Read all | What is IPFS? What is Filecoin? How to participate?

Editor | Xiaomo

Produced by | Mer Finance

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Since many people have only a vague understanding of what IPFS and Filecoin are, and how to participate, the mainnet is about to be launched, and the trend of distributed storage will officially arrive. However, there is a lot of popular science information on the Internet, which is difficult for the public to understand. In order to help everyone understand this trend clearly, Filecoin Net will use the simplest language to explain these two projects and how to participate.

What is IPFS?

IPFS (Interplanetary File System) is an underlying protocol, a distributed system, and a network.

IPFS is the underlying protocol

The underlying protocol of IPFS is similar to the mainstream HTTP protocol of the Internet. Currently, almost all Internet information browsed by the public follows the HTTP protocol. The HTTP protocol is simply a data transmission protocol. When the public reads information, they send a request to the web page, and then this request is sent to the centralized server, and the server returns the relevant content to the public. Therefore, the HTTP protocol transmission must request a specific centralized server address , that is, the IP address. It is easy to have problems when it comes to a specific centralized server, such as the server being attacked, causing information leakage security problems, the server crashing and being unable to load a high number of user request pages, and the server being destroyed and the data cannot be restored and permanently lost, which is our common 404 interface...

Unlike the HTTP protocol, the IPFS protocol is not based on IP addressing, but on content addressing, that is, the files in the IPFS system are fragmented, and each fragment is hashed (complex mathematical operation) to finally have a hash value. All the fragments of the entire file are hashed together to get the hash value of the entire file, and then the public can directly browse the complete file through the final hash value. File fragments do not exist on one server, but on many servers, which are decentralized. Without a centralized server, hackers cannot attack accurately, and multiple servers can withstand a higher order of user requests and page loading is faster. The data of a single server can be restored from other servers to ensure the permanence of information if it is destroyed. The IPFS protocol based on content addressing has the advantages of being safer, lower cost, and more user-friendly than the HTTP protocol. This is the trend of the future.

IPFS is a distributed storage system

IPFS has an underlying transmission protocol and a file storage system, just like the traditional Internet has HTTP protocol and data storage servers. The data storage in the IPFS network is also very different from that in the traditional Internet. The traditional Internet data storage is centralized. For example, Alibaba Cloud, Tencent Cloud, and Huawei Cloud, these leading cloud server companies divide the vast majority of the profits of the market data storage. IPFS emphasizes the spirit of sharing, which is to allow the public to contribute their idle network resources (bandwidth + hard disk) to serve as nodes to contribute to IPFS. At the same time, the public can enjoy a cheaper and more friendly data download and browsing experience, like the BT download in the early years.

The IPFS distributed file storage system can make full use of idle resources and reduce the data usage costs of the entire community. Distributed storage also makes data more secure. After all, a single node is more vulnerable to attack.

IPFS is the network

With the underlying file transfer protocol and the distributed file storage system, developing applications on IPFS that use the storage system and transfer protocol will form a network closed loop, so IPFS is also a network.

The IPFS network has been online since 2015, and it has been 5 years now. In the past 5 years, IPFS has made significant achievements.

IPFS can make current Internet applications (search engines such as Baidu, video downloads such as Youku, e-commerce platforms such as Taobao, etc.) safer, faster, longer-lasting, and more private. Distributed networks are the trend of the future, and major giants have begun to study them. IPFS has already achieved considerable results abroad.

IPFS applications are mainly divided into three categories: one is the DAPP application of IPFS itself, one is the underlying storage network of blockchain projects, and the other is to link traditional Internet applications and provide them with transmission protocols and data storage.

Here are a few well-known applications

Ethereum Domain Name System

In cooperation with the Ethereum domain name system, the official Ethereum website has been built on IPFS. In the future, application data on Ethereum may be transferred to IPFS for storage.

Firfox Firefox

Firefox WebExtensions product manager Mike Conca published an article on the Mozilla official website stating that the browser extension application supports distributed protocols including IPFS, that is, support for the "ipfs://" protocol.

Google Chrome

IPFS Companion is a browser plug-in incubated by the IPFS official application community and can be found in the Google Chrome extension application. It can be used to simplify the browser extension of IPFS resource access, help users better run and manage their own nodes locally, and view the resource information of IPFS nodes at any time.

