From the game in Filecoin's economic model, how miners can save themselves and develop

Source: Planet Daily

Author: Chain Circle Past

The release of Filecoin’s economic model has caused a stir. Many miners are complaining about the pre-mortgage, the linear release of miners’ block rewards within 180 days, and the effective data. Some miners complained that they had no hope of getting their money back, some greeted the family members of the Filecoin official team, and some threatened to organize a rebellion and fork...

The Filecoin mining market is full of dissatisfaction, disappointment, and anger. Behind the emotions are interests. After venting the emotions, it is a good idea to calmly review and reflect: how to find future opportunities in the game of Filecoin mining economy.

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Filecoin Economic Model: An Opportunity for Long-Termists

In the latest Filecoin economic model released by Filecoin, most of the information has been revealed before, and this version is more official and specific. I will not go into details here, but list a few key points:

• Storage space requires pre-collateralization: Miners need to pledge a certain amount of FIL in advance (currently about 1 FIL/32G) to increase their computing power and produce blocks. This means that the demand for FIL is tight in the early stage, and miners have to invest a huge amount of money to obtain collateral coins.

• Block rewards need to be locked: miners obtain block rewards (approximately 8.9 FIL/block) by mining blocks, which are released linearly over 180 days. This means that miners need to provide stable operation and maintenance for at least half a year to get 100% of the block rewards.

• The computing power of valid data is 10 times that of invalid data: Storing 32G data verified by the filecoin network can obtain 320G of computing power, but miners can only obtain 32G of computing power if they store 32G of data themselves. The proportion of computing power determines the probability of block generation and the revenue from block generation.

Of the 2 billion FIL, 1.1 billion will be used as block rewards and 300 million as storage reserve rewards: The initial block reward will be halved every 6 years, and will be adjusted based on the amount of network data in the future. When the total network storage data volume does not reach 1EB, 30% of the 1.1 billion FIL will only be released when the block is generated (the remaining 70% will be released after reaching the network benchmark)

Global data volume growth

Filecoin is essentially a storage project, and its core value is storage. In the words of the Filecoin economic model white paper, we can always find that the official is trying to guide the healthy and benign development of Filecoin through the economic model:

• The ultra-long block reward lock-up mechanism allows miners to establish a long-term interest binding relationship with the project

• Pre-mortgage allows miners to invest at a high cost and thus strengthen consensus

• Effective data gains 10 times the computing power, allowing more useful data to flow to the IPFS network

Behind all the above mechanisms, Filecoin officials use incentives to force filecoin from short-term mining profit behavior to long-term provision of stable storage services to earn storage income.

Therefore, short-term speculators will be disappointed or even hate the Filecoin economic model, but long-term valueists will obviously agree with it.

Who will be the winner in the Filecoin game?

In the official economic model white paper, Filecoin officially describes the Filecoin network participants as including: developers represented by Protocol Labs, the Filecoin Foundation, miners, users, and investors holding FIL.

Because the interests of all parties are directly related to the price and realization time of FIL, it is necessary to understand the distribution mechanism and release time of FIL.

Participants in the Filecoin network

The holding amount and release mechanism of FIL owners (potential owners) are as follows:

• 1CO investors: 300 million, which will be released linearly every day within 12 months after the mainnet is launched (private placement) and linearly every day within 6 months (public offering).

• Protocol Labs: 200 million, released linearly every day within 6 years after the mainnet goes online.

• Filecoin Foundation: 100 million, released linearly every day within 6 years after the mainnet goes online.

• Miners: The total amount is 1.4 billion. After the main network is launched, miners will invest in mining machines to compete for block mining output. The reward for a single block is released linearly over 180 days.

• Secondary market FIL investors: exchange trading FIL arbitrage.

• User: Need to hold FIL to pay for data storage service fees

In the Filecoin network with multiple parties participating, it is extremely difficult to promote the long-term development of the Filecoin network while taking into account the interests of all parties. At different stages after the mainnet is launched, the supply and demand relationship of FIL will change significantly.

