Filecoin: A Token on IPFS for Rewarding Storage Contributors

Filecoin is a token on IPFS, and it serves as a way to incentivize miners who contribute their unused hard drive space. Filecoin utilizes a novel algorithm (Proof of Work) where, simply put, the more hard drive space you have, the more Filecoin rewards you can earn.

What is IPFS?

IPFS, which stands for InterPlanetary File System, is a peer-to-peer (P2P) distributed file system proposed by Protocol Labs.

Although it is referred to as a file system and a technology for storing data, IPFS is more accurately described as a transmission protocol. IPFS positions itself as a competitor to HTTP (Hypertext Transfer Protocol), the most widely used transmission protocol today. To access content online, we typically enter URLs that often begin with "HTTP". HTTP relies on domain names, IP addresses, and multiple central servers to facilitate file uploads and downloads. While HTTP's contributions are undeniable and internet browsing heavily depends on it, it also has limitations, such as suboptimal performance efficiency and over-reliance on central servers and the backbone network.

In contrast, IPFS offers a decentralized solution. It employs content addressing based on unique hash keys instead of domain names and IP addresses to locate data. As a distributed file storage system, data is not stored on a centralized server but rather across all eligible computers within the network.

Of course, IPFS offers much more than just this. It possesses numerous other features and its layers and applications extend beyond simple P2P downloading.

IPFS incorporates an incentive mechanism called Filecoin. Participants (miners) who contribute storage space and bandwidth are rewarded with the cryptocurrency, Filecoin.

The Relationship Between IPFS and Filecoin

Despite the hype surrounding IPFS for the past few years, many people still struggle to grasp the concepts of IPFS and Filecoin and their relationship. Misconceptions abound, with terms like "IPFS mining" and "IPFS mining rigs" frequently used incorrectly.

Protocol Labs, founded in May 2014 in the San Francisco Bay Area by Stanford University graduate Juan Benet, is the company behind both IPFS and Filecoin. Juan Benet, a computer science graduate from Stanford University, previously co-founded a mobile AR gaming company called Loki Studios, which was later acquired by Yahoo. He then joined StartX, a non-profit startup accelerator at Stanford University, where he began his entrepreneurial journey. In 2014, he founded the IPFS project, which received funding from his alma mater. The official version of IPFS was released in January 2015.

While both IPFS and Filecoin were created by Protocol Labs, they serve different purposes. IPFS is an open-source, peer-to-peer, versioned, content-addressed hypermedia transmission protocol that aims to replace the traditional internet protocol, HTTP. Its goal is to build a decentralized Web 3.0.

However, IPFS is simply an underlying communication protocol that anyone can use for free. Currently, all IPFS nodes provide storage space while relying on other nodes for storing their own resources.

Essentially, IPFS transforms the on-demand download model of traditional P2P software into long-term storage of resources. Long-term storage requires quality of service guarantees; otherwise, users would be reluctant to store valuable data or resources requiring service quality assurance on IPFS.

For a loosely coupled network like IPFS, challenges arise from users freely leaving, network quality uncertainties, unpredictable storage locations, inconsistent hardware resource performance, and fluctuations in hardware resource performance. These factors hinder IPFS from storing resources with stringent quality of service requirements, limiting its practicality in commercial settings.

To address this, IPFS leverages the incentive mechanism of Filecoin to attract professional storage providers who can offer more professional, secure, and stable storage services.

Filecoin is a decentralized storage network built on top of IPFS. It is the only incentive layer on IPFS and is a token issued based on blockchain technology. Miners in the Filecoin network can earn FIL by providing storage and retrieval services to clients. Conversely, clients can spend FIL to hire miners to store or distribute data.

Filecoin promotes the development of IPFS through economic incentives, while the Filecoin network also relies on IPFS for its market growth and ecosystem support.

The more widely used IPFS becomes, the greater the demand for Filecoin. Similarly, the more Filecoin miners there are, the stronger the support for the IPFS network. This creates a symbiotic relationship between IPFS and Filecoin.

In conclusion, Filecoin was born to support the development of IPFS, and IPFS also needs Filecoin to enrich its ecosystem. The more widely used IPFS is, the greater the demand for Filecoin. The more Filecoin miners there are, the stronger the support for the IPFS network will be.

The Role of FIL

Filecoin, a decentralized distributed storage network, serves as the sole incentive layer for IPFS. It employs a blockchain token system and issues a token abbreviated as FIL.

Built upon the IPFS protocol, Filecoin establishes a decentralized marketplace for cloud storage transactions, encompassing both "storage" and "retrieval" markets. This marketplace operates on a blockchain with its native token (FIL). Miners earn FIL by providing storage services to clients, while clients can hire miners to store or distribute data by spending FIL.

