Filecoin: Why it's a big deal

Everything from the websites you use to the financial infrastructure supporting our economy relies on effective data storage. But today, that data storage is increasingly expensive, opaque, fragile, and censorable.

Filecoin aims to solve those issues and return storage to its naturally free and private state.

Filecoin’s cryptoeconomic incentives could expand data storage supply, which would introduce lower market prices and democratize the oligopolistic data storage industry. The network’s marketplace provides open, dynamic pricing that gives network participants transparency. Distributed storage miners eliminate the censorship perpetuated by modern tech giants. Resilient infrastructure provides an alternative to the fragile options on which we’ve built the web so far.

Filecoin is a key milestone in the Internet’s evolution. It is a leader in the movement towards empowering users rather than companies. We’re thrilled to support the Filecoin network launch.

In this piece, we’ll give a brief overview of the history of data storage and then describe how Filecoin builds on this existing trajectory — and what it can do.

Let’s begin with the history of data.

A brief history of data storage innovation

In the 1950s, data was stored and managed in-house with hard drives leased out by a few companies, notably IBM with their RAMAC. At $640 per megabyte per month, RAMAC was expensive and its capabilities limited.  Data storage was so expensive that computers were used exclusively by large corporations, universities and governments.

Fast forward to the 1990s and we saw the proliferation of RAM-based storage systems with Solid State Drives (SSDs). Thanks to decades of Moore’s law, these provided more memory for less money than their 1950s counterparts. However, companies and users alike still had to physically host their own in-house solutions in onsite data centers, homes, or garages. To scale a tech company in this era meant millions of dollars dedicated to physical hardware.

In 2006, Amazon released AWS, the world’s first widely-adopted on-demand cloud computing platform. AWS provided a way for people to store and process data and applications, not in their garage or in their company basement, but in the cloud. Data storage became modular and on-demand. Amazon abstracted away hardware requirements and introduced a business model that freed developers to focus on their core competency of building amazing applications and software.

Today, cloud storage is a pillar of the internet. While this is a massive improvement, it introduces new risks. Current data storage solutions are controlled by a few large companies with opaque operations, data management, and pricing. As of today, Amazon, Microsoft, Google, Alibaba, and Tencent control more than 70% of the cloud computing market.

Nearly every individual, company, and government hosts their data on one of these service providers, yet we know very little about how that data is being managed and protected. Given our dependence on cloud computing, these cloud providers have concentrated wealth and power.  They can censor and de-platform other services with a flip of a switch. They can access “private” data to copy and squash a rival start-up. If their systems fail, the entire web (and modern society) can grind to a halt.  

Filecoin: The future of data storage

Filecoin is a decentralized storage network that turns the world’s unused storage into an algorithmic market, creating a permanent, decentralized future for the web.

We believe Filecoin can provide a solution to the problems of centralized cloud storage outlined above while preserving the modularity and scalability of cloud-based data storage.

Filecoin’s data marketplace is made up of three participants: clients (end users), storage miners, and retrieval miners. These three participants form the core of the marketplace, where clients pay storage miners to hold their data and pay retrieval miners to retrieve their data for them. All of this activity is denominated in “FIL,” the native asset of the Filecoin ecosystem.

Filecoin’s infrastructure and economic model creates an easily accessible market that dramatically lowers the costs for data storage providers to access and find customers. As result, data storage can become a competitive marketplace rather than an oligopoly.  Data storage prices will decline, drawing in new customers.

At the same time, its native token, FIL, economically incentivizes honest behavior between these parties while simultaneously disincentivizing dishonest behavior. The storage network has various Proof-of-Storage systems built in, allowing users to verify that their data has been replicated and properly stored over time. In addition to those proofs, users can employ multiple storage miners to store identical data sets to further mitigate any risk of data corruption.

In the Filecoin model, data storage becomes a marketplace, where anyone can pay for access for storage or earn revenue by providing access to data storage. Instead of 5 providers owning the entire data storage marketplace, the economic benefits of data storage are dispersed throughout the world, reducing costs, limiting censorship, data theft, creating redundancy, and democratizing opportunity.

We believe Filecoin can succeed thanks to:

1. The founding team’s experience at Protocol Labs. Protocol Labs, the team behind Filecoin, has deep industry experience in creating distributed file storage systems – they created IPFS, which has stored billions of files while relying only on volunteer storage providers.
2. Significantly lowering data storage costs. Filecoin has the potential to create a market that can utilize unused storage space residing in data centers. With the additional supply created by Filecoin, this could eventually drop the price of storage while meeting growing demand.
3. Properly designed incentives. The Filecoin network is centered around aligning the incentives for all participants and can rebalance and recover in response to disruptive events, which keeps data safe and flowing.
4. Resilience and censorship resistance. By breaking up the oligopoly, data storage becomes distributed while remaining secure and accessible.  

In Filecoin, we get to reimagine a foundational piece of the internet’s infrastructure and usher in the next evolution in data storage.

