Filecoin: Why it matters

Everything from the websites you use to the financial infrastructure that supports our economy depends on efficient data storage. But today, this data storage is increasingly expensive , opaque, brittle, and censorable.

Filecoin aims to solve these problems and restore storage to its naturally free and private state.

Filecoin’s cryptoeconomic incentives could potentially expand the supply of data storage, which would lead to lower market prices and democratize the oligarchic data storage industry.

The network’s marketplace provides open, dynamic pricing, enabling transparency for network participants.

Distributed storage miners eliminate the perpetual censorship of modern tech giants.

Resilient infrastructure provides an alternative to the fragile options that have been the foundation on which we have built our networks until now.

Filecoin is a major milestone in the evolution of the Internet. It is a leader in empowering users rather than corporations. We are excited to support the launch of the Filecoin network.

In this post, we’ll briefly outline the history of data storage, then describe how Filecoin builds on this existing trajectory and what it can do.

Let's start with the history of the data.

In the 1950s, data was stored and managed in-house, with hard disks rented out by a few companies, notably IBM with its RAMAC. At $640 per megabyte per month, the RAMAC was expensive and limited in functionality. Data storage was so expensive that large companies, universities, and governments had to resort to computers.

Fast forward to the 1990s, and we saw a surge in RAM-based storage systems with solid-state drives (SSDs). Thanks to decades of Moore’s Law, they provided more memory for less money than Moore’s Law had in the 1950s. However, companies and users still had to physically host their own on-premises solutions in an onsite data center, home, or garage. Scaling a tech company in this era meant millions of dollars dedicated to physical hardware.

In 2006, Amazon released AWS, the world's first widely adopted on-demand cloud computing platform. AWS gave people a way to store and process data and applications not in a garage or company basement, but in the cloud. Data storage became modular and on-demand. Amazon simplified hardware requirements and introduced a business model that allowed developers to focus on their core competency of building great applications and software.

Today, cloud storage has become the backbone of the Internet. Although it is a huge improvement, it brings new risks. Current data storage solutions are controlled by a few large companies, and their operations, data management, and pricing are not transparent. As of now, Amazon, Microsoft, Google, Alibaba, and Tencent control more than 70% of the cloud computing market.

Nearly every person, company, and government hosts their data on one of these service providers, but we know very little about how that data is managed and protected. Given our reliance on cloud computing, these cloud providers have concentrated wealth and power. They can censor and deplatform other services with a single tap. They can access “private” data to copy and crush rival startups. If their systems fail, the entire web (and modern society) grinds to a halt.

Filecoin is a decentralized storage network that turns the world's unused storage into an algorithmic marketplace, creating a permanent, decentralized future for the web.

We believe Filecoin can provide a solution to the centralized cloud storage problems described above, while retaining the modularity and scalability of cloud-based data storage.

Filecoin’s data market consists of three participants: clients (end users), storage miners, and retrieval miners. These three participants form the core of the market, where clients pay storage miners to store their data and pay retrieval miners to fetch data for them. All of these activities are denominated in “FIL” , the native asset of the Filecoin ecosystem.

Filecoin's infrastructure and economic model create an easily accessible market, which greatly reduces the cost for data storage providers to access and find customers. As a result, data storage can become a competitive market rather than an oligopoly. Data storage prices will fall, attracting new customers.

At the same time, its native token FIL economically incentivizes honest behavior between these parties while disincentivizing dishonest behavior. The storage network has various built-in storage proof systems that allow users to verify that their data has been replicated and stored correctly over time. In addition to these proofs, users can also hire multiple storage miners to store the same data set to further mitigate the risk of data corruption.

In the Filecoin model, data storage becomes a market where anyone can pay for storage access or earn money by providing access to data storage. Instead of 5 providers owning the entire data storage market, the economic benefits of data storage are dispersed around the world, reducing costs, limiting censorship, data theft, creating redundancy, and democratizing opportunities.

We believe Filecoin’s success is due to :

1. The founding team’s experience at Protocol Labs. Protocol Labs, the team behind Filecoin, has deep industry experience in creating distributed file storage systems – they created IPFS, which stores billions of files while relying only on voluntary storage providers.

2. Greatly reduces the cost of data storage. Filecoin has the potential to create a market that can utilize unused storage space in data centers. The additional supply created by Filecoin can eventually reduce storage prices while meeting growing demand.

3. Design reasonable incentives. The Filecoin network focuses on aligning the incentives of all participants and can rebalance and recover from disruptive events to maintain the security and liquidity of data.

4. Resilience and censorship resistance. By breaking up the oligopoly, data storage will become decentralized while maintaining security and accessibility.

In Filecoin, we are reimagining a foundational part of the internet’s infrastructure and ushering in the next evolution of data storage.

