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What Is Filecoin And How Will This Coin Affect Data Storage?

Author: Martin Moni
Martin Moni
All publications of the author

2017 was the year when cryptocurrencies really drew attention from everyone. Coins experienced triple and quadruple-digit growth rates within a year and billions of dollars were raised through ICOs. Through all this, a few companies and projects still stood above the rest and made a significant mark. One of these projects was FIL, which raised $257 million through an ICO to become the largest token sale in history. 

What you need to know about FIL

Protocol Labs (PL) is a company that practices research and development of internet technology. The team mainly includes experts in the peer to peer (P2P) capacity. With this amazing reputation of the group, it gets a huge advantage in innovating new tech. It also explains why the group is behind innovations like Multiformats, IPDL, Coinlist, libp2p, and IPFS (InterPlanetary File System). 

We can't talk about FIL without first discussing IPFS. IPFS is the innovation whereupon the FIL platform is based. You have probably already heard of https? It is always advised to only visit pages that have an ‘https’ prefix due to the supposed heightened security. IPFS doesn’t believe ‘https’ is completely secure and it wants to replace it. IPFS designers see the security problems within ‘https’ and need to seal them with a better system. (This is the: Siacoin (SC) Price Prediction And Forecast For 2020)

Take for example the reliance on central instances and URLs to recover information. IPFS disposes of the requirement for the URLs for information recovery. Even more exciting about the IPFS framework is the way a unique approach to address and reproduce files based on content. Accordingly, IPFS is a great advancement by Juan Bennet. Being that the engineer of the two tasks is the same man, users can be certain the projects are well known. In any case, pundits are worried about how the two frameworks will co-relate calmly. The designers have a reasonable arrangement on how the two will remain freely reliant. 

FIL is built upon the success and advancements of these developments by PL. In particular, IPFS shares a common purpose since it too is focused on storage and transfer of data through P2P (peer to peer) technology. Additionally, IPFS has enjoyed tremendous success recently through the Covid-19 pandemic by helping users share information despite censorship in some countries such as China. Therefore, it is easy to see how FIL draws upon this solid reputation from IPFS and PL. (Read more on: Dogecoin (DOGE) Price Prediction And Forecast For 2020)

Moreover, Protocol has made itself into a pioneer in the crypto sphere. The company also has a broad involvement with the advancement and deployment of open source innovation. Notwithstanding all the experience, the group likewise comprehends the codebases of other distributed ledger innovations. Combining P2P file sharing and distributed ledger thus elevates FIL to the next level. The information is urgent in the development and potential future organizations. (It’s time to: Find Out More About Tezos and Its Price Prediction For 2020)

Prior to the historic FIL ICO, the group usually had a spending limit of under $3.5 million. At that point the ICO occurred and changed the organization fortunes. In a statement by the company, PL informed investors that, with its experience dealing with a tight budget, raising a higher amount would help it do even better with FIL. 


Until this point in time, no ICO has ever been as fruitful as the FIL ICO as the ICO raised upwards of $257 million. On the 10th of August 2017, PL opened the ICO to the public. Inside 60 minutes following the opening of the ICO, the ICO was declared shut. Upon its conclusion, FIL ICO announced it had raised $275 million including the $52 million raised in a pre-sale to initial investors close to the company. (These are the: Most Secure and Regulated Stablecoins of 2020)

Some of these initial investors included companies like zk Capital, Unique Square Ventures, June Fund, Winklevoss Capital, Andreessen Horowitz, and several others. Critical to note here is that the FIL ICO was not about the tokens. There are no tokens that exist yet. Instead, FIL sold the tokens as a Simple Agreement for Future Tokens (SAFT). After the arrival of FIL's genesis block, FIL tokens will finally be accessible and mine-able. (Be aware of the: OmiseGo (OMG) Coin and Price Prediction for 2020)

Criticism of FIL ICO

The pre-sale was only available to financial specialists according to the US guideline. What's more, as per the guidelines, it at that point targeted people with an annual income of $200,000 or total net worth of $1 million. Consequently, the reaction from numerous community members was negative as they felt FIL had cut out the individual investors. To make things right to these individuals, PL promised that there will be enough rewards to be issued in the form of token allocation.

