Original post by Jason Choi and Javier Ang
herehereReview the terms of disclosure.
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Last month, Filecoin announced the launch of the FVM virtual machine-the most ambitious development in history for the two-and-a-half-year-old protocol that dominates the storage market.
This month, the Blockcrunch team breaks down the implications of the development in an exclusive 30-page report. This report was commissioned by Protocol Labs. In the following content, we will cover:
Filecoin review
2020-2022 Filecoin Quantitative Analysis
Important current use cases
Will FIL move towards deflation? Token and inflation rate simulation analysis
Competitive Analysis Evaluation
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Filecoin Story and Current Status
Perhaps the biggest misunderstanding of Filecoin is that it is just a Dropbox network disk on the blockchain.
In fact, the origin of Filecoin is much larger than this. In 2014, Filecoin was created by Juan Benet and his team at Protocol Labs. Based on a simple yet vast vision,This project came into being - to decentralize the internet.
While the internet's vision was to be decentralized and not controlled by any one person or entity, it has become more centralized over the past decade as more and more content and activity has been centralized in a few large service providers. melted. According to Synergy Research Group,The three major cloud infrastructure providers (such as Amazon AWS, Microsoft Azure, and Google Cloud) will have a 66% market share in 2022.
Let's talk about the background first. When a computer visits a website on the Internet, it is actually accessing a collection of files on a storage network (https://www.thepublicdiscourse.com/2021/08/77139/). For example, the report you're reading has been uploaded to Substack's storage provider. When a user Alice wants to read this report, it is sent from the storage service provider over the Internet and displayed on Alice's browser. Given the important role cloud infrastructure providers play in storing and distributing data, the centralization trend of such services is worrying (https://www.ietf.org/archive/id/draft-nottingham-avoiding-internet -centralization-05.html), as it introduces the risk of a single point of failure (such as data loss and service interruption). For example, Amazon Web Services went down in December 2021, making some popular services like Disney+ and Vice inaccessible. Other times, such glitches have shut down access to Twitch, Reddit, Shopify, and even Amazon itself.
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The Path to a Decentralized Internet
Filecoin is building an open data economy on top of the Interplanetary File System (IPFS) (https://ipfs.tech/).
IPFS is a peer-to-peer hypermedia protocol created by Protocol Labs, which allows users to store and access verifiable content-addressable data (https://proto.school/content-addressing/03), where data files are stored by participating nodes , will be assigned to a unique cryptographic hash (that is, the content identification CID: https://docs.ipfs.tech/concepts/content-addressing/#what-is-a-cid), and access the content through such an identification— — This differs from traditional addresses such as http://protocol.ai. This means that as long as the IPFS network has a node caching these files, they can always be accessed, IPFS nodes can be operated by anyone (such as individuals, companies and non-profit institutions), and node operators can pin (anchor) a file to make it retrievable via IPFS (the Pinning process lets nodes cache files locally indefinitely). Such an approach is designed to keep the network open and resilient.
However, storing data on IPFS may encounter two challenges:
Without built-in incentives for nodes to store data for others, then relying on altruistic volunteers, there is no way to ensure the availability of that data, and no way to prevent deletion. For example, data stored today may no longer be accessible weeks or months from now.
Even if they pay for centralized pinning services for data storage, users must trust that these service providers will keep their promises. After all, there are no built-in conditions to verify the storage status and correctness of data.
In short, while IPFS ensures the discoverability of content on the web, it cannot ensure its persistent availability or correct storage. However, IPFS is scalable, and its main task is still the core function of content addressing. This means that one can build specific IPFS implementations or complementary protocols to address these challenges - such as implementing an incentivized storage network on top of IPFS.This is where Filecoin comes in.
Filecoin is a complementary protocol built on IPFS. It uses a built-in cryptoeconomic model to incentivize storage providers, thereby adding a long-term data persistence mechanism, ensuring that data is securely stored in a verifiable manner andcan be continuously retrieved。
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Filecoin's First Pillar: Storage
Filecoin consists of a decentralized network of storage providers, who can join and provide storage services as long as they have the necessary hardware (https://docs.filecoin.io/storage-provider/hardware/hardware-requirements/). To store data on it, the user contacts the storage providerReach storage transaction proposals (deals), where users pay a fee in exchange for storing data for a specific period. To reach such a storage transaction proposal, users can directly contact the storage provider, or implement it through Chainsafe, Estuary and other applications that do not require technical operations (https://docs.filecoin.io/store/overview/start-storing/) .
Filecoin does not rely on reputation to guarantee storage quality like centralized service providers, but uses cryptographic proofs to allow users to check the Filecoin blockchain information to verify that their files are stored correctly. The storage service provider needs to submit the following information during the life cycle of the storage transaction:
Proof of Replica: Storage providers need to prove that they store a unique copy of the data. The unique encoding ensures that two storage transactions of the same data cannot reuse the same disk space.
