Filecoin bears: easy to collapse, high valuation, and high policy risks

Filecoin was once claimed that everyone could mine and was highly anticipated, but now it has become a game for a few consortiums and a graveyard for most people.

Contribution | Produced by Apeso | Deep Wave TechFlow

Those who have deep desires for old age have shallow understanding of the mysteries of nature. —— "Zhuangzi: The Great Master"

To be frank, the author believes that Filecoin is likely to collapse in the short term and will be difficult to implement in the long term.

Constrained by the mining machines that have already been sold and the expectation that the main network will be launched two years later, Filecoin has been abandoned by early believers and has become a game for a few consortiums.

For a long time after the Filecoin mainnet is launched, the community will be surrounded by a speculative atmosphere. Then, this situation where no takers can be found and speculation fails will be subject to the sale of mining machines and a sharp drop in coin prices, affecting the implementation of Filecoin.

In addition, the application of IPFS by major companies such as Huawei and JD.com will devour the market of FIlecoin.

In addition, due to the Chinese government's content control, Filecoin, which uses decentralized storage as a gimmick to the outside world, will face the possibility of being banned, and the ones who will pay the bill will be the Filecoin mines/mining pools in China.

After the Filecoin hype, only a pile of bones will be left.

Can Filecoin be implemented?

Before discussing Filecoin, let’s first ask, what is Filecoin?

In fact, many people confuse Filecoin and IPFS.

IPFS is the Interplanetary File System, a network of protocols.

IPFS has been running smoothly for four years since its release in January 2015. Currently, there are hundreds of applications on IPFS and millions of nodes around the world. Companies such as Google and JD.com have begun to use IPFS technology.

According to a disclosed document, as of June 2017, more than 5 billion unique content files have been stored on the IPFS network, and the data is continuing to grow.

Filecoin is a blockchain project that has been delayed several times since its mainnet launch in June 2018. Its performance has also been criticized.

IPFS is equivalent to a busy road, while Filecoin is a foal that is panting before it is born.

IPFS technology has been implemented, but Filecoin has yet to be tested. This is the difference between the two.

The hot publicity we see now is basically centered around Filecoin.

Unlike other crypto projects that hype concepts, Filecoin’s major innovation is that it is tied to entities. Before the main network is launched, speculators can hype a wave of mining machines or cloud computing power. A public data shows that the sales of several leading manufacturers even exceeded 1 billion yuan.

As we all know, with the birth of Filecoin, a group of wealthy people have emerged, but can Filecoin, which has not yet been launched, support such a huge wealth?

The biggest application of Filecoin is cloud storage. In terms of storage function, Filecoin is no different from Amazon and Alibaba Cloud, and the latter has more significant scale and technical cost advantages.

However, the advantages of Filecoin, such as data immutability and privacy, are the biggest obstacles to the development of Filecoin under the existing policies. This part will be elaborated in the next chapter.

Recently (July 3), JD.com announced that it has deployed IPFS.

JD Wireless Bao is a router with NAS (Network Attached Storage) function. It has a technology monetization system based on P2P, which needs to be combined with IPFS.

In short, Wireless Treasure is "mining" by using users' idle bandwidth resources. The person in charge of Wireless Treasure also said that by distributing and caching some valuable files and data on Wireless Treasure and making some valuable products, "combined with IPFS technology, the total storage cost is very low, but the value of the data is very high."

The problem that most Filecoin supporters do not realize is that these major Internet companies are both users of IPFS and competitors of Filecoin.

Readers familiar with Filecoin should realize that what JD Wireless Bao wants to do is actually very similar to the application of Filecoin.

Moreover, compared with Filecoin's main network which has yet to be launched, JD has three major advantages: e-commerce mall traffic, JD Gold Beans to isolate risks, and technical cost advantages.

In contrast, Filecoin, in addition to continuously postponing the launch of its mainnet, has also been questioned for its performance. As a public chain in the distributed storage market, it is now basically a semi-finished product.

What Filecoin can do has already been done by big companies, and what big companies cannot do is where Filecoin can show its strength, but there are risks and traps involved.