PL set out a far-reaching token allotment plan. The arrangement is to guarantee that every individual from the system can earn a reward for being loyal and active in the community. In the arrangement, there will be the creation and dispensing of 30% of tokens at Genesis. Out of the 30%, 10% will go to the initial investors, 15% to the company itself and 5% to the FIL Foundation. The remaining 70% will be compensation for FIL excavators who will be rewarded for replicating files on the system. (Do you ever wonder: Will Crypto Trading Become Popular in Islamic Countries?)

How it all works

Many of you must be interested in learning everything you need to about FIL and how it differs from other similar projects like Siacoin. We are going to get into all the details you need to know, but it is important you start with a small brief of the process and then flesh it out later. 

If you want to upload files to the system, it all starts when you join the community and select the files you want to upload. At that point, you pay a little charge to have the document mentioned to be transferred and recorded on the FIL exchange (more on this later). The framework will then search among excavators to look for the minimum offer workable for you. excavators who have taken either the proof-of-replication or proof-of-capacitytime place offers to act as hosts for your file(s). 

Once the FIL systems discover the offer, it encodes the information and sends it to different points in the storage hub. The distributed ledger is regarded as an allocation table because it is here that the location of all pieces of files is recorded for later retrieval. You, the customer, are then handed a private key for the record, which means you will now have the option to access your documents as you please. (Do you know: What is Huobi Coin and its Price Prediction for 2020?)

Now that you know how the system works in general, it may be important to understand the inner workings. The best way to do this is by breaking down the many features of the system into categories.

FIL mining

In any distributed ledger solution, mining is the process by which multiple nodes keep the system active. Most systems such as Bitcoin use proof-of-work (PoW), involving computational power to hash blocks in the distributed ledger. PL believes that PoW is wasteful and inefficient, so instead the platform uses proof of storage. Basically, this means that you earn rewards based on the amount of storage capacity you are willing to contribute. Not only is this less wasteful, but it is also efficient as it does not require a lot of energy or processing power. Thus, it means that ASICs would not be any better than a personal computer as long as the storage capacity is equal. (Read about the: UNUS SED LEO Price Prediction 2020)

So far, mining FIL is not possible on the FIL system since the system is still not active. But, when the genesis block is discharged, mining will finally be possible. The FIL community will comprise of the customer, retrieval excavator and storage excavator. A excavator must have enough storage room on a hard drive that will empower them to mine the FIL data storage capacity, but their role will depend on the type of excavator they are. 

Storage and retrieval excavators

A storage excavator’s job is simply to provide the required storage capacity to the system as requested by a client. It starts by the excavator committing capacity to the system and stating how much they are willing to offer to clients. This information is registered on the storage arena that is governed by the distributed ledger. When a client requests to store data on the system, this request is sent to the storage arena, where the system will match a client to a storage excavator. (Everyone’s wondering: Will Africa Be The Next Frontier For coin?)

Once a suitable storage excavator is identified, the client and excavator are matched and data is sent to the excavator’s hard drive. This transaction is then recorded on the distributed ledger like any other crypto ledger and the order is sealed. Afterwards, the excavator must still prove that they are committed to hosting the files and send periodic notifications that they are still active. Such evidence is provided in the form of proof-of-replication and proof-of-capacitytime (storage capacity over time). These act as an audit by the system to confirm that the storage excavators really have the storage capacity they claimed. 

As for the retrieval excavators, their job is to coordinate the various parts of the client’s file. You see, once a client uploads a file, this file is broken into multiple pieces and each piece is encrypted separately. These pieces might be sent to different storage excavators, but the locations are kept by the FIL distributed ledger. When a client requests to download their file(s), the retrieval excavator will retrieve all the pieces of the file(s) and send them to the client. Unlike storage excavators, retrieval excavators get their orders from the retrieval arena. (Read more on our: iExec RLC Price Prediction and Forecast for 2020)

Being a retrieval excavator may sound like a simpler job, but their duty has a higher requirement of bandwidth. This is important so that the excavator can quickly receive all the pieces scattered on the system and send them to the client. They also need to have enough storage capacity too in order to handle any file size the client requires. 