FIL Token Allocation Scheme

Filecoin utilizes a blockchain token system and issues a token abbreviated as FIL, with a total supply of 2 billion. The allocation scheme comprises four main parts:

• Miners (70% or 1.4 billion FIL): Distributed linearly through block rewards, halving every six years.

• Team (15% or 300 million FIL): Allocated to the Protocol Labs team for research, development, and operational expenses, released linearly over six years.

• Investors (10% or 200 million FIL): Distributed among participants in private and public funding rounds, released linearly over 6 to 36 months.

• Foundation (5% or 100 million FIL): Reserved for long-term community building, network governance, and other related expenses, released linearly over six years.

Filecoin Consensus Mechanism

Filecoin innovatively adopts a hybrid consensus mechanism combining Proof of Replication (PoRep), Proof of Spacetime (PoSt), and Expected Consensus (EC).

• Proof of Replication (PoRep): PoRep is a novel storage proof requiring storage miners to demonstrate to validators that they are storing the corresponding data on a specific device rather than multiple copies on a single device. Filecoin employs PoRep to effectively prevent Sybil attacks, outsourcing attacks, and generation attacks.

• Proof of Spacetime (PoSt): Building upon PoRep, PoSt incorporates timestamps and other technologies to generate proof of data storage by miners over a period. Even if a user is offline, they can still verify the data stored by the miner during that period using PoSt at a later time. PoSt is generated when Filecoin verifies the storage of user data by miners. Filecoin converts the proportion of a miner's current storage data relative to the entire network's storage into the miner's voting power, leveraging PoSt for consensus.

• Expected Consensus (EC): Filecoin's consensus protocol is based on Proof-of-Stake (PoS), replacing "stake" with "storage." In each epoch, one leader miner is expected to be elected, although in certain situations, multiple leaders may be chosen. Elected miners create new blocks and broadcast them to the network, earning block rewards. The goal is to ensure that the miner's block production rights are proportional to their contribution to storage.

Filecoin Miner Revenue Sources

Filecoin has garnered significant attention due to the allocation of 70% of its tokens to mining. However, misconceptions persist regarding Filecoin mining profitability.

Mining, in this context, refers to the process of minting new coins. The network releases tokens through block rewards, facilitating circulation, trading, and usage. Consequently, miners gradually earn storage and retrieval revenues.

Similar to Bitcoin's early days, miners initially profited from block rewards. As Bitcoin gained wider acceptance and its circulation and trading volume increased (currently approaching 300,000 on-chain transactions per day), miners also began earning transaction fees.

Therefore, in Filecoin's early stages, block rewards incentivize miners to contribute their servers to build a robust distributed storage network. As the network matures and achieves a certain level of security and stability, more institutions and individuals will store their data on Filecoin servers, generating storage mining revenue for miners.

As the volume of real data stored on the Filecoin network increases, retrieval demand naturally arises, leading to retrieval mining revenue for miners.

Filecoin Space Race Overview

Filecoin Space Race officially commenced on August 25th, aiming to incentivize storage capacity onboarding in preparation for mainnet launch.

During the competition, miners competed to provide as much storage capacity to the network as possible. The top 100 miners globally and the top 50 miners in each continent were awarded Filecoin rewards based on their storage contributions.

Miners could earn more rewards through two avenues:

1. The size of the reward pool increased with the growth of the network's total storage capacity.

2. The total reward pool was strictly allocated based on mining contributions, determined by the proportion of storage capacity they added to the network's total.

In essence, the Space Race prioritized storage power, with higher rankings translating to greater potential rewards. Miners could increase their rewards by contributing to a region with a larger unlocked reward pool, increasing their share of the overall network storage power, and adopting a global deployment strategy.

During the Filecoin Miner Summit on July 22nd, the official selection criteria for the incentivized competition were further clarified: raw storage capacity, transaction success rate (over 80%), and sector lifecycle. An additional 100,000 FIL reward was introduced based on the network-wide block packaging ranking, referencing the mainnet reward structure.

The first stage of the Filecoin Space Race concluded successfully on September 15th, followed by the announcement of the second stage.

The Space Race can be understood as follows: the first stage focused on storage power competition, prioritizing capacity over actual FIL mining. The second stage emphasized sealing competition, evaluating sealing capabilities and repair proficiency, crucial aspects of a miner's overall operational capabilities.

According to the data from the first stage, the global effective storage power reached 230 PiB, successfully unlocking a global reward of 1.5 million FIL. The node storage success rate stood at 86%, while the data retrieval success rate reached 98%.