Filecoin's economic model is officially released, introducing network benchmarks, data verification, and committed capacity.

Source: Compiled by IPFS Force Zone

Original link: https://filecoin.io/blog/filecoin-cryptoeconomic-constructions/

Public blockchains rely on a combination of cryptography and incentive structures that allow the system to work without centralized control. Cryptography makes certain harmful behaviors virtually impossible, while game theory prevents others. Analysis focused on this set of mechanisms is called cryptoeconomics. A well-structured cryptoeconomic system can determine whether a network is valuable, self-sustaining, or struggling to get out of trouble.

Filecoin's mission is to create a decentralized, efficient, and powerful foundation for humanity's information. To achieve this goal, we have created a decentralized storage network that allows anyone in the world to store or retrieve files. We hope that Filecoin will make storage cheaper and more reliable by helping small businesses compete directly with well-known centralized services, providing a universal interface for providers of all sizes, and greatly reducing migration and transaction costs.

Today, we’re excited to provide an overview of the cryptoeconomic structures that will enable Filecoin to create that foundation. Filecoin uses a combination of existing cryptoeconomic structures and many new ones to meet the unique requirements of the network. If you’re interested in the long-term success of Filecoin as a storage marketplace, you should find these mechanisms encouraging. While we’re still doing a lot of testing to finalize the parameters, we’re excited to share these details about how the system works.

Filecoin Economic Overview

There are five main players in the Filecoin economy:

• Clients, store and retrieve data through applications.

• Developers, who develop applications on top of the protocol.

• Retrieval service that delivers files to clients on demand.

• Storage miners, who store files and help maintain and update the Filecoin blockchain.

• Token holders make Filecoin a viable currency by using it as a store of value and medium of exchange.

The role of clients in the Filecoin economy is simple but critical: they use FIL to pay for the storage and retrieval of files. Filecoin's cryptoeconomic mechanism is ultimately designed to meet the file storage and retrieval needs of clients.

Developers are the bridge between clients and the Filecoin network. They build applications to improve client access to Filecoin's storage and retrieval market.

The retrieval service acts as a content delivery network or caching layer to ensure that files stored on Filecoin are efficiently stored. Clients can pay for retrieval in tiny increments using payment channels.

Storage miners obtain Filecoin services in three main ways:

• Transaction fees are fees that customers pay directly for storing data for a period of time.

• Block rewards are the fees that the Filecoin protocol pays storage miners in exchange for participating in Filecoin consensus (the process of maintaining and updating the blockchain) and providing reliable long-term storage.

• Network message transaction fees, which enable users to encourage miners to prioritize their transactions.

Most of Filecoin’s cryptoeconomic structure is designed to ensure that storage miners, as well as the Filecoin network itself, can reliably and sustainably meet the needs of customers.

Token holders provide a bridge between the Filecoin economy and other markets. They provide liquidity to miners and clients, and make it easier to build real businesses on Filecoin.

Principles of Cryptoeconomics

Block Reward Basics

Filecoin storage miners receive block rewards based on their storage power. Storage power is a measure of how much useful storage a Filecoin storage miner provides to the network. At a high level, miners earn storage power by accepting files from clients, publicly committing to store them for a period of time, and repeatedly proving that they are actually storing them over time.

Economically, you can think of storage power like hash rate in a proof-of-work blockchain like Bitcoin. A miner is rewarded in proportion to his storage power, not the total storage power provided by all miners. For example, a miner maintaining 1 PiB of storage power against a total network size of 100 PiB will win, on average, one percent of the block reward over time.

Filecoin’s unique block reward innovation

Filecoin needs to be a reliable and sustainable protocol over the long term. In a traditional proof-of-work blockchain, it doesn’t matter if a given miner goes offline for a short time (or forever), because any miner can add new blocks to the chain. Filecoin miners also provide an irreplaceable and useful service to their clients, so clients need strong guarantees that each storage miner will continue to operate. Therefore, Filecoin includes many mechanisms to make high-quality services an economically reasonable choice for storage miners and to encourage storage miners to promote the long-term health of the network.

Network Benchmarks

Many blockchains reward tokens based on a simple exponential decay model, where the block reward is highest at the beginning and miner participation is lowest, so mining generates many tokens per unit of work early in the network's lifecycle and then quickly disappears.

In many cryptoeconomic simulations, it is clear that a simple exponential decay model encourages unhealthy short-term behavior around network launch. Specifically, it will incentivize storage miners to overinvest in hardware to complete the closed phase of mining as quickly as possible. Since Filecoin’s rewards per unit of storage power will be much larger in the early days of the storage network, we predict that it will be profitable to exit the network after exhausting these early rewards, even if doing so results in losing client data. This will harm the network: clients will lose data and be unable to access long-term storage, while miners will have little incentive to improve the network.

To encourage consistent storage enablement and long-term storage investment, rather than just fast sealing, Filecoin introduces the concept of a network baseline. Instead of minting tokens based purely on elapsed time, block rewards scale as total storage capacity on the network increases. This preserves the shape of the original exponential decay model, but softens it in the early days of the network. Once the network reaches the baseline, the cumulative block rewards posted are the same as in a simple exponential decay model, but at smaller network sizes, part of the block reward is delayed. The overall result is that Filecoin’s rewards to miners are more aligned with the utility they and the network as a whole provide to clients.