Filecoin's core application scenario is commercial storage customers. Regardless of whether the performance can keep up in the initial stage of launch, at least in terms of the difficulty and efficiency of promotion, it is obvious that these Internet companies have more opportunities.

At present, for a long time after the mainnet was launched, FIL's price performance and liquidity level were not enough to support a healthy storage market.

Filecoin’s copyright crisis

When new users open Filecoin-related applications and forums, they probably won’t be attracted by the simple pages.

The IPFS Chinese community IPFS.GUIDE is flooded with all kinds of pirated movies and has a pitifully small number of users.

IPFS.GUIDE was launched in March 2018 and is said to be the first Chinese IPFS application in China, saving thousands of short videos.

Someone on the forum said that if this speed can be maintained as the number of users increases, it is only a matter of time before (the forum) replaces Baidu Cloud and becomes the next resource distribution center.

Some people also expressed the same concerns as I did: Will it be blocked?

The website's IP address is located in China and has no operational ICP so it is not easy to back up. The official response was that it will be moved overseas soon.

The website is located overseas, but the actual controller is in the country. There are many such cases.

Dtube is a video application based on IPFS. It is a decentralized video playback platform built on Steem. Videos uploaded by users are stored through the IPFS protocol.

Open the Dtube page, which is a video website almost the same as YouTube, but the difference is that Dtube and Youtube are not on the same order of magnitude in terms of video content or traffic: there are no comments, no likes, and the number of subscriptions is basically in the single digits.

Since 2020, YouTube has begun to delete a large amount of cryptocurrency-related content. Dtube is thought to replace YouTube, but its traffic is too small.

Perhaps you will say that these have nothing to do with Filecoin, but these IPFS applications will actually become Filecoin applications, and their use will be incentivized by FIL.

In short, the infrastructure related to Filecoin is very early, lacks users, and is full of pirated information.

However, pirated files may become copyright freedom for Filecoin supporters. For example, Juan, the founder of IPFS, wrote a script in 2018 specifically for downloading YouTube videos and uploading them to the IPFS network.

Filecoin believers attempt to use distributed networks to restore the glory of P2P websites. Is this possible?

From a technical point of view, the distributed network reduces the attack surface of censorship. Compared with the HTTP protocol, IPFS realizes permanent storage of information, which cannot be tampered with or deleted, as well as resource sharing.

On an operational level, this is almost no longer possible.

Xunlei's development is inseparable from the weak copyright awareness in the early days of the Internet. Today, there is no such growth environment. Subject to the increasingly mature copyright laws and content control, these have gradually declined.

In 2006, eMule was sued for copyright infringement and chose to pay $30 million and stop development. Later, eMule founder Jed McCaleb established Mt.Gox and Ripple.

In December 2013, Sohu, Youku, Tencent Video, and LeTV formed the latest anti-piracy alliance, standing on the moral high ground, held a grand press conference, and loudly denounced Qvod's infringement. In April of the following year, Qvod announced that it would shut down its servers.

According to Bloomberg, EU police recently destroyed a TV and movie streaming network that supports cryptocurrency payments, involving more than 2 million users, and arrested 11 suspects from Spain, Denmark, Sweden and other places.

Domestically, the founder of Station D was arrested recently on suspicion of copyright infringement.

The main reason why IPFS content platforms have not been sued so far is that they are too small. Once they develop, someone will have to pay for it.

Development or freedom? This is the binary paradox of IPFS and Filecoin. Otherwise, how can Filecoin compete with those big Internet companies?

However, in terms of decentralized cloud storage, Filecoin still has its own advantages.

Jiang Zhuoer of Litecoin Mining Pool said that the information freedom of decentralized storage is an important and rigid demand, which is the continuation of the currency freedom of Bitcoin and the equity freedom of ETH.

But content storage actually means stricter content control.

Filecoin's policy risks

The biggest risk of Filecoin is policy risk.

The Filecoin white paper states that Filecoin has two markets, the storage market and the retrieval market, which are equivalent to two decentralized exchanges. There is no entity to manage the exchange, the transactions are transparent, and anyone can participate anonymously.

