Filecoin is looking to provide an alternative to traditional online storage providers and protocols. Its technology acts as an incentive layer for the peer-to-peer file transfer system IPFS (InterPlanetary File System), which uses hash-addressed content structures to store data instead of centralized servers and IP addresses. This is intended to reduce redundancy, increase permanence, and improve efficiency.
Filecoin incentivizes IPFS by rewarding storage providers and retrievers for contributing resources to the system. The network also comes with built-in Ethereum integration allowing developers to access data on Ethereum’s blockchain and interact with its smart contracts.
Filecoin is being developed by Protocol Labs, a development firm founded in 2014 by Juan Benet. Benet and crew constructed Filecoin and IPFS in tandem, raising a few Seed equity rounds to fund the process. In 2017, the team hosted a token sale to secure funds for Filecoin’s development, which raised around $205 million in one of the largest token offerings at the time.
Protocol Labs seeks to build a fundamental layer for data infrastructure that can be used by both blockchain and traditional providers, like Amazon Web Services (AWS) and Microsoft Azure. The project plans to achieve this goal by creating a marketplace in which any user who has storage capacity can connect to the network, creating a supply of unused storage both in consumer hardware as well as data centers of existing businesses. The Filecoin team believes this will reduce the price of storage in a way similar to how sharing economy companies like Airbnb reduced the price of short-term rentals in marketplaces traditionally dominated by large players with large capital requirements.
The Filecoin token (FIL) is the native crypto token of the Filecoin network, similar to bitcoin and ether. Token holders can use FIL to participate and transact in the Filecoin network. In particular, users pay miners in FIL to store or distribute data and to retrieve their information. Storage providers also post FIL as collateral to provide a minimum level of guarantee of their service, which gets slashed should a deal with a customer fall through.
Proof-of-Replication (PoRep) and Proof-of-Spacetime (PoSt)
The Filecoin protocol intends to use Proof-of-Replication (PoRep) and Proof-of-Spacetime (PoSt) to prove files are stored securely over time within a decentralized network.
PoRep is a type of Proof-of-Storage featuring the specific properties that outlined in this post
PoSt defines the mechanism by which miners create blocks that are storing data. Clients (network users) can source miners of data storage and data retrieval, different operations that existing within separate decentralized markets. PoSt provides a level of verifiability so that data can be stored and retrieved in a distributed, multi-market system.
Storage miners can earn FIL by storing data for clients and “computing cryptographic proofs to verify storage across time.” Unlike Proof-of-Work mining, the probability of earning a block reward (and transaction fees) is “proportional to the amount of storage the miner contributes to the network.”
On the other hand, retrieval miners can receive FIL by winning bids for a client request. The market value of the file in question determines the miner’s payout. Available bandwidth and initial response time for details (which could be influenced by network latency or proximity to a client) impact a miner’s ability to close deals and retrieve data on the network. Therefore, the “maximum bandwidth of a retrieval miner will set the total quantity of deals” they can win.
With the network still in development, the mining equipment specifications (specifically for CPU and RAM) remain unknown. But the team insists the mining hardware will contain configurations with many standard hard drives and that any “specialized Filecoin mining hardware” will not exceed anything more than a highly optimized hard drive (in a sense, not optimal for ASICs). Filecoin also notes note that early storage and retrieval miners will be required to run full nodes.
Protocol Labs introduced many new technologies in its Filecoin whitepaper that could add value to multiple blockchain projects. Filecoin is secured by proof-of-work in the same way that bitcoin is, but this work is specifically related to storage of data Instead of finding a random nonce to make the block hash fit in a target range, the networks proof-of-work is restricted to proving that a miner has stored data for a specific duration and replication. This is achieved with two new types of proof-of-work: proof-of-replication (PoRep) and proof-of-spacetime (PoSt).
Proof-of-replication allows a server to convince a user that some data has been replicated to its own uniquely dedicated physical storage while proof-of-spacetime allows an efficient prover to convince a verifier that they are storing some data for a specified duration of time.
These proofs allow Filecoin to solve issues with large-scale storage networks made of independent parties, by making it theoretically impossible to falsify data storage records to increase miner rewards. Competitors like Siacoin ($SC) and Storj ($STORJ) lack this functionality, though they have not yet created enough storage demand for this to be a significant issue.
Miner proofs are used to create a network based on three primary methods, put, get, and manage. The put and get methods are responsible for putting data in storage and accessing it on client request respectively. The manage method is responsible for managing the marketplace by matching buy and sell orders as well as managing buyer and seller reputation on the platform.
These methods are executed across two marketplaces, storage and retrieval, which are managed by the different miners. Protocol Labs believes that miners will often participate in both markets. Storage miners are responsible for receiving put requests and storing client data while also pledging collateral proportional to the data. They will be penalized by losing this collateral in the event of invalid or missing proofs. Storage providers run the manage method in conjunction with clients and auditors. Retrieval miners are responsible for managing get requests and giving clients their data. While retrieval miners do not need to pledge collateral, they are still compensated in the native Filecoin for performing work for the network.
Once the network launches, the Filecoin Foundation references in the project’s whitepaper will take the responsibility of coordinating and funding future protocol improvements and development. The foundation is Protocol Lab’s solution for the long-term governance and support of the Filecoin protocol. Protocol Labs has not released any other details on the Filcoin Foundation to date, but the foundation will remain inactive until the network launches. This foundation will receive 5% of the FIL tokens created at genesis to help fund future initiatives.