Aside from doing their job, there are some other requirements demanded from both types of excavators. These include secrecy/privacy, accountability, integrity and retrievability. Seeing as the excavators are responsible for all clients’ files, these requirements are mandatory and they must continually prove to uphold these values to the system. (WhatsApp, Telegram, Facebook: Who is Going To Be The Next Global Payments Leader?)

The FIL arenas 

As in any commercial centre, the arena is directed by the arena forces of supply and demand. Therefore, there are two arenas to cater to the two different kinds of excavators – the storage arena and the retrieval arena. An easy way to think of excavators is as stall owners who display what they have to offer and  the price tags. When a client needs storage capacity, they simply visit the arena and select what they are most comfortable paying. The only difference is that the process is handled by the distributed ledger and automated rather than having the client scroll through hundreds of excavators and their storage capacitys and prices. 

Storage arenas are quite easy to understand as they are similar to other companies like Storj and Sia that offer the same services. Anyone with some extra hard drive capacity can participate in this arena, but obviously the bigger the better. Once advertised and proved to be true, the FIL system will make use of the dedicated capacity for client documents. The system will store the documents in little encoded parcels and not a single file for additional security. 

Retrieval arenas are unique to FIL when compared to other similar decentralized file storage projects like Sia. Here, what matters most is the speed a excavator can provide for retrieval of client documents and not the storage capacity. The requirements to hack this arena include low latency, high bandwidth and fast internet connection. In short, the excavator with the fastest connection will get the most requests and receive the rewards. (Find out: How Coronavirus Will Blow Crypto arenas in 2020)

However, PL identified a potential problem with this setup. If speed was the only determinant, then there was the possibility of monopolization by an individual, group or company. Obviously, this would be negative for the system and would defeat the purpose of decentralization. Therefore, the FIL system often focuses on mid-size companies. Big companies would dominate the system and lead to monopolization, but small companies and individuals would be unreliable as a result of frequent disconnection, slow the system due to poor speed and lower system storage capacity as a result of low individual storage capacity. By striking a balance between the two, PL believes that the system would be running optimally. 

Types of contracts within FIL

Because FIL deals with agreements between individuals, there must be a system to somehow certify these transactions. In the real world, we know these as contracts, like the lease agreement you have with your landlord. In the crypto sphere, these are referred to as smart contracts because they are handled by algorithms and not individuals. However, FIL went a step further to create an additional type of contract specific to the data stored on the system - file contracts.

Smart contracts

For any crypto lover, this is a commonly recognized name because they can be found in popular crypto systems like Ethereum. Like a normal contract, smart contracts dictate the terms of the agreement between a client and a excavator. In such a contract, the size of storage capacity committed, location of documents, and the rewards and payments are all specified. Should any party violate the contract, the deal is deemed invalid. (Calm Before the Storm: What to Expect from Crypto Industry in 2020-2021)

The good thing about smart contracts is that they cannot be manipulated since they exist on a distributed ledger. Besides, the whole system is automated such that there is no need to follow up on anyone who failed to uphold their end of the deal. Therefore, it is through these smart contracts that the basic function of the FIL system is achieved. 

File contracts

Once again, FIL created a unique feature for its system by creating an additional type of contract on its system. Whereas smart contracts dictate the basics of an agreement, file contracts allow for more complex functions. For instance, imagine if you wanted to contact a excavator directly with a specific request, say, increased privacy or higher bandwidth. File contracts allow you to sidestep the system and create a specific request to suit your needs. Some clients may even use these file contracts to request data updates throughout the storage period.

Although these file contracts act somehow outside the main system, they are still completely secured by the FIL distributed ledger. After all, they are still contracts. Other similar projects don’t have this kind of contract, so this gives FIL an edge for clients with very specific needs. 