Proof of time and space: During the life cycle of a storage transaction, the storage provider needs to prove that it is continuously allocating dedicated storage space to store the data every 24 hours.
In this network, storage is also trustless, because the Filecoin network uses an encryption economics incentive mechanism combined with the above proof to ensure that the storage provider keeps its promise - after submitting the proof, the storage provider will get a FIL reward. If the promise cannot be kept, The pledged token will be confiscated (slash: https://docs.filecoin.io/storage-provider/rewards/slashing/).
Note, readers, that cryptoeconomic proofs are on-chain, while data is stored off-chain.
Before the release of the Filecoin virtual machine, the Filecoin network was mainly suitable for cold storage of data (such as large data that does not require frequent access). For files that require frequent access but have storage guarantees (such as video recordings of online meetings), storage providers can combine cold storage archives with IPFS's hot cache to achieve efficient content distribution. Huddle 01, a decentralized video conferencing platform, leverages Filecoin and IPFS to achieve this.
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The Second Pillar of Filecoin - Retrieval
Many use cases require low-latency data retrieval (such as serving readers of this research memo on Substack, a song on Spotify, or a video on Netflix) because it matters to the user experience. One study found that for every second increase in load time, user conversion rates dropped by an average of 4.42%.
A Content Delivery Network (CDN) distributes Internet content quickly by having groups of servers work together. These servers replicate data from the original content's servers and distribute it globally to reduce the physical distance between users and servers, enabling low-latency services required for high-speed content loading.
At present, the CDN network provider market is extremely concentrated. The largest provider, CloudFlare, supports 80% of websites that require CDN services, and 7 CDN network providers occupy most of the market share. Such a centralization trend is worrying, because many websites may collectively collapse when the CDN service ends. For example, in June 2021, a Fastly (https://www.datacenterdynamics.com/en/news/major-outage-hits-amazon-twitch-reddit-and-more/) outage led to Amazon, Twitch, Reddit, and Paypal Paralyzed, and a year later Cloudflare (https://cointelegraph.com/news/cloudflare-outage-affects-multiple-crypto-exchanges) failure caused websites such as FTX, OKX and the popular communication platform Discord to be paralyzed.
However, the CDN network market is highly competitive and economies of scale dominate - large CDN providers can offer users prices that smaller CDN players cannot compete with.
Also, latency remains an issue outside of the US, where most centralized CDN servers are located, and packets need to travel farther, causing buffering delays (known as the speed of light problem: https://www. youtube.com/watch?v=ogOEEKWxevo&t=1005s&ab_channel=ElixirConf). It is impossible for small individual CDN providers to compete internationally because they do not have the financial resources to provide global service. This was elusive until the advent of Filecoin.
Filecoin's unique infrastructure based on verifiable content addressable data allows people to build a decentralized CDN network. Anyone can join as a content distribution node. Combined with the cryptoeconomic incentives that catalyze the network of nodes, this creates a robust global decentralized CDN network that can compete with large centralized service providers in terms of cost and performance. In this way, data can be distributed to Internet users around the world with lower cost, latency and less risk of disruption.
For example, Protocol Labs established its own decentralized CDN network, Filecoin Saturn, in 2022 to speed up retrieval of media files on the Filecoin network. Anyone can join and contribute to this network and will be rewarded with FIL in return. Up to now, more than 800 (https://ipinfo.io/tools/map/837 2b 479-340 f-4959-aa 64-fab 5 d 01 be 5 af) node suppliers have joined the network, It is twice as much as in December 2022. The Saturn project is now in public beta testing and plans to enable smart contract payments by May 2023.
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The Third Pillar of Filecoin: Computing
Computation is the third (and final) pillar of Filecoin's open services. When it comes to data, in addition to storage and retrieval, users also need to run computational processes to transform the data.
In the world of big data, computing is essential. According to the International Data Corporation, by 2025, the world will generate 175 zettabytes per day (https://www.seagate.com/files/www-content/our-story/trends/files/idc-seagate-dataage-whitepaper. pdf) (or 175 terabytes), 50 times more data than we generate today. This data can be analyzed to uncover critical insights that help the world make better decisions and improve people's lives. However, the sheer size of big data makes them difficult, time-consuming, and expensive to process and run computational jobs because the data needs to be moved from cold storage or gathered in one place before the computational work can be performed.
