Decentralised Storage - Filecoin
Dear Readers,
The past 6 months is basically life happening. I had to spend time adjusting to a new kind of work-life balance. Now that things have settled into a pattern of sorts, I am finally able to carve time out to continue this labour of love. :)
I will continue the exploration of decentralised storage in this mini-series. By reviewing all the key players in this area, I hope that it will give me and everyone an opportunity to properly gauge the potential in this budding area.
I am also changing the presentation format by putting all the information in text instead of a separate PDF file or image within the blog post.
In this issue, we’ll look at Filecoin, one of the main blockchain projects involved in advancing the technology for decentralised storage. This is a broad overview and I will provide links at the end if you would like to find out more about the project on a deeper level.
What is Filecoin?
Type: Layer 1 blockchain
Ecosystem: Built on its own blockchain
Function: Stores data
Filecoin is a decentralised storage network created to enable data storage in a non-centralised way. It connects people with storage space in their computers who are happy to “rent out” the space to others who need space to store data through the Filecoin project. But there’s more to the project.
First of all, the blockchain itself is built on top of the Interplanetary File System (IPFS). It is itself, a mechanism to incentivise people to use this system for data storage. IPFS is a network of nodes known as Peer-To-Peer (P2P) Transfer system that uses cryptographic means to store data in encrypted form for maximum security.
The mission of FileCoin is to be the storage layer for all Web 3.0 data, including data from other blockchains. Therefore, it’s part of a bigger whole.
The Filecoin blockchain records all actions related to the storage and retrieval of data but it doesn’t hold the actual data on it. Instead, the data that needs storing is located in a computer somewhere in the world. It is likely that the computer storing the data is also the same one that has a copy of the blockchain ledger on its machine.
How it Works
Before we get to the nuts and bolts of how it works, we need to know the various roles involved:
Storage Provider (miner) - this is the person or entity storing the data. There are two ways to stake the FIL tokens in order to participate in this role:
Upfront collateral - Stake the amount in proportion to the storage amount provided when compared to the network. Eg: If you store 1 piece of data for the client and it takes up 1% of the total storage space on the Filecoin network, you will then need to stake 1% of the total amount of FIL being staked.
A portion of future block rewards as collateral - if you don’t have enough to stake upfront, you can also allocate a portion of the future block rewards to make up for the difference.
Block rewards earned are dependent on the size of the network. The bigger the network, the more FIL tokens are available for each block. Rewards to miners are proportional to their storage space contribution.
For example: if a miner contributes 1% of the network’s storage space, they get 1% of the block rewards for their participation.
Retrieval miner - this is the person or entity retrieving the data from the storage. It’s unlikely that the retriever is also the storer.
Storage Client - the person or entity that has data that needs to be stored.
*Redundancy refers to how many times the data is to be replicated to ensure there will always be a copy available. For example, a 7x redundancy means the data will be copied 7 times. The higher the redundancy number, the more expensive the request agreement will be.
Note: The key concept of a distributed ledger is that multiple copies exist for the same piece of information. We don’t get to decide how many of those copies exist because we don’t have any say-so over the blockchain. When it’s our own data, in this case, we do. :)
One way to incentivise storage providers to store data is by providing them with DataCap. This is a resource that makes the agreement more attractive by a factor of 10. However, not everyone can get their hands on it.
DataCap is doled out by Notaries, selected by the Filecoin through application. They will, in turn, vet storage clients to decide who can get it. Those who do can allocate a certain amount of DataCap to submit with the storage request.
Two kinds of proofs are used in the Filecoin network:
Proof of Replication - After the data has been provided by the Storage Client for storage, this proof is included in the data storage contract at the time of creation to the Filecoin blockchain.
Proof of Time-Space - in order to prove that the data is stored securely, the Storage Provider needs to write this proof every time the client or other network participants asks for it.
What traditional space is affected?
Filecoin wants to challenge the concept of centralised storage providers operating in this space. The giants are Amazon with AWS, Google, and Microsoft with Azure. By making storage decentralised, there is no single point of censorship. Nodes closest to the storage client will also result in faster retrieval speeds.
Tokenomics of FIL
The native token for Filecoin is FIL. It is used to pay for all fees related to the storage and retrieval of data on the Filecoin blockchain. The token is also staked by the Storage Providers so that they are incentivised to be good actors on the network.
The token is also burnt to pay for the network fees, thus establishing a deflationary mechanism.
The maximum supply is 2 billion tokens, starting with an initial supply of 600 million.
The vesting schedules for the tokens are:
6 years for Protocol Labs and the Filecoin Foundation
6 months to 3 years for tokens sold during ICO
Who is behind it?