As a distributed storage network, Filecoin has the characteristics of anonymity and privacy protection, which is a great convenience for gray areas such as pornography.

Filecoin cannot control or supervise user behavior, which poses a huge regulatory challenge for governments.

On the node map of the Filecoin browser, the brightest and densest area is China.

In June this year, two Chinese youths were arrested on suspicion of "picking quarrels and provoking trouble" for archiving deleted articles on Github.

If someone wants to store files on the Filecoin or IPFS network in the future, the network disk management regulations will be a headache.

In January 2018, Apple announced that the iCloud service in mainland China would be operated by Cloud Guizhou. According to China's Cybersecurity Law, judicial and national security agencies can require network operators to provide "technical support and assistance."

In the future, will Filecoin be like iCloud?

Not only local supervision, but also how does the Chinese government deal with the situation where "the storage party is abroad and the user is in China"? These are common scenarios on IPFS and Filecoin.

Previously, in response to censorship by the Spanish government, the Catalan government used IPFS to upload previously banned websites and make them available to the public.

As the global situation becomes increasingly tense, the exchange and supervision of foreign information will become increasingly strict , and Tiktok may be a good example.

Once an accident occurs in Filecoin, someone will have to pay for it. Due to the anonymity and decentralization of blockchain, it is difficult to trace the file publisher, and the physical mining farms in China are likely to be responsible.

Filecoin miner nodes involve data transmission, content distribution, etc., so the following qualifications are required: IDC (Internet data center business), CDN (content distribution network business), ISP (Internet access service business), IP VNP (Internet virtual private network business), etc.

Take CDN as an example. CDN service is a content distribution network that uses cache. Users can get the required content nearby, reduce network congestion, and improve user access response speed and hit rate. The most famous one to use CDN before was Qvod.

Except for a few leading mining farms, most Filecoin mining farms/mining pools do not have the above qualifications, and some even claim that they place their mines overseas.

Once a storage accident occurs, these domestic mining pools will face high costs.

Filecoin supporters countered the above by saying: Technology is not guilty. Technology comes first, and the law follows.

The last company to mention technology is Qvod. On September 24, 2014, Qvod was prosecuted by the Beijing Municipal Public Security Bureau on the charge of "suspected of spreading obscene materials for profit." Prior to that, Qvod was fined 260 million yuan by the Shenzhen Market Supervision Administration.

Some people say that the implementation of Filecoin will inevitably be accompanied by the emergence of a large number of applications and service providers. Ordinary users who want to store files in Filecoin need to go through intermediary service providers. As long as supervision starts from the application layer and supervises the service providers, this is also a feasible content control solution. "Whoever owns the node is responsible, and whoever distributes it is responsible."

The official also responded to this.

Someone asked Filecoin officials: How does the Filecoin network handle content removal requests? (For example, child pornography) If I am a storage provider, what are my responsibilities here? "

The official response stated that the network is unable to delete files on participants' computers, however, they are opening up a set of tools to help users control the type of data they are willing to store from their machines.

However, I believe that none of the above solutions provide a solution. As mentioned on the Filecoin official website, Filecoin stores data and content in every corner of the world , and "as data flows around the world, data acquisition is constantly optimized."

Under the current circumstances, how does the Chinese government supervise and restrain storage service providers from the United States?

According to the author's observation, most Filecoin investors are not aware of the policy risks behind it. They only see the benefits and profits.

Before the entire Filecoin network truly matures and stabilizes, the price of FIL will be the support for miners and secondary market investors. The income of early participating miners is mainly block rewards, and most of the data stored at this stage will be data stored by fake orders.

Compared with other virtual currencies, the biggest innovation of Filecoin is that it is bound to physical mining machines, which provides room for speculation by investment institutions.

As of today, there are at least 200 to 300 Filecoin mining machine sellers in China, and the sales of leading manufacturers even exceed 1 billion.

