[Zhi Kuang University Q&A] IPFS is so popular, is it a good time to buy Filecoin cloud computing power?

Answer from @JackyLHH, editor of Zhikuang University:

Recently, many content platforms and WeChat Moments in the blockchain industry have been dominated by articles and advertisements related to IPFS/FIL. In the just-concluded Hangzhou Blockchain Week, the IPFS/FIL event was so popular that it seemed like we were back to the cryptocurrency bull market in 2017. On WeChat, the search index for "IPFS" soared to 606,000 on July 8, which shows how popular it is.

Faced with the overwhelming advertisements for IPFS/FIL mining machines and cloud computing power, I believe that many people are just like @想开富的中笨葱, who is very confused about whether to participate.

Today, I would like to talk about my personal opinion: I do not recommend you to buy FIL cloud computing power now.

01
Most cloud computing power is unreliable

There are many pitfalls in cloud computing power, especially selling cloud computing power futures products such as Filecoin whose main network has not yet been launched.

A large number of service providers that sell FIL cloud computing power now do not have real mining machines and computing power, but are just making empty promises. Of course, there are also some service providers that previously sold mining machines and cloud computing power, but they ran away before the mainnet of the Filecoin project was officially launched, which made many people cry.

In fact, as early as 2018, some people started selling Filecoin-related mining machines. However, Filecoin has been delayed many times, the mainnet launch time has been postponed again and again, and a major adjustment of the mining algorithm has been made during this period, which directly caused many previously purchased mining machines to become "scrap metal". A user nicknamed @涐的桃花村 posted a photo of an IPFS mining machine on Weibo, which contained a 1T hard drive.

Despite this, there are still many scammers selling cloud computing power. The computing power they sell is the computing power of old mining machines from a few years ago. After the Filecoin mainnet was launched, it is almost impossible to mine coins with these mining machines.

When the market is enthusiastic, scammers are rampant. The blockchain industry is still in its early stages, and there are many chaos. There are very few reliable cloud computing service providers. If investors are not careful, they may lose all their money.

Of course, there are still some reliable FIL cloud computing service providers in the industry. At this time, should you buy them? My personal answer is still: Don’t!

As far as Bitcoin mining is concerned, the cost of buying a mining machine to participate in joint mining and buying cloud computing power for mining with the same computing power differs by more than 30%. Although cloud computing power is convenient, it contains a very high premium. In Filecoin mining, the premium of cloud computing power is even higher. Mining is an industry that pays great attention to cost. If the cost is too high, it is better to buy coins directly.

In addition, there are many differences between Filecoin mining and Bitcoin mining. The more data a Filecoin mining machine stores, the more valuable it is, but users who purchase cloud computing power only have the right to use it for a period of time, and do not have ownership. If the Filecoin mining machine is likened to a house, then the user who buys cloud computing power is just a sub-landlord. After the contract expires, who will own the data stored in the house and who will get the profit from the house price increase are all controversial. From the current market perspective, users are in a weak position, and it is likely that users will suffer losses in the end.

02
The so-called "first mine" bonus may not exist

Many FIL cloud computing service providers will promote the "first mine" bonus and create FOMO sentiment when promoting their cloud computing products to attract investors to enter.

The "first mining" bonus refers to the high income of mining machines when a currency is first mined because the total network computing power is low and there is little competition. As time goes by, the number of mining machines participating in mining increases, the total network computing power grows rapidly, and the mining bonus period gradually disappears.

Filecoin has only launched the test network, and the computing power of the test network cannot represent the computing power of the entire network in the early stage after the main network is launched. At present, there are countless manufacturers developing Filecoin mining machines, and the competition is very fierce. We cannot know the specific proportion of mining machine manufacturers and mining machines involved in the test network mining. After the main network is launched, all Filecoin finished mining machines will definitely race against time to participate in mining. At that time, the revenue per T computing power and how the mining difficulty of the entire network will change are unknown. It is not scientific to use the current test network data to estimate.

In addition, unlike the more single Bitcoin mining, Filecoin mining requires not only hardware equipment, but also very high technical levels for data storage and data retrieval. Miners need to be very familiar with the various hardware performances in the storage industry, have network architecture capabilities, the ability to deconstruct software codes to reasonably schedule tasks and computer resources, and have extremely strong operation and maintenance response capabilities and business processing levels.

Therefore, even if there is a so-called "first mine" bonus, not all mining machine manufacturers and cloud computing service providers can enjoy it.

03
Mining is a heavy asset investment with poor liquidity

Mining is a heavy asset investment. Whether you buy a mining machine or cloud computing power for mining, you first have to pay a fixed cost, which will be slowly recovered through mining.