Filecoin is uniquely positioned to solve this problem because storage providers already own the computing resources - the hardware they need to generate and submit cryptographic proofs (GPU, CPU: https://docs.filecoin.io/storage-provider /hardware/hardware-requirements/) can also support compute jobs. Thus, computing jobs can run where the data is stored without having to move the data to external computing nodes. This is critical in big data computing because companies don't need to move data to a centralized storage location before running computing jobs, which takes a lot of time and money.
Several working groups are developing different types of computing solutions on Filecoin. For example:
Lurk (https://filecoin.io/blog/posts/introducing-lurk-a-programming-language-for-recursive-zk-snarks/) is a programming language that enables cryptographically verified calculations through zero-knowledge proofs. Lurk also simplifies zk-SNARK-based program development and can be integrated with Filecoin's virtual machine to implement specific application-based verifiable computations on the Filecoin blockchain. This makes smart contracts and data storage more secure and efficient. In the long run, Lurk can improve the scalability and flexibility of Filecoin through its potential application in interstellar consensus.
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Filecoin network data storage performance
As of December 31, 2022, the Filecoin network stores 460 PiB of data. Simply put,That’s enough to store 1 million years of songs, representing 97% of the data stock of decentralized storage providers.Compared with a year ago,18 times more data stored, this phenomenal growth is due to the launch of Filecoin Plus, which accounts for 99% of Filecoin storage transaction proposals (deals).
The Filecoin Plus program is designed to subsidize users for storing large, valuable datasets at a discount. Customers who want to upload data to the network can apply to a group of selected members of the community called notaries, who are responsible for reviewing and allocating resources called DataCaps (data quotas) to customers. Customers can then use DataCap to subsidize their deals with storage providers.
There are a variety of customers already participating in the Filecoin Plus program, of which Web 3/Crypto customers account for only 19%, and the remaining 81% are from industries other than Crypto, such as life sciences (22.6%) and the environment (15%). Here are some typical clients of the Filecoin Plus program:
National Oceanic and Atmospheric Administration (NOAA): Stores (https://github.com/filecoin-project/filecoin-plus-large-datasets/issues/1509) key data for weather forecasts generated by its satellites.
NASA: Store (https://github.com/filecoin-project/filecoin-plus-large-datasets/issues/1555) Earth science datasets, including climate change prediction data and Earth surface satellites image.
UC Berkeley Subsurface Physics Research Group: Storage (https://www.newswire.ca/news-releases/uc-berkeley-engages-seal-storage-web3-technology-to-advance-innovative-neutrino-physics-research -883282087.html) neutrino research data related to the elements of the universe.
Ewesion: One of the fastest growing platforms for creative artists in China, it uses Filecoin to store its photos, illustrations and vector graphics (https://filecoinfoundation.medium.com/storage-company-ewesion-leverages-filecoin-network-for- data-preservation-e 36 cecc 84 e 0 e).
In return, storage providers gain 10x the quality-adjusted power when they provide storage space for such transactions, which increases their FIL block rewards. Therefore, storage providers have an incentive to offer better service and lower storage costs (or even free storage) to compete for storage transaction proposals within the Filecoin Plus program.
All in all, the Filecoin Plus plan can be said to be "killing three birds with one stone":
The Filecoin network is more active, and the storage of valuable data continues to generate block demand
Customers get better service at very competitive prices
Storage provider revenue rises due to increase in FIL block rewards
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Number of Filecoin clients (by volume of stored data)
The number of customers utilizing Filecoin to store data has been growing steadily — up 22% to 1,029 customers in the most recent quarter. Readers should note that the actual number of users is much higher than this, as services like NFT.Storage and Web3.Storage store data for 20,000 to 50,000 users, but they only count as one client.
In the most recent quarter, Filecoin welcomed an additional 99 large dataset customers (customers storing more than 500 TiB), bringing the number of such users to 190 now.
However, further research shows that large data set customers account for the majority of stored data. According to our estimates, the 190 large dataset clients (i.e. 14% of the total number of clients) represented 89% of the total data stored on Filecoin in early December. The concentration of customers with large datasets is a potential problem, because losing these customers (perhaps when their deals expire) would mean a huge loss in storage and network utilization. However, bringing in large data set clients is part of Filecoin's go-to-market strategy to increase potential clients' confidence in the Filecoin network and thus bring in more clients.
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Storage Capacity Growth and Storage Provider Geographic Distribution
As early as August 2022, the storage capacity of this network reached a peak of nearly 17 EiB, and it is currently 14.8 EiB, which is 406 times that of StorJ (https://storjstats.info/d/storj/storj-network-statistics? orgId= 1&from=now-7 d&to=now), the storage capacity of the latter ranks second in the decentralized storage network. Before the Hyperdrive upgrade in June 2021 (https://filecoin.io/blog/posts/filecoin-v1 3-hyperdrive-network-upgrade-unlocks-10-25x-increase-in-storage-onboarding/), Filecoin's capacity is already ahead of its competitors, but Hyperdrive increases the rate of uploading data by 25 times, allowing storage providers to commit new storage capacity at a cheaper and faster rate, resulting in amazing continuous capacity increase.