I. Founding team’s experience at Protocol Labs

Protocol Labs, the team behind Filecoin, has a proven track record of success in building distributed storage systems. Protocol Labs released IPFS in 2015 and since then the project has served billions of files across a pure peer-to-peer file system. Impressively, IPFS has run entirely on people offering storage space for free with no built-in economic mechanisms. IPFS has successfully routed around censorship, exemplified by its use by dissidents in Spain during the Catalan Independence Referendum. Projects such as Origin, 3Box, Handshake, Augur, Aragon, the Ethereum Foundation, and more currently employ IPFS as a foundational piece of their infrastructure.

We believe that there is no team on the planet more qualified to introduce an economic layer to scale the proven concept of decentralized storage systems.

II. Significantly lower data storage costs

In the data storage market, prices are opaque at best because supply is controlled by a few large companies. Filecoin expands the available market supply by providing infrastructure that allows anyone with unused storage space to effectively and efficiently rent it out. Beyond simply expanding supply, Filecoin’s infrastructure will make it easy for storage capacity to flow in and out of the market, resulting in dynamic pricing that closely follows supply and demand.

The relationship between Airbnb and hotels serves as a useful analogy, where Airbnb grew available supply for the market and presented more options and pricing for users. Airbnb was only able to do this by providing the market infrastructure to lower the barriers of entry for Airbnb hosts to leverage their unused housing. Similarly, Filecoin is providing the necessary infrastructure for storage miners to leverage their unused hard drive space.

If Filecoin’s infrastructure is successfully implemented, Filecoin will lower the costs for new market participants in data storage, resulting in large cloud providers competing with individuals and small startups for the same market. Simultaneously, adding and removing storage now becomes cheap and easy, and data storage prices will become closely mapped to changing market appetite.

III. Properly designed incentives

Filecoin (FIL) serves as the native asset to the Filecoin blockchain and powers the data storage and data retrieval markets, which form the core of the of the Filecoin project. There are three main actors in the Filecoin economy: clients (end users), retrieval services, and storage miners. The relationship between the clients and storage miners is the most important for the success of the project.

In Filecoin, storage miners are kept honest with a series of economic factors. First, a miner’s storage power is what determines the likelihood of winning block rewards, which results in different mining operations investing in additional storage and cumulatively generating sufficient power for the network. Second, when storage miners are storing data on behalf of a client, they have to put up collateral in order to participate in that economic activity. That collateral is made up of a principal amount and part of a miner’s future block rewards, both of which are paid out in FIL. If the miner behaves dishonestly and does not store the client’s data, they lose part of their collateral. This creates an economic disincentive from abandoning previously agreed-upon storage deals struck by clients and storage miners. Third, the payment sent from clients to storage miners is only claimed once the term of a storage deal has successfully finished.

Storage miners are further aligned with the long term viability of Filecoin because in the early days, block rewards will scale up with storage power until a network baseline is reached. Once that network baseline is reached, then block rewards will take the shape of an exponential decay model similar to Bitcoin. This is to prevent miners from heavily investing in storage at the beginning to receive larger block rewards and then exiting the network once block rewards decline.

These incentives are designed to produce the optimal number of miners providing honest service to clients. Given that premise, plus a fixed supply of FIL tokens, the success of the project will hinge on its ability to achieve sufficient demand for storage miner services, and therefore, demand for FIL.

IV. Resilience and censorship resistance

Filecoin is a decentralized storage network that turns cloud storage into an algorithmic market. Anybody can become a miner, supply available data storage to that market, and receive FIL for doing. Data no longer has to live in large, centralized data centers that represent single points of failure. Clients can store as many copies of data as they’re willing to pay for with different miners to ensure that their data is not at risk of being compromised.

Unlike centralized cloud providers, however, there are no account managers that can assure you that your data is being stored properly for a given period of time. Filecoin solves this by introducing two novel proof systems to verify that user data is being managed properly. First, storage miners are required to submit Proof of Replication (PoRep) to the Filecoin blockchain. PoRep allows users to mathematically verify that the storage miners they employ have replicated their data to physical storage that has been uniquely dedicated for the data in question. Second, storage miners are also required to submit Proof of Spacetime (PoSt) to the Filecoin blockchain. PoSt requires storage miners to provide proofs that mathematically authenticate sequential Proof of Replication over a period of time. In other words, PoSt allows anyone to verify that their data is being stored properly through a period of time.

A data storage network formed of storage miners around the world, combined with quality assurance based on mathematical verifications, is one that provides robust and censorship resistant service to its users. With no entity to pressure, or data centers to destroy, Filecoin’s network amounts to a data storage hydra that puts users, not service providers, firmly in control of their data

In Closing

The web has fundamentally changed how we communicate, have fun, do business, and ultimately, how we live our lives. The “web” is a poorly defined term, though; it is a catch-all for the technical infrastructure that our end user applications are built upon. Data storage is a key component of that infrastructure.

While we have made progress in updating our data storage solutions, there remain serious economic, political, and technical problems with our current infrastructure.

We believe Filecoin represents the next evolutionary stage in the way we manage our data. It is distributed, mitigating threats of censorship and fragility. Properly designed incentives ensure that Filecoin can operate without a single operator. Storage prices are made lower and more accurate by making it easy for new market entrants. Perhaps most important, the ambition of Filecoin is being realized by a team with deep expertise and experience in distributed file systems.

We are proud to support Filecoin on day 1 of their network launch and usher in the next generation of data storage.

Become an early adopter of Filecoin on Day 1 »

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