I heard that last month, a Filecoin mining machine manufacturer held a sales meeting in Huizhou and sold 50 million in one session. Another mining machine manufacturer sold a large order of 60 million, and the boss directly rewarded him with a house.

Filecoin valuation is too high

Filecoin was first proposed in 2014 and officially launched for external financing in July 2017.

FIlecoin makes the data of these applications valuable, "through incentive policies and economic models similar to Bitcoin, allowing more people to create nodes and use IPFS."

At the end of August 2017, Filecoin completed global crowdfunding and raised a total of US$257 million on Coinlist. Note that all of this was raised from US citizens.

According to statistics, Filecoin is expected to produce 34.11 million coins per month in the first six months, and 365.13 million coins in the first year. The reward tokens released by each block of Filecoin are decreasing, and will be completely halved in the sixth year.

According to the current FIL futures price ($15), the total market value of FIL produced in the first year is $5.475 billion. Calculating only the circulating market value of $5.475 billion, it ranks fifth in the current cryptocurrency market value ranking, after XRP.

The big guys are all saying that this is the next Ethereum-level investment opportunity. But calm down and think carefully, do you think Filecoin can really surpass Ethereum?

Regardless of the answer, the market has given its expected data: yes.

Calculated based on the futures price of US$15, the total market value of Filecoin is 210 billion yuan, exceeding Ethereum and approaching Bitcoin.

Therefore, some Filecoin mining machine salesmen took this opportunity to say that according to the current FIL futures price (about 105 yuan), without considering the electricity and operation and maintenance costs, a mining machine worth 248,000 yuan can pay back in just three months.

In this way, the mining machine was sold, and the salesperson received a commission of up to 25%. Filecoin was hyped up as the public expected it. But what you don’t know is that the mining machine company only purchases hardware and assembles it into a so-called mining machine, and the price can be doubled to five times.

Let me pour a bucket of cold water on you first. Do you think Filecoin can challenge Baidu Cloud's position within two years?

In the fourth quarter of last year, Baidu Cloud accounted for 8.8% of the domestic cloud market. Recently, Goldman Sachs valued the entire Baidu Cloud segment (Xiaodu smart speaker + Baidu Cloud) at RMB 40 billion.

Filecoin has neither data nor content. It is just a concept that is sold in advance to cash out. Its market value has reached 210 billion yuan.

According to the exaggerated statement of Bao Erye Guo Hongcai, Filecoin mining machines alone sold 11 billion US dollars.

But guess where the more than 10 billion US dollars went for the mining machine manufacturers that have completed sales and cashed out?

In addition to the hardware costs and the early investment costs of mining machine manufacturers, the money may have gone to the stock market, the real estate market (the house sold as a reward mentioned above), and luxury goods. In the end, only a small part remains in the Filcoin price.

Who will support the price of FIL when the mainnet is launched? It cannot be users who cannot find any application value, nor can it be miners who have cashed out, nor can it be mining machine investors whose wallets have been emptied.

Even Bao Erye said that his belief in the "essence of making money" is to make the most lucrative profits during the first wave of dividends.

He also added that the first year after Filecoin goes online is a bonus period, but it is unknown what will happen after one year.

In short, IPFS technology is feasible, but Filecoin cannot compete with Internet companies. Filecoin once claimed that everyone can mine and was highly expected, but now it has become a game for a few consortiums and a graveyard for most people.

In my opinion, Filecoin is currently just a blockchain project driven by speculation. It is seriously bubbled and its cloud computing power is at risk of collapse (I can write a special article on this issue later). Please keep your eyes open and invest with caution.

References:

1. "How can 30 million JD Cloud wireless treasures help IPFS enter thousands of households?", IPFS.CN

2. "IPFS/Filecoin: The stars and the sea are on the left, and financial enlightenment is on the right", BlockVC Industry Research

3. "IPFS vs Filecoin: How Should Developers Choose?", Dong Tianyi

4. "Will IPFS data security be regulated in China?" Anhui Binhe Yunzhi.

5. "Shocking! Can Filecoin help the porn industry?", IPFS Force Zone

Source: TechFlow