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Geographic distribution of storage capacity supply (2021 vs 2022)
One of the common criticisms of the Filecoin network is that its storage providers are concentrated in China (58% at the end of 2021). Geographical concentration is a risk as it could lead to service interruptions in the event of a power outage or regulatory ban, especially with the Chinese government announcing a nationwide ban on cryptocurrency mining in 2021 (https://forkast.news /crypto-mining-players-flee-china-latest-ban-kicks-in/). However, this issue is less of a concern, as reliance on mainland Chinese storage providers declines to only 41% of the network in 2022 (from 56% in 2021).
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Utilization of Filecoin storage capacity
Currently, the percentage of storage utilization is at an all-time high of nearly 3%, a rate that is 10 times the rate at which the total network capacity has grown since the Hyperdrive upgrade. A 3% utilization rate may be negative at first glance, after all, it ignores the absolute amount of data actually stored on Filecoin.
As mentioned above, there are currently 460 PiB of data stored on Filecoin, compared with the second-ranked decentralized storage platform Storj,It is 29 times the total amount of data it stores (and 12 times the space capacity that the latter can provide).
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Filecoin Ecological Status and Use Cases
Filecoin has been working through sponsorship programs (https://github.com/filecoin-project/devgrants/#filecoin-grants), hackathons (https://hackathons.filecoin.io/) and accelerators (https://ecosystem- wg.notion.site/Protocol-Labs-Accelerator-Program-d 45 d 8792 a 7 d5 44 eca 9 beb 7 d 3 e 3d 3 b 05 d) and other measures to introduce more applications into the Filecoin network, thereby Attract developers and builders. This facilitates increased storage capacity, which in turn increases network requirements.
In 4Q22, the number of projects built on Filecoin and IPFS exceeded 600 (currently 558 at the latest figures). This growth can be attributed to Filecoin’s efforts in assisting early-stage projects and teams (seed and earlier stages) to develop their ideas — the number of early-stage projects has almost doubled (year-over-year). Readers should also note that these lists do not represent all projects on Filecoin, as technically, there are many more projects utilizing IPFS and Features of Filecoin.
Currently, applications in the Filecoin ecosystem can be divided into 5 use cases (not exhaustive):
1. Increase developer use of decentralized storage
One of the reasons customers have liked centralized storage providers in the past is that there are tools that make storing their data extremely simple. Conversely, storing data on a decentralized network is difficult to manage and adds complexity to an already congested developer workflow—until the advent of Web3.Storage.
Web3.Storage is a set of interfaces, APIs, and services that enable developers and other users to easily access data storage services on the Filecoin network. It handles a large number of complex issues involved in directly interacting with decentralized storage, allowing developers to easily build applications that utilize content-addressable data stored on the Filecoin network and pin (anchor) on the IPFS network, thereby Add redundancy.
NFT.Storage (https://nft.storage/) is an affiliated service specializing in NFT data storage, built on Web3.Storage. Generally speaking, although the token information of NFT is stored on the blockchain, its metadata and media resources are stored off-chain because of the high cost of on-chain storage.
So while the token itself is decentralized, its metadata and media resources are not. They are subject to the reliability and survivability of the storage provider. For example, NFTs minted on FTX’s NFT marketplace all used a centralized storage provider whose metadata and images had been lost after FTX’s collapse and were redirected to FTX’s bankruptcy reorganization website. In fact, two independent studies found that 40-55% of NFTs on Ethereum are stored via HTTP gateways or centralized servers.In other words, up to 55% of Ethereum NFTs are at risk of disappearing.
Therefore, NFT.Storage provides an easy-to-use platform for NFT developers to store NFT data on IPFS and Filecoin, which can enjoy higher security and resilience. Specifically, such data is hot-cached on IPFS for fast retrieval, and is also securely stored on Filecoin, so thatIt realizes the sustainability of NFT, and at the same time allows developers to achieve sufficient decentralization of data at zero cost-because this is part of the Filecoin Plus plan.
Some of NFT.Storage’s partners include OpenSea, Holaplex, Magic Eden, and Rarible, and as of December 31, 2022, NFT.Storage has processed close to 400 TB of NFT data.
2. Bring in large datasets
Unlike applications like Web3.Storage and NFT.Storage that focus on serving Web 3 developers, the following applications make it easy for anyone (usually an institutional client) to upload large datasets to the Filecoin network.
