Investing in Filecoin requires vigilance against mining scams and complex penalty layer rules

Original title: "Filecoin is beautiful but has thorns, be careful of getting hurt"

Original source: OKEx

With the arrival of autumn, DeFi's summer craze seems to be cooling down. Instead, Filecoin, a star distributed storage project, is finally about to launch its mainnet after many delays.

On September 29, Filecoin (FIL) announced that the mainnet will be officially launched at epoch 148888, and it is expected to reach this epoch around October 15. As soon as the news came out, it attracted widespread attention in the currency circle. According to Feixiaohao data, as of October 13, FIL's increase in the past seven days reached 35.91%.

Filecoin, a new trend in the cryptocurrency world

What is the magic of Filecoin that makes it still the focus of the industry after multiple delays? There are two reasons: the broad development prospects of the project and the well-designed token mechanism.

Filecoin, based on IPFS, is a decentralized storage network that transforms cloud storage into an algorithmic market. Decentralized storage advocates strong privacy protection and low storage costs, including data redundant backup storage, reducing intermediate costs to achieve storage effects. Whether in terms of technology or business, decentralized storage is a very certain trend.

The goal of the IPFS protocol is to supplement or even replace the Hypertext Media Transfer Protocol (HTTP) used in the past 20 years, hoping to build a faster, safer, and freer Internet era.

In terms of application scenarios, IPFS can be combined with blockchain. The biggest problem with most public chains at present is that they cannot store a large amount of hypermedia data on their own chains. DApps are greatly restricted in their desire to develop into super apps. The IPFS protocol can provide a storage solution; of course, IPFS can also provide a distributed caching solution for traditional applications.

According to official disclosure by IPFS, there are more than 100 ecological applications based on the IPFS protocol. Any content that an application needs to store, such as text, pictures, audio, video, data, etc., can be stored or called using the IPFS network.

In terms of token mechanism, miners can obtain native tokens (called "Filecoin" or "FIL") by providing data storage and retrieval. Users store and read data by paying FIL. Storage miners obtain FIL by providing storage services, and retrieval miners obtain FIL by providing data.

The total amount of FIL is 2 billion, the foundation holds 5%, which will be released linearly over 6 years. The team holds 15%, which will also be released linearly over 6 years. In 2017, 10% of the tokens were raised for financing, raising $257 million. Private equity investors include VC companies and angel investors such as Sequoia, Andreessen Horowitz, and Union Square Ventures.

Filecoin is also the largest ICO project to date. Excluding the foundation, team holdings and financing, the remaining 70% of the tokens belong to the miners. Following the law of radioactive decay in nature, the reward for each block decreases in an exponentially decreasing manner.

However, the beautiful-looking Filecoin is like a rose with thorns, hiding many risks.

Mining machines and cloud computing power products are mixed

The popularity of Filecoin has given some lawless elements an opportunity to take advantage of it. In recent years, various Ponzi schemes have emerged one after another. In serious cases, even the outside world would think of fraud when they heard the term "IPFS mining machine."

In an interview, the head of IPFSDATA Interstellar Storage introduced an earlier Filecoin Ponzi scheme project - CAI. The project promised users that they could use Snail mining machines to mine CAI tokens issued by the project party before Filecoin went online. The project terminated withdrawals and ran away in early 2019, ultimately raising 2 billion yuan.

There are also discussions about this scam on Baidu Tieba, where we can see that the market price of the snail mining machine sold by the CAI team is nearly 6,000 yuan per unit, but the cost is less than 1,000 yuan.

It is reported that the number of victims of the CAI scam is around 7,000, including families; not only investors but also the hardware suppliers of the CAI team were not spared. After CAI ran away, there were still more than 100,000 Snail mining machines in stock that had not yet been paid. After the CAI team was arrested, these suppliers had nowhere to collect the debts and could only accept the loss.

For retail investors, buying mining machines by themselves is expensive and difficult to operate and maintain. The unit price of a machine ranges from tens of thousands to hundreds of thousands, and the overall cost is too high. On the other hand, some cloud computing power sold in T units on the market is more affordable. Although the investment threshold is low, the risk is not small at all. Just like with mining machines, there are people who try to make money by taking advantage of the situation.

The rampant scams in the name of Filecoin are due to investors' lack of in-depth understanding of various projects, but it also indirectly reflects people's expectations for Filecoin.

Complex rules of consensus layer and penalty layer

We know that the consensus mechanism of blockchain is to complete the confirmation and verification of transactions in a short time through the voting of special nodes; to establish trust and reach consensus between individuals who have no trust in each other. For any blockchain system, the consensus mechanism is its core, because the consensus mechanism is the key to maintaining the continuous operation of the entire system.

The consensus mechanism is related to the interests of miners, which in turn affects the development of the project. The current mainstream consensus mechanisms include PoW mechanism (Bitcoin consensus mechanism) and PoS mechanism, which will not be introduced in detail here.

The consensus mechanism used by Filecoin is more complex than these two, involving more proof systems. The core concept of Filecoin consensus and storage algorithm is "expected consensus + proof of replication + proof of space and time". Expected consensus (EC) determines how and who the network chooses to obtain block rewards. The more data Filecoin miners effectively store, the greater the possibility of being elected as a block node.

Proof of Replication and Proof of Spacetime are the core algorithms of Filecoin, which are now basically mature and stable. Proof of Replication is used to confirm that miners have successfully copied the data and encapsulated it in their own devices; Proof of Spacetime is used to verify that miners continue to store data safely as promised.

In addition to the consensus mechanism, Filecoin also creatively uses a variety of penalty measures to ensure the safe operation of the network.

As you can see, in Filecoin, the penalties for consensus attacks and failure to submit proofs of time and space are the heaviest. The penalty for failure to submit proofs of time and space is essentially to prevent attacks that cannot be identified, which greatly increases the cost of launching attacks. However, the heavy penalty for failure to submit proofs of time and space is less friendly to nodes with network interruptions. A possible improvement is that the network will provide a certain degree of tolerance in the future, allowing users to make remedies within a certain range.

As mentioned above, Filecoin’s penalty mechanism will contribute to the healthy operation of the entire network, but it is undeniable that various penalty mechanisms not only prolong the development cycle of the project, but also raise the entry threshold of Filecoin and put forward higher requirements for participating miners. If you are not familiar with the rules in advance, it can be said that the slightest negligence will result in a heavy fine.

Summarize

For investors who want to participate in the Filecoin project, cryptocurrency speculation, mining, and cloud computing are the most mainstream methods. However, no matter which method is used, it is recommended that you carefully identify and deeply understand it before participating.

In addition, choosing a professional and reliable leading platform is also a safe way.

As early as July 22, OKEx launched the FIL/USDT perpetual contract, becoming the world's first leading exchange to launch the FIL contract.

On October 10, OKEx once again took the lead in announcing that it will launch FIL trading and open recharge and withdrawal services as soon as possible after the launch of the Filecoin mainnet.

On October 13, OKEx added a storage project token display area. The first batch of tokens to enter the OKEx storage project display area include well-known leading projects in the industry such as BTT, SC, STORJ, LAMB, GNX, and CVT. This move is considered to be another measure to welcome the launch of FIL.

As for whether the "rose" of Filecoin can continue to bloom, let us wait and see.