Before Mainnet Launch

The supply of FIL comes from the release of 1CO investors, Filecoin Foundation, and Protocol Labs, and the demand comes from miners buying coins for staking and mining, as well as arbitrage by investors in the secondary market. Miners need a large amount of FIL to pledge, but the amount of FIL released by the market is very small, which means that FIL will always be in short supply in the early stage, and the price is bound to continue to rise. The main beneficiaries at this stage are 1CO investors and Filecoin officials, and the miners will become the receivers.

Initial launch of the mainnet (0-6 months later)

Miners' mining output began to be gradually released, the demand for purchasing FIL for staking weakened (there is still a large demand, and large miners have more reserve machines), the release speed of FIL accelerated (miners' mining output began to be released), and the price of FIL began to gradually fall. The pledged coins purchased by miners in the early stage are already in a negative premium state.

Mid-term mainnet launch (about 6 months later)

Miners have the need to pay for operation and maintenance fees and make a profit, so they will gradually sell FIL to cash out. If new miners are not very enthusiastic about participating in mining, and the IPFS network does not perform well and cannot bring in large-scale effective data inflow, FIL will be in a state of oversupply, and the price of FIL will continue to fall. Miners have a continuous arbitrage demand, and the economic benefits of mining machines affect the trend of FIL prices in the secondary market.

Combining different periods, the miner group will always be under multiple pressures such as large funds, profit pressure from mining machine investors, and competition among miners. They are a relatively weak group in the entire Filecoin interest game.

Investors and Protocol Labs who participated in 1CO early on are at the top of the food chain. While enjoying the huge returns from early investments, they also control the trend of FIL in the secondary market through the rhythm of monetization.

Where is the way out for miners?

Based on the previous analysis, the miners in the Filecoin ecosystem should be the most frustrated and sympathetic. The huge investment in the early purchase of mining machines, the high initial purchase of mortgage coins, the continuous investment in mining machine operation and maintenance, and the long-term return on investment, etc. It seems that the word "miserable" is not enough to describe it.

So, how can miners save themselves?

There seem to be two options at the moment: revolt and fork, or lower expectations and do storage.

Forking may help, but it is difficult and risky. There have always been voices in the market calling for a fork of Filecoin, but it is extremely difficult to implement. Putting aside the technical aspects, just to monopolize computing power and get more miners to support the choice of the forked chain requires strong appeal and influence. At present, the relationship between the top miners is more competitive than cooperative, and it is difficult to establish a solid consensus.

In addition, the developers and partners of the Filecoin ecosystem are mainly from abroad, and it is difficult for forks to gain support from Filecoin ecosystem developers. Losing developer support means it is difficult to expand the ecosystem and gain market share from the traditional storage market.

Lowering the expectation of profit and planning mining from the perspective of storage may be the best solution. Whether from the value of Filecoin's existence or the official design of the economic model, one thing can be confirmed: mining serves storage.

So how to plan Filecoin mining from the perspective of storage? Personally, I think we can start from the following aspects:

• Actively explore the on-chain of enterprise data, obtain more effective data, and improve the efficiency of computing power growth. (Under the same mining machine operation and maintenance costs, the computing power obtained by storing effective data is 10 times that of useless data)

• Develop applications around Filecoin & IPFS, and fully tap the value of IPFS storage in privacy protection, built-in CDN and other features.

• Optimize the mining machine operation and maintenance system, reduce costs and increase efficiency, and reduce penalty losses caused by accidents

When marketing, practitioners in the industry are accustomed to comparing Filecoin to early BTC mining, but in fact, there are essential differences between the two. BTC is more of a consensus-building tool and does not have much practical value (not to mention payment, the actual amount is very small and it is difficult to promote on a large scale). While Filecoin is shaping consensus, it also serves as a medium for matching storage services with storage needs, and has greater practical application value.

If we exclude the practical value of Filecoin as storage and only use it to build consensus, then does the current blockchain industry lack such a consensus target? How long can such a target last?

The development and growth of the Internet industry has given birth to billion-dollar giants such as Amazon Cloud and Alibaba Cloud. Comparing the blockchain industry with the early Internet industry, is there a chance that a billion-dollar storage giant will emerge in the decentralized storage field?

The answer will only be revealed in the future; the opportunity must be seized now.

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