1. The founding team’s experience at Protocol Labs

Protocol Labs, the team behind Filecoin, has a successful history of building distributed storage systems. Protocol Labs released IPFS in 2015, and since then the project has served billions of files in a purely peer-to-peer file system. Impressively, IPFS runs entirely on people providing storage space for free, with no built-in economic mechanisms. IPFS has successfully bypassed censorship, such as when it was used by Spanish dissidents during the Catalan independence referendum. Projects such as Origin, 3Box, Handshake, Augur, Aragon, the Ethereum Foundation, and many more are currently using IPFS as the basis of their infrastructure.

We believe that there is no team on the planet better qualified to introduce an economic layer to scale the proven concept of a decentralized storage system.

2. Greatly reduce data storage costs

In the data storage market, prices are opaque at best because supply is controlled by a few large companies. Filecoin expands the available market supply by providing infrastructure that allows anyone with unused storage space to effectively rent it out. In addition to simply expanding supply , Filecoin’s infrastructure will make it easier for storage capacity to flow in and out of the market, resulting in dynamic prices that closely follow supply and demand.

A useful analogy could be the relationship between Airbnb and hotels, where Airbnb increases the available supply in the market and provides users with more choices and pricing. Airbnb can only do this by providing market infrastructure to lower the barrier to entry for Airbnb hosts to utilize unused listings. Similarly, Filecoin is providing the necessary infrastructure for storage miners to utilize their unused hard drive space.

If Filecoin's infrastructure is successfully implemented, Filecoin will reduce the cost of data storage for new market participants, resulting in large cloud providers competing with individuals and small startups for the same market. At the same time, adding and removing storage is now cheap and easy, and data storage prices will be closely tied to changing market demand.

3. Designing Appropriate Incentives

Filecoin (FIL) is the native asset of the Filecoin blockchain and powers the data storage and data retrieval markets that form the core of the Filecoin project. There are three main players in the Filecoin economy: clients (end users), retrieval services, and storage miners. The relationship between clients and storage miners is critical to the success of the project.

In Filecoin, storage miners are held honest for a range of economic factors. First, a miner’s storage capacity determines the likelihood of receiving a block reward, which causes different mining operations to invest in additional storage and cumulatively generate enough power for the network. Second, when storage miners store data on behalf of clients, they must provide collateral to participate in that economic activity. This collateral consists of the principal and a portion of the miner’s future block rewards, both of which are paid in FIL. If the miner behaves dishonestly and does not store the client’s data, they will lose a portion of their collateral. There is an economic disadvantage to abandoning a previously agreed-upon storage deal reached by a client and a storage miner. Third, storage miners are further aligned with the long-term viability of Filecoin because, in the early days, block rewards will scale with storage capacity until a network benchmark is reached.

Once the network benchmark is reached, the block reward will take the form of an exponential decay model similar to Bitcoin. This is to prevent miners from investing heavily in storage from the beginning to obtain larger block rewards and then exiting the network when the block reward decreases.

These incentives are designed to generate an optimal number of miners that provide honest service to customers. Given this premise, coupled with a fixed supply of FIL tokens, the success of the project will depend on whether it can meet sufficient demand for storage miner services, as well as demand for FIL.

IV. Resilience and Censorship Resistance

Filecoin is a decentralized storage network that turns cloud storage into an algorithmic market. Anyone can become a miner, provide available data storage to this market, and earn FIL for execution. Data no longer has to exist in large centralized data centers that represent a single point of failure. Customers can store as many copies of their data as they are willing to pay with other miners to ensure that their data is not at risk of being leaked.

However, unlike centralized cloud providers, there is no account manager who can ensure that your data is stored correctly for a given period of time. Filecoin solves this problem by introducing two novel proof systems to verify that user data is being managed correctly. First , storage miners are required to submit Proof of Replication (PoRep) to the Filecoin blockchain. PoRep allows users to mathematically verify that the storage miners they use have copied their data to physical storage dedicated to the data in question. Second, storage miners are also required to submit Proof of Spacetime (PoSt) to the Filecoin blockchain . PoSt requires storage miners to provide proofs that mathematically verify sequential proof of replication over a period of time. In other words,

A data storage network composed of storage miners around the world, combined with quality assurance based on mathematical verification, provides users with a powerful and censorship-resistant service. Filecoin's network has no entity to bear pressure and no data center to destroy, so it constitutes a data storage center that allows users (not service providers) to firmly control their data.

The web has fundamentally changed the way we communicate, entertain ourselves, conduct business, and ultimately, the way we live. However, "the web" is not well defined; it is the entirety of the technology infrastructure that our end-user applications are built on. Data storage is a critical component of that infrastructure.

While we’ve made progress in updating data storage solutions, there are still serious economic, political, and technical problems with the current infrastructure.

We believe Filecoin represents the next evolutionary stage in how we manage data. It is distributed, mitigating the threat of censorship and fragility. Well-designed incentives ensure that Filecoin can operate without a single operator. By making it easy for new entrants into the market, storage prices can be lowered and accuracy improved. Perhaps most importantly, Filecoin’s ambitions are being realized by a team with deep expertise and experience in distributed file systems.

We are excited to support Filecoin on day one of the network’s launch and usher in the next generation of data storage.