Estuary (https://estuary.tech/) is an intermediary service that enables users with little technical knowledge to upload large datasets to Filecoin. Users do not need to manually reach storage transaction proposals with different storage providers to achieve data persistence, becauseEstuary automatically replicates data to 6 of Estuary's 212 storage providers.image description
FileSwan Dashboard Overview
FilSwan (https://www.filswan.com/homepage) builds a bridge that allows users to migrate seamlessly from Amazon's S3 cloud service to the Filecoin network - because they understand that switching costs are a barrier to storage customers adopting decentralization One of the hurdles for storage providers. FilSwan also has a platform that helps clients connect with more than 2000 storage providers on Filecoin (https://www.filswan.com/product/filswan_platform/), with transaction management, supplier reputation ranking and transaction status Monitoring and other functions.
Lighthouse (https://www.lighthouse.storage/) allows customers to store files permanently with a one-time payment. Its perpetual storage model differs from conventional rent-based models, which typically require customers to track their status and make payments before their due date to avoid file loss. It also has built-in data encryption to provide users with data privacy. Compared to Lighthouse (https://www.lighthouse.storage/), Estuary and FilSwan are better for public data.
3. Make it easier for everyday users to use Filecoin services
The two above use cases primarily serve developers and institutional clients, while projects like Chainsafe and Slate are more consumer oriented.
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Fileverse's drag-and-drop upload feature
Slate (https://slate.host/) does not simply allow users to upload files in Filecoin, but repackages Filecoin's data storage into an efficient tool. Slate is a search tool that enables users to save and track everything they come across on the Internet (such as links, pictures, and files) for easy future reference.
4. Metaverse and games
The integration of Filecoin, IPFS with metaverse and games provides a series of benefits for players and developers. One of the key advantages is the ability to store and distribute massive game assets in a decentralized and secure manner. Not only does this enhance the user experience, it also ensures that these assets are stored indefinitely.
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One of Mona's spaces Neon City Streets. All 3D files are stored in IPFS & Filecoin
Mona (https://monaverse.com/) is a Metaverse world-building platform that uses Filecoin and IPFS via NFT.Storage. Mona uses Filecoin/IPFS to store its data and 3D content because they believe the Metaverse must be open and decentralized to be successful. In such a space, user ownership of digital assets is permanent, interoperable, and uncensorable. Each AAA-quality Mona world contains large design files, and IPFS enables Mona to provide users with a high-resolution experience while maintaining good performance. Today, more than 10,000 builders are building on Mona, and users can own the world of Mona in the form of NFTs on Ethereum and Polygon.
Another Metaverse project utilizing Filecoin is iPollo (https://ipollo.org/). This interesting project is an infrastructure platform that provides rendering capabilities for the metaverse, allowing tens of thousands of players to display concurrently on the same screen while enjoying low latency in the game. Likewise, iPollo believes that users should fully own their digital assets without worrying about their sustainability and censorship. Therefore, every digital asset minted through iPollo is an NFT, and its data is stored in Filecoin. Utilizing Filecoin will not only improve the efficiency of iPollo as they can easily update metadata without changing their own on-chain state, but also minimize operational costs related to storage as their business expands. iPollo has so far stored over 4 PiB with Filecoin (https://filecoin.io/blog/posts/case-study-ipollo-guarantees-ownership-in-the-metaverse-with-content-persistence-and- interoperability/) file.
5. Audio and Video Platforms
Storage is integral to how audio and video platforms serve their users. For example, audio/video files are stored somewhere before they are streamed to users; while users on video conferencing platforms such as Zoom may wish to record their audio/video meetings and transcripts for future replay .
However, in addition to censorship and single point of failure risks, audio and video platforms often face cost issues when interacting with centralized storage providers. High operating costs lead to unfair benefit distribution policies – especially in the music industry, where artists receive only 12% of the income generated (https://www.theguardian.com/music/2021/apr/10/music- streaming-debate-what-songwriter-artist-and-industry-insider-say-publication-parliamentary-report). Therefore, Filecoin provides a cheaper option for these platforms, enabling enterprises and their users to save costs and bring about a fairer benefit distribution mechanism.
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An overview of Huddle 01's user interface and features
Huddle 01 (https://www.huddle 01.com/) is a decentralized video conferencing platform that also utilizes Filecoin as its storage backend. The vision of Huddle 01 is to decentralize the video communication technology stack, bringing users a higher level of privacy protection and high-performance video conferencing and streaming services. While video conferencing is often free, taking minutes of meetings is expensive as current centralized storage solutions are not sustainable at scale (https://blog.textile.io/building-better-video- technology-for-classrooms-with-filecoin/). By utilizing Filecoin for storage, Huddle 01 can provide recording capabilities at low cost, allowing more users to replay their meetings. Since its launch, Huddle 01 has recorded more than 500,000 minutes of 30,000 meetings with 16,000 users (https://twitter.com/huddle 0 1com/status/1608872056204169217/photo/1 ).
