines may not be able to adapt and become scrapped. The most important thing is that the high risk does not have a relatively high return.

Simple cluster mining: Simple cluster mining is to combine the single mining machines on the market together, which is equivalent to a high-end large mining machine participating in network mining. At this time, the cluster effect, that is, the scale effect, is used to reduce hardware and operation and maintenance costs to increase competitiveness in the mining market. At the same time, it ensures that everyone can obtain stable income and eliminates the dilemma of low-configuration mining machines not producing blocks and having no income. At this time, the competitiveness of a simple cluster is higher than that of a single mining machine, just as the old saying goes, "there is strength in numbers."

However, this type of cluster mining is too fragile, has poor scalability, and has a high cost to deal with risks. For example, as the Filecoin network becomes more competitive, it cannot flexibly adapt to network mining and reduce the overall profit level. Increasing computing power requires a large increase in costs. This type of mining is generally called "mining machine hosting" in the market.

Complex cluster mining: Complex cluster mining is also called "cloud computing" mining. Cloud computing mining first requires a cluster architecture, which is layered and can be divided into computing layer, network layer, storage layer, and application layer. The hardware implements professional division of labor, and uses software to achieve optimal configuration of network, storage, etc., optimize specific mining algorithms, and continuously improve profits.

The advantage of cloud computing power is that the lower limit of basic hardware configuration is higher than the upper limit of official mining configuration, and there are also professional storage servers, computing servers, acceleration servers, switches, etc. At the same time, computer rooms, bandwidth, electricity, and on-site operation and maintenance have a large premium ability due to the scale effect. At the same time, hierarchical governance is more flexible, can be quickly iterated, and has super fault tolerance.

In general, when the market performs well, for the same unit cost, cloud computing mining will bring much greater profits than single mining machines or simple cluster mining. Competition has an absolute advantage, and the profits are stable while reducing uncertainty. The only drawback is that the initial preparation of mining service providers requires high costs.

Is mining profitable?

Filecoin elects leading miners based on the Expected Consensus (EC) mechanism. Leading miners obtain block rewards by creating blocks and broadcasting them to the entire network. The key to competition among miners lies in effective storage (i.e. computing power). The more data actually stored and the greater the computing power, the higher the probability that miners will obtain the right to vote (block packaging rights) and win block rewards. The probability of a miner winning the right to package a block is directly proportional to the computing power obtained. This is why miners are competing for the computing power rankings on the test network.

Miners need to use algorithms to generate proof of replication (PoRep) and proof of space-time (PoST) to obtain computing power. Simply put, the process of generating proof of replication is to shard, calculate, and seal the original file, proving that you have stored the client's file in your hard disk space (this process consumes a lot of CPU). Proof of space-time is to continuously verify that the files you store do exist, and convince other nodes in the network that the miner node has indeed stored the user's files for a period of time (this process consumes a lot of GPU).

For miners, the most critical factor in evaluating the mining efficiency of a mining machine is: the rate at which the mining machine's effective storage of data increases per unit time, that is, the efficiency of sector encapsulation or the speed of generating replication proofs.

For example, a 96TB mining machine of Company A is priced at 50,000 yuan per unit (the cost per T is about 520 yuan); a 96TB mining machine of Company B is priced at 100,000 yuan per unit (the cost per T is about 1,040 yuan). From the perspective of product cost, the cost of mining machines of Company A is half of that of Company B, which is an advantage.

However, the sector packaging speed of Company A's mining machine is 100G/hour, while that of Company B's mining machine is 500G/hour. In terms of mining efficiency, Company B is 5 times that of Company A.

Because Filecoin mining calculates computing power and distributes revenue based on the effective storage of miners, let's calculate the effective storage costs of companies A and B: 20G/hour/10,000 yuan for company A and 50G/hour/10,000 yuan for company B. So from the perspective of input-output ratio, although the cost of company B is twice that of company A, the mining revenue may be 2.5 times or even higher than that of company A.

Therefore, it does not mean that the more hard disks a miner has and the larger the computing space, the higher his computing power will be. Miners must obtain valid storage data confirmed on the chain through technical means to obtain computing power, participate in packaging, and obtain block rewards. The hard disk capacity only determines the upper limit of your computing power and has little to do with the efficiency of mining.

In the early stage of the launch of the Filecoin mainnet, on the one hand, the main chain needs strong computing power to ensure the security of the entire network. On the other hand, the commercial popularization of Filecoin also requires a certain amount of time. There are very few storage orders in the market, and the Filecoin network has not yet been built, and the experience is also poor. Therefore, the income obtained by miners from storage orders in the market is almost negligible. In the early stage, most miners can only increase the effective storage capacity through technical means (the so-called brushing orders), increase their effective storage share in the entire network, and increase computing power to increase the block explosion rate, thereby winning more block rewards.

7. What is cloud computing power?

Complex cluster mining is also called "cloud computing" mining. Cloud computing mining first requires a cluster architecture, which is layered and can be divided into computing layer, network layer, storage layer, and application layer. The hardware implements professional division of labor, and uses software to achieve optimal configuration of network, storage, etc., optimize specific mining algorithms, and continuously improve profits.

Filecoin cloud computing power is provided by large mining pools through the construction of professional large-scale Filecoin mining farms for centralized mining. Through large-scale operations, unified management, and professional operation and maintenance, mining efficiency is improved and mining costs are reduced. The mining farm's computing power is split into cloud computing power contracts. Ordinary investors can participate in Filecoin mining with a lower threshold by purchasing the mining pool's cloud computing power contracts.

Cloud computing has some clear advantages:

1. Low capital threshold: Compared with purchasing mining machines, cloud computing power splits the total computing power of mining machines into independent units. Users only need to purchase a part of the computing power to mine, and the investment cost is relatively low.

2. No investment in post-maintenance costs, high stability: In contrast, all mining machines will be maintained by a professional team that provides cloud computing services in the company's own mining farms. Investors only need to pay the computing power fee once, and the electricity and maintenance fees will be automatically deducted from the income. The cloud computing model eliminates the complicated steps of investors purchasing mining machines, selecting mining machines in mining farms, and operating and maintaining them. At the same time, investors pay less electricity and maintenance fees than home mining. In addition, cloud computing power has high stability and does not require additional risks such as mining machine failure and performance loss.

3. Flexible entry and exit: Compared with purchasing mining machines by yourself, mining has the lowest risk. In general, although cloud computing power has lowered the threshold for investors to mine, the platform can also lock in profits in advance to reduce risks.