Opera browser

Opera has been working with IPFS for a long time and is expected to launch IPFS support in its Android version of the Opera browser and develop a crypto wallet in the browser, which is available for Android, iOS and desktop.

Netflix

Netflix mainly provides a large number of DVDs and delivers them for free. In addition, its users can also watch its movies and TV shows through computers, TVs, iPads, iPhones and other Internet connections. Its market value exceeds one trillion.

IPFS has reached a cooperation with Netflix, the world's largest streaming platform. It integrates peer-to-peer services and other technologies in the IPFS system into Netflix's tools, and uses IPFS technology to accelerate the construction, design, and testing of the cloud.

What is Filecoin?

The most direct reason for the creation of the Filecoin project is IPFS. We know that IPFS (Interplanetary File System) is a well-known distributed network system and an underlying Internet protocol similar to HTTP. It has efficient data transmission capabilities, a secure data transmission environment, and a lower-cost file transmission system. It has no problem as an Internet protocol layer and building a self-running network. After 5 years of development, although it seems to have achieved outstanding achievements, replacing the HTTP protocol and reconstructing the entire Internet underlying infrastructure has encountered a scale bottleneck. The main problem comes from the point of distributed file storage.

The distributed storage of files is reflected in the IPFS network. There are thousands of peer nodes in the network (which can be understood as individuals or enterprises that own servers) that contribute their own resources (bandwidth + broadband) to the entire network. After everyone contributes, they will also get rewards. Once this shared economic system is scaled up, problems will arise. For example, if some nodes contribute too much and the rewards do not match, the enthusiasm for contribution will decrease. At the same time, everyone will only contribute when they want to ask for rewards in a public network. Contributing without asking for anything is not in the personal interest.

For example, there is a piece of public land for everyone to use for leisure and entertainment. One resident spends less time on leisure and entertainment. Seeing that other residents spend a lot of time using the public land for leisure and entertainment, he privately expands the area of ​​his residence, and the area of ​​the public land becomes smaller. In the end, when everyone does this, we will find that the public land has disappeared and everyone has no place for leisure and entertainment. This is the famous "tragedy of the commons."

As mentioned before, if contribution and reward are not proportional, it will discourage the enthusiasm of some people. When these people only take, the entire network will fall into a scale bottleneck or even go downhill. On the contrary, if the problem of proportional contribution and reward can be solved, the entire system can fall into a positive cycle.

In order to solve this problem, the IPFS development team led the development of the Filecoin blockchain project, taking out IPFS distributed storage and solving the problem of lack of enthusiasm for node contribution through blockchain warrant design. The contribution is quantified based on the effective storage value of the node, and the currency of the Filecoin network is won through a fair competition mechanism. The currency obtained can be exchanged for legal currency to obtain income, which stimulates the enthusiasm of the entire network nodes and solves the tragedy of the commons problem very well.

Of course, this coin must have appreciation value to stimulate everyone to contribute, so the total issuance of the Filecoin network is 2 billion, of which 70%, or 1.4 billion, are used to reward contributors. The number is halved every 6 years. Compared with the vision of IPFS/Filecoin, the coin is scarce and can push up the price of the coin.

Filecoin gives IPFS the potential to replace the HTTP protocol and reconstruct the entire Internet. In return, the value of the entire IPFS ecosystem will be taken over by Filecoin tokens, which can truly achieve 1+1>2. Giant capital has a keen sense of smell, so they invested in it as early as 2017 when the Filecoin white paper was first released. At that time, it raised $257 million, setting a record for the financing of blockchain projects.

The invested capital includes:

YCombinator: An incubation project of Silicon Valley's top startup incubator YC. Since 2005, Y Combinator has provided funding for more than 1,900 startups. The combined valuation of the companies exceeds $10 billion.

Sequoia Capital: Sequoia Capital was founded in Silicon Valley in 1972 and has invested in many Fortune 500 companies such as Apple, Google, and Cisco. In China, it has invested in well-known companies such as Alibaba, Ant Financial, JD.com, Meituan, and Didi.

Stanford University: It is a famous research university, ranked second in the world.