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FVM virtual machine: the present and future of Filecoin
The Filecoin virtual machine (FVM: https://docs.filecoin.io/smart-contracts/fundamentals/the-filecoin-virtual-machine/), like the Ethereum virtual machine, provides a platform for deploying and executing code in smart contracts. required environment.With FVM, the Filecoin network gains the ability to execute smart contracts on top of the existing storage network.It needs to be explained that the developer will not program the user's stored data, but define how the data will be automatically or conditionally operated after it is stored in the network through a smart contract (in a trustless manner).
For example, a user needs to implement data redundancy (such as storing data in 10 different storage providers). Without FVM virtual machines, clients or storage applications would have to manually set and check storage status. With FVM, smart contracts can be deployed to automatically handle storage transaction proposals with 10 different storage providers. One can also continuously monitor data replica shortages and automatically revert to the replica storage state of 10 storage providers on specified terms. This is all done in a trustless manner.
Other exciting potential use cases include:
Decentralized Data Computing: Saves cost and time by performing computations where data resides, rather than moving data around.
A smarter storage market: richer functions and automated features, such as automatically updating storage transaction proposals, or using funds held in smart contracts to implement self-healing storage transactions when there is a problem with the sector.
Data DAO: This type of DAO revolves around the preservation, aggregation, enhancement, and promotion of high-value datasets such as large genomic or research databases. Primitives such as tokenization, DeFi functionality (fund lending/borrowing) and verifiable storage on Filecoin enabled by the FVM virtual machine make this type of DAO possible.
Support dedicated network: An independent network with a dedicated mission to improve the functionality of the Filecoin network. Some examples are trustless reputation systems (reporting storage providers’ service quality/reputation scores based on on-chain metrics), data availability sampling networks (letting storage providers test their efficiency/reliability and rewarding them based on the results) and content exchange Distribution Network (Seamless and fast retrieval and distribution of data stored in the Filecoin network regardless of geographic location).
After going live in the first quarter of 2023, both developers and users can enjoy the upgraded Filecoin network. Upon launch, the FVM virtual machine will support smart contracts written in Solidity or Yul; developers can also port existing Ethereum smart contracts (https://github.com/filecoin-project/fvm-specs/blob/main /04-evm-mapping.md ), requiring few (or no) changes to the source code. The ability to reuse audited and battle-tested smart contracts in the Ethereum network allows developers to save development costs and time, while users can enjoy its utility with minimal risk.
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Filecoin Token Economy
Currently, the Filecoin economy runs on FIL, which is used to pay network fees, storage provider block rewards, and function as storage provider collateral. While the token has lost 95% against $ETH since its 2021 high, the protocol’s data storage growth has been impressive, fueled by the Fil+ initiative.
Filecoin has a maximum supply of 2 billion FIL, but many of these have not yet been released. As of December 31, 2022, the circulating supply is 415.4 million FIL. Also, unlike Bitcoin, these unissued tokens do not have a fixed issuance schedule. Instead, their issuance rate is related to the overall utility of the Filecoin ecosystem and tied to network storage capacity.
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FIL Inflation
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Filecoin Token Distribution
70% (1.4 billion) of the total Filecoin supply is used to reward storage providers. These tokens are divided into three categories: simple minting rewards (330 million), baseline minting rewards (770 million), and mining reserves (300 million). Simple minting rewards are time-based and continue to decrease exponentially with a six-year halving cycle. However, baseline minting rewards are based on network performance, and releases are tied to network storage capacity.
The block rewards earned by miners also have a release cycle: while 25% of these rewards are immediately available to improve their cash flow, 75% of the rewards are released linearly over 180 days. Mining reserves are not yet scheduled to be released, and it will be up to the community to decide whether (and how best to) distribute these shares.
In 2022, about 105 million FIL will be released (https://observablehq.com/@starboard/chart-fil-protocol-circulating-supply). In its current cycle, there are about 256 million in total. At the current price ($8), the 2022 FIL block reward is equivalent to issuing $840 million in new shares to the market. Additionally, approximately 100 million are unlocked for investors in 2022, for a total of 324 million such releases historically.
In other words, combined with inflation and investor release and unlocking, 205 million FIL will enter the market in 2022, which is equivalent to$1.6 billion supply. Referring to the average monthly public price from January to December 2022 ($13.37), this meansA $2.74 billion supply hits the market in 2022.