Filecoin miners need to stake tokens and cannot quit at will, otherwise they will be punished by the system. It is not easy for investors who have purchased cloud computing power to quit midway.

If the Filecoin mainnet suddenly starts to fall after it goes online, investors who bought the coins can sell them directly in the market to stop losses in time, while investors who bought mining machines or cloud computing power can only watch helplessly, unless they have very good financial means to hedge, but this is too demanding for ordinary people.

04
After the mainnet is launched, FIL is likely to fall for a long time

The essence of mining is a call option on the currency. The prerequisite for purchasing cloud computing power for mining is to be optimistic about the future market trend of the currency price. Only when the currency price remains unchanged or continues to rise, it is cost-effective to participate in mining.

I personally believe that after the launch of the Filecoin mainnet, there is a high probability that the price will fall, and it will continue to fall for a long time. The reasons are as follows:

1. The current price of FIL is too high in the market

The total amount of FIL is 2 billion, of which 70% (1.4 billion) is produced by miners, the remaining 15% (300 million) goes to the project party, 10% (200 million) goes to early investors, and 5% (100 million) goes to the foundation.

According to @比特傻's calculations, the monthly release of FIL (including mining output and unlocked FIL) in the first six months after the mainnet was launched was 34.85 million, 36 million, 37.15 million, 38.3 million, 39.45 million, and 40.46 million respectively.

According to the release of 34.85 million in the first month, the average daily release is about 1.16 million. The current futures price of FIL is about $46.8, which means that the value of FIL released every day is as high as $54.288 million.

Let’s compare it with BTC. The average daily output of BTC is now: 6.25 x 6 x 24 = 900 BTC. According to the current price of $9,300, the daily output is $9.677 million.

The total value of tokens released by Filecoin every day is 5.61 times that of BTC. BTC has been tested by the market for more than ten years. The value of tokens released by a fledgling Filecoin every day is higher than that of BTC. This is obviously unreasonable. The price of FIL is far overestimated by the market.

Of course, in order to mine Filecoin, miners need to lock up and pledge a certain proportion of FIL, but no matter what, the daily release volume is still too large. The market is still in a bear market, with little entry capital. The market may not have so much capital to take over, and a decline is a high probability event.

2. Good news turns into bad news. Most projects open high and close low after they are launched.

"I saw him build a tall building, I saw him entertain guests, and I saw his building collapse." This sentence written by Kong Shangren in "Peach Blossom Fan" in the Qing Dynasty is also applicable to many blockchain projects today.

Many projects have very high prices before the mainnet is launched, and everyone is speculating on expectations. Once the mainnet is launched, the good news becomes bad news, and prices begin to fall, and continue to fall.

For example, EOS, which claims to be blockchain 3.0 and has a million TPS, was hyped up to $23 before the mainnet was launched, but now it has fallen to $2.35:

Another example is ATOM, which focuses on cross-chain. When it was launched, the market hyped it up to $8, but now it has fallen to $2.66:

The current cryptocurrency market has not yet entered a true bull market, so after the Filecoin mainnet is launched, it will most likely continue to fall like the projects mentioned above.

3. The opening of contract leverage accelerated the plunge

Contracts are a double-edged sword for a currency. When the market is good, it will accelerate the rise, and when the market is bad, it will accelerate the decline.

Some exchanges (such as Gate) have not only launched FIL futures trading, but also opened contract leverage services. As mentioned above, the current market may not have so much funds to take over the FIL released every day. It is highly likely that the price will fall after the launch, and the existence of contract leverage will only make FIL fall more violently.

4. Fundamentals: Filecoin’s performance is not good enough to handle the big task

Although there is room for speculation in a blockchain project in the short term, in the long run, it still has to return to fundamentals.

The performance of the Filecoin project is still very poor, and the ecosystem has not yet taken off. To quote Jiang Zhuoer, "It has poor performance and is not up to the task." With such fundamentals, it is difficult to maintain such a high price for a long time.

04
Conclusion

Although IPFS/FIL is very popular now, I hope every investor can look at the market frenzy rationally and calmly.

As for FIL cloud computing power products, most of them are not reliable and have many pitfalls. Even if they are reliable, they also have very high premiums. With such fierce competition in Filecoin mining, there is probably no so-called "first mine" bonus after the mainnet is launched, and the price of FIL has been hyped up by the market. It is likely to open high and close low, and continue to fall for a long time. As an ordinary investor, it may be the best choice at this stage to wait and see and take further action after the situation becomes clear.

What do you think about IPFS/FIL cloud computing power? Feel free to share your views in the comment section.

Risk warning: The content of this article is only the personal opinion of the editor, does not represent the views or position of Zhikuang University, and does not constitute any investment opinion or recommendation.