The Filecoin project was developed by Protocol Labs, the company behind the IPFS network. Based in San Francisco, the founder, Juan Benet, is a Stanford graduate with a Masters in CompSci.
The company’s mission is to create a fast, secure, and decentralised Internet. In other words, giving everyone the option to use a different version of the Internet under the hood.
Some big names were involved in their ICO round including Andreessen Horowitz, Sequoia Capital, Union Square Ventures, and Winklevoss Capital.
Protocol Labs itself also funded other ventures including Jack Dorsey’s alternative to Twitter known as Bluesky.
Who is using it?
Do you know that there is an IPFS version of Wikipedia? However, that doesn’t mean that Wikipedia is a Filecoin customer. Instead, the projects that use Filecoin are from the Web3 space as you might have guessed.
NFT.storage is a decentralised storage app that counts OpenSea, Magic Eden, and Rarible as its customers. The off-chain NFT data such as images, metadata etc are stored in IPFS nodes and backed up on Filecoin with 7x redundancy.
Web3.storage shares the same backend as NFT.storage and provides up to 1 TiB of storage for all types of data.
Chainsafe.storage is the underlying layer for Chainsafe Files, an end-to-end encrypted file storage app.
All those above aren’t really aimed at consumer users like you and me but they are the underlying plumbing underneath the NFTs that we see and love.
There is another type of customer that you might not expect at all, and that’s academics! According to this report from CoinTelegraph, “a handful of educational institutions have begun using decentralised data storage models to preserve data sets”. Some of these include MiT, UC Berkeley, Stanford, and USC to name a few.
What Makes it Unique?
Filecoin Virtual Machine - Launched in March 2023, this allows the usage of smart contracts on the Filecoin network. It could open more doors and encourage developers to create dApps that leverage the network’s security.
This also created a new type of address (f410) that is Ethereum-compatible. This address can be converted into the 0x-styled Ethereum address for development.
Users can store a wide range of data including web services, podcasts, movies, contract data, app data, security archives, and much more.
Security Measures - Filecoin offers two ways to report vulnerabilities found in the network: via email and a private channel on KeyBase. They also have a bug bounty program and provide full specs for audit purposes.
Who are the Competitors?
Aside from Arweave which we covered last time, two other players are also on the field, namely Siacoin, and Storj.
In comparison, Filecoin has an advantage here because of its abundance of funds. This also translates to more network participants and storage capability.
We will cover Siacoin and Storj in future issues for a more in-depth look.
What does adoption look like?
It’s definitely still early days for Filecoin and other similar solutions to grab any slice of the pie from the likes of Google and AWS. These incumbents have had a headstart and a huge war chest, being the publicly-traded companies that are one of the top 6 companies keeping the S&P 500 healthy.
Even so, I think Filecoin has a fighting chance as the premier player in the field of decentralised storage, despite facing a number of headwinds including sluggish uptake, and higher cost than centralised storage space. Nevertheless, there is still much to be optimistic about. The tech is new, there is always a use-case for an alternative option, and with a bit more catching up, it is not hard to imagine that growth will pick up as it gets easier to use.
What are the Caveats?
Filecoin is currently designed to handle data from organisations. There aren’t any dApps yet that allow consumers to store their files on the Filecoin network like you would on Apple’s iCloud or Google Drive.
The retrieval of files is not always handled in a smooth manner. There are some criticisms of “file loss," “difficult to retrieve data” and “high bandwidth requirements.”, according to this article from Coin Telegraph.
Sounds like the network still has quite a bit of work ahead to ensure the stability of the entire process.
Conclusion
Filecoin and Protocol Labs have positioned themselves to be the beneficiaries of a new way for the Internet to operate, based on the concept of decentralised storage network. Together with the disruption in domain names, this is just one of the foundational building blocks for the creation of a new kind of Internet.
I subscribe to the idea of an alternative version of how the Internet operates and I think Filecoin is in a good position to capitalise on this. Given the progress they have made since the project was launched 6 years ago, I am cautiously optimistic on their chances of being successful in achieving their mission.
Community Channels to keep up-to-date on the project:
Filecoin Resources:
White paper - https://whitepaper.io/coin/filecoin
Transferring Filecoin tokens - https://docs.filecoin.io/basics/assets/transfer-fil/
Filecoin Security - https://security.filecoin.io/
Research Resources:
https://www.coinbureau.com/review/filecoin-fil/
https://www.coinspeaker.com/guides/what-is-filecoin-full-beginners-guide/
https://cointelegraph.com/news/filecoin-storage-utilization-surpass-7-percent-in-q2-report
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