While this may seem like a lot, for reference, the equivalent number for Ethereum in 2022 would be around 2 million at a unit price of $2,114, equivalent tosecondary title
FIL supply reduction mechanism
In fact, there are also tokens that are removed from the circulating supply. In Filecoin, this occurs when tokens are locked, for example when they are held as collateral to incentivize reliable storage. A storage transaction proposal like Filecoin Plus, which provides storage providers with ten times the block rewards, also requires ten times the collateral. Supply shrinkage can also happen through network transaction fees, which allow some tokens to be consumed and burned to compensate for the computational and storage resources required to incorporate information on-chain.
An important difference should also be made here-Filecoin is a layer of blockchain protocol, not a simple service agreement. The core of the difference lies in how value is given back to the agreement. Instead of relying on taking a cut of the storage supply, Filecoin leverages the demand for block space, where the base fee (in FIL) that users pay to interact with the blockchain is burned (just like Ethereum's EIP 1559 ( https://consensys.net/blog/quorum/what-is-eip-1559-how-will-it-change-ethereum/ ). In this case, some activities (publishing proofs, token swaps backed by FVM virtual machines, etc.) will give value back to the Filecoin network instead of taking a cut from storage/service fees, which in turn will make the fees lower for customers , bringing more demand for block space. This network demand facilitation mechanism works very well in steering storage demand and capacity.
The storage provider locks FIL as collateral, and if the storage task fails, the collateral will be confiscated. This provides sufficient incentives for storage providers to maintain storage services. The more demand for storage, the more FIL should be locked. In 2022, the number of locked FIL will increase by 7.38 million (out of a total of 134.5 million locked).
In addition, any fees incurred on Filecoin are paid in FIL and then burned. This number once reached the level of burning 250,000 FIL per day. Fee types include base fees (a portion of network transaction fees that are burned), batch fees (paid when storage providers aggregate storage proofs), overestimation fees, and penalty fees. So far, ~34 million FIL have been burned, and 5.17 million FIL will be burned in 2022.
In 2022, approximately 12.55 million FIL will be removed from the active supply through collateral lock-ups and fees. At an average monthly open market price in 2022, that would be $168 million. this meansAbout 6% of the incremental supply entering the market was removed.
Overall, ~170M FIL (https://observablehq.com/@starboard/chart-fil-protocol-circulating-supply) are currently locked or burned, which is ~8% of the fully diluted supply,or 30% of minted or vested supply (i.e. circulating supply*), which is in line with the 30% goal initially portrayed by the Filecoin documentation (https://spec.filecoin.io/systems/filecoin_mining/miner_collaterals/).
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Will FIL move towards deflation?
While the supply of FIL is dynamic based on the utility of the network, it is expected that the network will continue to scale back its token issuance and move into a more deflationary economy. Note that a deflationary monetary policy is not a necessary condition for value accumulation; in fact, most Layer 1 protocols, including Ethereum some time ago, have an inflationary monetary policy.
Most of the tokens of the Filecoin Foundation and Protocol Labs are expected to be unlocked in the fourth quarter of 2023 (https://token.unlocks.app/filecoin); however, 250 million FIL will also continue to be released until 202610 moon. Therefore, if current network trends remain unchanged, FIL is unlikely to enter a sustained deflationary trend in the near future.
In the past 12 months, an average of about 530,000 FIL (https://observablehq.com/@starboard/chart-fil-protocol-circulating-supply) has been burned per month, and in the past year, the network The quality adjusted power of Starboard is growing by about 2% per month (https://dashboard.starboard.ventures/capacity-services). Assuming the above conditions continue, FIL can reach a state of deflation in about 2026.
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*Assumes no change in new storage trends
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Overview of Filecoin Competitiveness
So far, this report has shed light on two key facts about Filecoin:
First of all, Filecoin's ambition is not just to be a decentralized storage platform, but to turn major cloud services (storage, retrieval, computing) into a permissionless market and decentralize the Internet.
Second, it's not just a service agreement. It is more accurate to understand Filecoin as a layer-by-layer blockchain protocol, because Filecoin earns revenue through the demand for block space, rather than taking a percentage from completed service transactions.
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Filecoin vs. other storage protocols
For now, compared to its competitors,Filecoin is the most scalable and comprehensive decentralized service network,The reasons are as follows:
Has an independent layer of blockchain protocol:Filecoin is fully decentralized, unlike StorJ (the closest competitor in terms of storage performance), which only utilizes the blockchain to process payments. This means that Filecoin offers a higher level of transparency and accountability, while StorJ is only partially decentralized. Although any storage provider can join the StorJ network, it is as opaque as a centralized provider, and the availability of the service still depends on a certain centralized party (such as StorJ).