FIL as an investment

We have already mentioned that there are no FIL tokens available for trade at the moment. Only 30% of the total FIL supply has been issued to investors, with only 10% was given to investors and the rest kept by PL and FIL Foundation. The remaining 70% is supposed to be issued to excavators as they provide storage and retrieval services on the system, but none of it is available today. (This is our: ICON Price Predictions and Forecast for 2020)

Indeed, FIL only launched Testnet Phase 1 on the 11th of December 2019 and is currently working on Testnet Phase 2. That testnet had already achieved over 3.6PiB (pebibytes) of proven storage capacity, and the company believes the mainnet will have much higher storage capacity. This was a strong start, but it is unclear when the mainnet will be launched and FIL finally goes live. It is only then that excavators will begin to receive FIL as a reward that the tokens will become available for trade and/or investment. 

However, this begs the question - why are some crypto exchanges already offering FIL tokens for sale? Here’s the thing, they aren’t actually selling FIL tokens, but rather FIL futures. The image below is a screenshot from CoinarenaCap showing the change in price for these futures where they are valued at around $3.79 at the time of publishing. 

Crypto futures are nothing new since many mainstream stock exchanges like the Chicago Mercantile Exchange (CME) offer Bitcoin futures. These are just derivative products that try to predict future prices of assets based on arena sentiment. Given the level of interest in FIL demonstrated by the successful ICO, it’s no surprise that many exchanges have also started to offer FIL futures. Other exchanges like Gate.io and LBank offer IOUs for FIL to be fulfilled once the tokens are available. (This is: All you need to know about futures contracts)

Many of these IOUs and futures offered in the past have been successful, for example Augur. At the same time, such agreements present the risk of fraud and scams. In fact, FIL issued a statement warning investors to be careful when buying IOUs and futures since they are not issued by FIL or PL. What this means is that these exchanges offering IOUs and other derivatives most likely don’t actually have any FIL tokens. They are simply selling the promise of delivering FIL once the tokens are available. Now, you don’t need to be told that this is very risky as there is no law to protect you in case the exchange reneges on the deal. You should now see why FIL is really trying to distance itself from such endeavours. (Keep an eye on these: Top 5 Important Events In The Crypto World In 2020)

That being said, the previous success of Augur IOU by Gate.io could mean that this time it might also work out well. All you need to do is be very careful where you purchase the IOU or futures contract to avoid scams. It is also worth mentioning that the value of IOUs and futures rarely matches that of the actual arena value. This is because both of these derivatives anticipate future prices based on arena sentiment. So, you might end up with an overpriced FIL token when the actual FIL tokens are released. Or perhaps you’re lucky and wind up with an underpriced token, in which case you make a profit. That is how the futures arenas operate, so you should really understand the value of these tokens before investing. 

Beside the risk of fraud, you should also recognize that the trade is not backed up by law. Those who bought FIL during the ICO in 2017 received a SAFT (Simple Agreement for Future Tokens). This agreement is not transferable like regular futures or options on conventional exchanges. This means that even if an individual with the actual FIL tokens was to sell the SAFT to you, the trade could be considered illegal and the SAFT could be invalidated for both you and the original investor. The good news is that FIL won’t do this because it would be trying to protect its reputation and investors, regardless of how they came about the tokens. (Get ready as: BTC Cash Halves The Mining Reward 2020)

Should you buy FIL derivatives, or wait?

This is the big question, isn’t it? It’s very unclear what the value of FIL might be when it is eventually available. Even now, anyone can see the widely varying prices of FIL on different exchanges, and this tells you that it is impossible to pinpoint an actual future price. The choice then comes down to how one considers FIL in the future. For the speculative trader, this is an unwise purchase because of all the risks outlined above. But an enthusiast willing to use the system might be a winner were they to buy FIL at the current prices. (BTC SV Genesis Hard Fork 2020: What's New?)

FIL is bound to be a great success when it is eventually launched as we have already seen with the likes of Sia. Success of such projects is a testament to the need for cloud storage by users around the world. FIL services will probably be a lot cheaper than other companies like Amazon, Google and Microsoft, so it’s not too much of a stretch to imagine users making use of it. For the first time, users will have a choice and not be constrained by the big companies who don’t offer as much as distributed ledger technology. 


To see how the system will operate when launched, here is a test of the storage arena:

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Risk Warning: Your capital is at risk. Statistically, only 11-25% of traders gain profit when trading Forex and CFDs. The remaining 74-89% of customers lose their investment. Invest in capital that is willing to expose such risks.