The decentralized finance (DeFi) world is growing at a fast pace. Everyone in the crypto world believes that this boom will take the sector to the next level with more investors coming in. Among the many projects in the DeFi world, Filecoin is proving to be an investment opportunity that many are seeking to look into.
Filecoin is a DeFi project that has been in the works for around three years and its native token rose 30-fold in barely three months. By description, Filecoin is a storage and filing network that is built upon a blockchain that integrates the use of a decentralized network to change cloud storage into a pseudocode market.
Operating as a DeFi system, it is an upcoming service that is taking the digital currency industry by storm. Unlike many centralized systems, it delivers a seamless transaction experience without the need for a third-party system. A majority of the centralized systems are normally not as secured and encrypted as decentralized exchanges. Thus, they rake in losses in millions annually.
Taking into consideration the rate at which data is getting created, with 2021’s data surpassing the combination of several thousands of years’ data, it is just logical that the demand for additional storage space keeps increasing considerably.
The service operates in a manner that needs the users to pay a pre-determined sum to keep their files active. Users can generate some revenue by mining the Filecoin token and by lending others their hard-drive space to keep documents and files. These transactions are not operated by the Organization, it just offers the platform for many users to meet, lend, and even borrow space for their files.
Even though it is currently being developed, the current COVID-19 health crisis is slowing down the progress of the project that was officially unveiled on August 7, 2021. Nonetheless, there have been several interested people testing the service.
Filecoin Network History
Back in 2017, the Filecoin network started. It was launched to cater to the needs of the people who were actively seeking a storing solution. The sales of the token were done in October 2021 and they generated the highest initial coin offering (ICO) recorded so far. This ICO raised more than $250 million with the first$150million generated in less than an hour.
Before that launch, there were pre-launch sales that were made and they managed to get $20 million for the establishment from around 150 different investors in the project. Although those tokens were sold at a discount three-quarter of the dollar, it sparked a lot of criticism from the public mostly because only those who had made over $200,000 per year were given access to participate.
At that launch, 70% of all the tokens available for disbursement were allocated to the compensation of the space providers on the platform as rewards. Half of the remaining tokens were allocated to the team of developers and founder and the remaining half was divided between investors and the establishment’s foundation in the ratio 2:1.
The Filecoin network works hand in hand with the IPFS for the filing aspect of the establishment; and the two systems have many similarities and differences. Notably, the main difference is that the IPFS does not changes its users any fee to use the platform but it also does not generate revenue for the user either.
On the other hand, Filecoin charges a fee and can also be used to earn money on the platform, normally in the form of the home token digital currency. Other renowned platforms exist in the same line of business. These platforms have their network capacities designed in petabytes.
However, Filecoin has the anticipation and resources available to surpass even Storj and Sia. Both of these networks boast of 100 and 2 petabytes in available network space respectively.
Utilizing the blockchain on the service, users are given the opportunity to contact miners, negotiate a viable deal, and also ensure that all their information is properly stored provided that the transaction is transparent.
For the miners that supply the space to those who need it, they get paid for every person that borrows storage from them and also get rewards from the service for their supply of additional space on the internet.
How Does Filecoin Operate?
The process consists of one user who contacts another to pay some amount to store their information. The price that is needed to get paid is normally acquired via an open selection where all the space providers strive to compete with each other for the cheapest rates to charge the user to store a specific volume of data.
Two types of deals can take place on the platform; Retrieval and Storage. During storage, the provider is required to keep submitting evidence in installments in earlier dates of discussion that the information is kept secure and intact. The payment is then made on the due date when the owner decides to retrieve the said information.
In the Retrieval stage, modes of negotiation are almost similar, with the distinction being that the payments would be made in agreed milestones instead of at the end of the contract. That benefits both of the participating parties since the miners earn some income through the users and get rewards from the online service.
On the other hand, users benefit since the amount to get paid is significantly less than what centralized platforms like Amazon Web Service (AWS) and Apple Cloud charge for storage space. The space providers are required to submit periodic proofs to the service provider to show that they are storing the data that is given to them by the users to guarantee transparency and avoid fraud.
When the miners manage to offer considerable proof of their activities, they are given the right to sublet more space and receive their payment. Their proofs must contain:
- Evidence that the data was received and it is entirely encrypted to avoid duplication by other storage providers. This evidence must be provided at the beginning and the end of the contract.
- Evidence that the stored data is still secure and must be provided periodically, subject to the type of contract involved. Some parties have agreed-upon dates while others are entirely random.
Failure to provide viable proofs whenever needed attracts different penalties, ranging from the slash in payment to the outright dissolution of the contract. Execution of transactions and messages on the platform needs a pull on its resources. That explains why fees are charged upon every message and transaction.
In the case of the messages, the fees that are incurred by both the borrower and the lender of storage space are fixed and normally quite minimal; while in the case of the contracts, it is not quite the case.
Taking the duration of the contract and data size into consideration, fees are incurred by both parties to the network. More is from the user since some of it is directed to the miner’s reward. The miner incurs lesser fees for every payment that they receive under the contract. In that context, the reward that is gained by the space providers is normally in the form of the Filecoin network’s native digital currency known as FIL.
Purchasing FIL is relatively easy since the tokens are available on multiple decentralized exchange platforms. They can also get stored on the wallets on the service or other popular wallets that support the token. The conversations between miners and people on the service platform are done via peer to peer communication through protected channels.
In their case, the transfers between customers are done through the Storage and Retrieval nodes.
- Storage Nodes – these are common to many of the storage platforms. The service looks for and rents extra space on people’s hard drives. Using that method can be challenging due to the limited space available on the disk drives. However, the service cannot start to employ data centers since it would result in a centralized system.
- Retrieval Nodes – these are Filecoin specific. They have a wide bandwidth and need to be closely located to the other nodes on the server. They are designed to swing into action on the high network speed, mostly when several nodes are active. They act mainly to support the storage nodes.
Crypto is the future of the technology and finance world. That is the reason why more investors are coming into this space seeking opportunities to get more revenue. Filecoin network was already in the works for three years before it was launched officially. Many centralized exchanges are forecasted to fall out of favor with their users which have created an opportunity for these platforms to take the spotlight.
With an increasing number of people supplying storage space for rent, the value of the FIL token is going to keep increasing in the future. It has moved from $1 to almost $30 in just three months which is highly impressive.
It is, nonetheless, imperative to note that while projections are in the positive, it may drop as a result of unexpected reasons. That is the reason why those that have low-risk tolerance should avoid investing in the new business.
Even though it is currently being developed, the current COVID-19 health crisis is slowing down the progress of the project that was officially unveiled on August 7, 2021. But, there have been several interested people testing the service.