Data is stored off-chain and continuously verified on-chain:Unlike Arweave, Filecoin does not store its data on-chain. While this means there is less chance of data loss on Arweave, storing data off-chain makes the Filecoin network more efficient and scalable to support internet-scale storage scale. This does not indicate that users' data on Filecoin is vulnerable to loss, because Filecoin uses smart contracts and its cryptoeconomic system to incentivize and ensure that storage providers fulfill their commitments. In addition, unlike other protocols that also store data outside the chain, Filecoin storage providers not only need to submit storage proofs at the beginning of the contract, but also need to submit them every 24 hours until the end of the contract (supported by the space-time proof mechanism invented by Filecoin) , thereby providing users with a higher level of confidence and assurance that their files are stored securely.
Compute where stored:Unlike its competitors, Filecoin's infrastructure and storage hardware requirements allow it to perform data computations where the data is stored—a service that other competitors are unlikely to provide. Therefore, Filecoin also provides the most comprehensive service among all storage protocols.
As of December 31, 2022,Filecoin is by far the largest storage provider both in terms of network capacity and the size of stored data, accounting for ~97% of the total data stored on the decentralized storage network and 99% of all decentralized storage capacity.While Filecoin itself lacks some native features, such as data encryption, S3 compatibility for seamless migration, and redundant storage, these features are provided by storage providers and therefore generally do not affect customer considerations.
One of the factors in Filecoin's ability to have such a huge data capacity is its successful cryptoeconomic incentive mechanism-storage providers who invest more storage capacity into the network have a higher chance of discovering the next block and get more FIL rewards .
Therefore, compared with competitors, Filecoin's huge data capacity enables Filecoin to store massive amounts of data. Filecoin's excellent data storage performance is also due to its highly competitive storage pricing mechanism. Filecoin's storage provider'sPricing is even 95% lower than other decentralized systems (even free)secondary title
Filecoin as a Layer 1 blockchain protocol
As mentioned in the economics section, the Filecoin network relies on the demand for block space to generate income, that is, the fees that users pay to interact with the blockchain (such as base transaction fees, denominated in FIL) are burned. In this case, it is more accurate to classify Filecoin as a Layer 1 blockchain when looking at its revenue model.
Currently, demand for block space on Filecoin comes solely from on-chain activity related to storage supply, but this will soon expand to include activity from retrieval and computation services, as well as smart contract functions powered by the FVM virtual machine. Viewing Filecoin as a layer-by-layer blockchain protocol also helps readers and investors understand the fact that upcoming service and network upgrades not only enhance the services offered on Filecoin, but also return more value to the Filecoin network/ The token, especially the value it brings through the burning of block space requirements and transaction fees.
But it is also important to note that while Filecoin is positioned as a Layer 1 blockchain, it does not directly compete with Ethereum or other layer 1 protocols. Instead, Filecoin is synergistic and serves as a complementary protocol to other layer protocols and decentralized applications in their ecosystems.
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Evaluate
In conclusion, Filecoin has successfully established itself as the most prominent position in the decentralized storage market with ambitions beyond storage. Its innovative path is to create a permissionless marketplace for storage, retrieval, and computing services, with the goal of decentralizing the Internet.
Thanks to its strong cryptoeconomic incentives, the network has demonstrated significant scalability, transparency and security, as well as competitive pricing for users. While it may be very successful in incentivizing storage capacity and utility, there are also concerns that excessive use of Filecoin token incentives may lead to non-stop inflationary pressure, making it difficult for value to rise. However, with continued growth in storage capacity and the launch of the Filecoin Virtual Machine, inflationary pressures may ease.
Also, since Filecoin positions itself more as a Layer 1 blockchain rather than just a decentralized storage provider, its valuation is more attractive compared to other decentralized storage competitors . Increased block space demand, transaction fee burns, and integration with other layer 1 protocols and decentralized applications will likely strengthen Filecoin's market position and the price performance of the Filecoin token.
disclaimer
disclaimer
The above report was commissioned by Protocol Labs, one of the sponsors of the Blockcrunch Podcast. Blockcrunch Podcast ("Blockcrunch") is an educational resource and is for informational purposes only. Blockcrunch produces a weekly podcast and newsletter that routinely covers Web 3 projects and may discuss assets held by the host or its guests.
Some of Blockcrunch's VIP articles are written by Blockcrunch contractors, and posts reflect the independent views of the contractors, not the official position of Blockcrunch. Blockcrunch requires contractors to disclose their financial exposure to the projects they write about, but cannot fully guarantee the absence of such conflicts of interest. Blockcrunch itself will not buy or sell assets covered by its articles within 72 hours of publication; however, its directors, employees, contractors and affiliates may buy or sell assets before or after publication of any content and will do so on a best-effort basis disclosure.
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