Andreessen Horowitz Fund: Andreessen Horowitz has been actively investing in technology companies, including Skype, Zynga, Digg, as well as 90 Internet companies such as Foursquare, Airbnb, Twitter, Facebook, etc.

...

Filecoin coin function:

1. Quantify the contribution of participants

2. Give it to participants as a reward to encourage them to continue contributing

3. Carrying IPFS network value

How to participate?

Nowadays, the Filecoin blockchain project has gone through a three-year technical iteration period, and the main network was finally officially launched in July-August. At present, the public wants to enjoy the dividends that Filecoin brings to distributed storage. There are two main ways to participate. One is to hoard computing power, and then wait for the main network to go online to grab the first mine; the other is to directly buy FIlecoin futures (spot after the main network is launched), and wait for the exchange to release the spot after the main network is launched.

If the trend of the Filecoin project is good, there is no doubt that we will make a lot of profit no matter which method we choose. However, many people are troubled by how to choose to maximize the benefits. Today we will try to use data to clarify this issue.

First of all, we have to pay costs no matter how we participate and realize excess returns through future earnings.

Let’s first look at the cost. For Filecoin computing power, the cost is the cost of purchasing computing power, which we assume is C1; for futures, the cost is the cost of purchasing futures, which we assume is C2.

Let's look at the income. For Filecoin computing power, the income (R1) is the coins mined through Filecoin after the mainnet is launched. We assume that the amount of coins is Q1, but we need the legal currency income, so the income is Q1*Fil coin unit price (P1), that is, R1=Q1*P1; for futures, the income R2=Q2*P2. ​​(For ease of comparison, it is assumed here that investors who buy futures will not sell before the mainnet is launched, and will wait for the exchange to release the spot after the mainnet is launched, and then sell the spot to make a profit)

Finally, let's look at the profit. Computing power profit = income - cost = R1-C1 = Q1*P1-C1 = mining volume * coin price - computing power cost; futures profit = income - cost = R2-C2 = Q2*P2-C2 = spot volume released by the exchange * coin price - futures cost.

Through a simple mathematical formula, we can know that if computing power profit - futures profit > 0, then hoarding computing power and mining will be more profitable. If it is less than 0, the futures profit will be more profitable. If it is equal to 0, the profit will be the same.

Computing power profit - futures profit = (R1-C1) - (R2-C2) = (Q1*P1-C1) - (Q2*P2-C2) = (Q1*P1-Q1*P1) - (C2-C1). In fact, regardless of computing power profit or futures profit, the selling price at the same time is the same, that is, P1=P2.

If we simply calculate whether the difference between the two profits is greater than 0, we can remove the prices P1 and P2 from the equation, and the computing power profit/P=(Q1-Q2)-(C2-C1)/P.

Because we are comparing profits at the same cost, so what we need to compare is who has a higher output at the same cost and who has a higher profit, that is, the computing power cost C1=C2=C.

Computing power output = Q1 = C/single T cost * single T output * 365 (one year as the calculation cycle)

Futures output = Q2 = C/futures price P0

Assuming that the cost of a single T is 2,000 yuan, the current spot price is 12.56 US dollars, which is equivalent to 88 yuan in RMB.

Computing power output/futures output = Q1/Q2 = (C/single T cost*single T daily output*365)/(C/futures price P0) = (88*365*single T output)/2000 = (32120*single T output)/2000.

If computing power output/futures output>1, then computing power is very profitable, otherwise futures are very profitable. Computing power output/futures output means that computing power output is a multiple of futures output. We bring in the data and present it in a table for your reference.

By entering the data into the table, we found that as long as the single-T day income of the mining product can reach 0.062Fil, its mining output is the same as the futures output. If the single-T day output can reach 0.6Fil, then the income is 9.636 times the futures multiple. In fact, the current expected income of the top miners has reached this level.

The above basically explains the difference between computing power investment and futures investment. According to the current futures prices, with the same cost, the return on computing power investment is several times that of futures investment (calculated in one year). This is why many institutions in the market choose to mine rather than speculate in the secondary market.

Of course, on the contrary, if the Fil futures price drops 10 times, that is, to around $1, investors will definitely choose futures (spot after the mainnet is launched) investment, because at this time the return on futures investment is much higher than computing power investment. However, can we wait until the Fil futures price is $1?