Using block rewards as collateral

Storage miners add fixed amounts of new data to the network, called sectors. When a storage miner adds a sector, they commit to storing it for a certain period of time. This gives clients greater certainty that the stored data will be available when they need it.

In some cases, miners may agree to storage agreements and then wish to abandon them later due to increased costs or other market dynamics. Clients need reliable storage. A system where storage miners can freely or cheaply abandon files will drive clients away from Filecoin due to severe data loss and poor service quality.

Filecoin miners work with clients in a two-sided data market. To ensure that all incentives in the partnership are aligned correctly, Filecoin penalizes miners who fail to store files within the promised period. This penalty is implemented against the pool of Filecoin collateral provided by each storage miner, called locked funds. Locked funds include a small amount of upfront FIL, as well as a large amount of tokens taken from the block rewards miners receive.

If a miner goes offline for a day, he will lose some money due to locked funds; if the miner stops proving the storage of documents completely, he may lose all documents. If the miner successfully completes the full term of the storage contract, he can recover all locked funds after a short lock-up period.

Using block rewards to collateralize miners is another improvement gained from our cryptoeconomic simulations. Early models required miners to post a large upfront collateral for all their storage. However, this would create a Filecoin shortage at launch, when the total supply of FIL would be reduced and many miners would try to join the network. By shifting some of the upfront costs to later block rewards, we are able to lower the cost of entry for miners.

Align incentives to store useful data

Filecoin clients and storage miners operate in a dynamic system. At any given time, it is impossible for storage demand to be perfectly matched with supply. Early Filecoin construction forced storage miners to choose between two false options: waiting for client transactions to arrive (which meant that the miner's hardware would be idle), or storing useless data in pursuit of block rewards (which reduced the network's ability to store useful data). Filecoin introduces several mechanisms to ensure that miners who store client data can also maximize the FIL they earn.

Committed capacity

When a miner finds himself without client data to store, he does not have to keep his hardware idle, as Filecoin's committed capacity sectors (verified but empty sectors) indicate that he has available sectors that have been proven to be empty, indicating that the miner is ready to provide storage for clients. Committed capacity sectors verify that the miner has available space to store client data, but can be upgraded to store client data at any time. This mechanism alleviates the need for a miner to choose between block rewards and client data - he can store committed capacity immediately, start earning block rewards, and then upgrade them at any time to store client data in exchange for transaction fees.

Validation Dataset

Committed capacity can increase miners' motivation to store client data, but it does not completely solve the problem. Storing real client files will add some operational overhead to storage miners. In some cases, for example, if the value of the block to the miner is far greater than the transaction fee, then the miner may still choose to ignore the client data completely and just store the data generated by themselves to increase their storage capacity rewards as quickly as possible. This will make Filecoin less useful and limit the ability of clients to store data on the network.

Filecoin solves this problem by introducing the concept of verified data. Sectors with verified data will receive more storage capacity and thus more block rewards than sectors without data. This provides storage miners with additional incentives to store customer data.

Verified data is data stored by validating clients, which in turn are verified by a decentralized network of validators. Verification does not imply scarcity - it is very easy for anyone with real data to obtain it and store it on Filecoin. Even though validators can arbitrarily distribute verified data to simplify the registration process, the overall effect should be to significantly increase the proportion of useful data stored on Filecoin.

Demand Drivers

A decentralized storage network that lets anyone in the world store or retrieve files is an amazing tool. However, the Filecoin network is only useful to the world if there are applications built on it. The good news is that there are already many amazing applications being built on Filecoin, and more will come between now and the mainnet launch.

reliability

Filecoin was built from day one to reliably and efficiently store the world's most important data. To improve reliability, the protocol provides clients with unlimited flexibility to store redundant copies of files using different miners and to verify that the only copy is actually stored. Unlike centralized cloud storage services, which back up data in a way that clients cannot change or verify, Filecoin allows clients to easily express their preferences for reliability and cost.

efficiency

Filecoin’s off-chain data transfer mechanism is another example of how the protocol supports a variety of client needs. Many datasets are so large that transferring them over the internet is slow and expensive. For example, if the 2.5 PB Landsat 8 open source geographic imagery dataset were stored in a centralized cloud, transferring the data over a dedicated gigabit line over the internet would take more than seven months and cost $125,000. Filecoin’s off-chain transaction protocol allows you to store big data on hard drives, ship the drives to miners, and then continuously verify that the files are securely stored.

As Filecoin mainnet launch approaches, you can expect to hear more about applications that are already using the network’s unique capabilities to store large amounts of critical data.

A solid foundation for the launch of the Filecoin mainnet

Filecoin's cryptoeconomics are designed to ensure that the network can meet the long-term needs of its customers. After thousands of hours of discussion, modeling, and experimentation, we believe these mechanisms will lay a solid foundation for the launch of the Filecoin mainnet. The end result of these efforts, along with the excellent work of Filecoin's research and engineering teams, will be a public blockchain powered by useful work, reliable cloud storage services, and a thriving decentralized economy.

In the coming weeks, we will conduct final simulations and modeling to determine the final cryptoeconomic parameters. We look forward to independent analysis from other groups and to the community's contributions to making the Filecoin network more useful and valuable to the world.

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