What is Filecoin (FIL)?

In the digital age, data storage is of vital importance for both individuals and institutions. Although traditional centralized cloud storage solutions make our lives easier, sometimes the complexion of the situation can change. With the dependency on a single point, concerns about censorship or high costs, interest in decentralized data storage solutions is increasing. At this point, the questions “What is Filecoin (FIL)?” and “What is FIL coin?” come to mind. Filecoin is a blockchain-based, open-source decentralized data storage network designed to meet this need. It creates a global storage network by allowing users to rent their empty space. Let's take a closer look at this coin, which took the crypto world by storm with its record Initial Coin Offering (ICO) at the time, and the blockchain behind it.

Definition and Emergence of Filecoin

Filecoin is essentially a peer-to-peer network. This network provides reliable and decentralized data storage through built-in economic incentives and cryptographic proofs. Clients (i.e. users) on the network pay any number of storage providers (data centers) to store their data. The storage providers provide cryptographic proof that they still have the data on a daily basis. The providers lock up a certain amount of Filecoin as collateral, and if they repeatedly fail to provide proof, this collateral is burned, which acts as a strong deterrent for the data center to not lose the data.

The team that brought this project to life is Protocol Labs. If you are wondering who Juan Benet is, he is the founder and CEO of Protocol Labs. He is also the inventor of the InterPlanetary File System (IPFS), a new protocol that aims to make the web faster, more secure, and more open, and Filecoin, a storage network that is incentivized by cryptocurrency. Protocol Labs is a laboratory that conducts research and development in the field of internet technology, such as IPFS and Filecoin.

Filecoin was originally founded in 2014. Juan Benet published the whitepaper "Filecoin: A Cryptocurrency Operated File Storage Network" on July 15, 2014. The project was launched in August 2017, and after a long development process, the Filecoin mainnet launch was held on October 15, 2020. In order to understand the working principle of Filecoin, it is necessary to touch on the relationship between IPFS and Filecoin. IPFS (InterPlanetary File System) is also a peer-to-peer protocol developed by Protocol Labs and aims to share, direct and store data with a content addressing system. IPFS allows data to be accessed through its content rather than its location. So where does Filecoin fit into this? Here's the important part: Filecoin was built as an incentive layer for IPFS. In other words, while IPFS enables decentralized file sharing, Filecoin offers a blockchain-based incentive system to ensure that this sharing is reliable and sustainable. Both systems are open source and share many common building blocks, such as content addressing (CIDs) and network protocols (libp2p). In short, IPFS addresses content, while Filecoin provides long-term, verifiable storage of that content.

Filecoin History: Major Milestones

The story of Filecoin begins with the vision of Protocol Labs and its founder Juan Benet. This journey, which began in 2014 under the leadership of Juan Benet, began with the foundations of IPFS; and in the following years, it reached a point of global attention with its huge ICO success, technical breakthroughs, and institutional integrations. Hosting many technological and social milestones since the first steps taken in 2014, this adventure quickly managed to leave a permanent mark on the Web3 world. Influencing a wide ecosystem from the developer community to investors, from institutional actors to NFT projects, Filecoin has gone far beyond being a data storage network over time. Now, let's take a look at the most critical milestones of this impressive journey:

• 2014: Introduction of IPFS and Filecoin whitepaper - In 2014, IPFS was introduced and the foundations of the project were laid with the publication of the Filecoin whitepaper. In the 3rd quarter of the same year, $120,000 was raised in the seed investment round.
• 2017: Filecoin ICO - This is a truly remarkable period. Launched in August 2017, the project raised over $200 million in just 30 minutes, making it one of the largest ICOs of the period. $153.8 million was raised in the public sale round and $52 million in the pre-sale round. A total of $205.92 million was raised in 3 rounds. Considering the project's team, technology and the huge market it appealed to, it was a very exciting investment for the ICO period. As an interesting detail, the fact that this coin offering was SEC-compliant provided additional investor confidence against many non-transparent projects at the time.
• 2020: Mainnet launch - After a long development and testing phase, the Filecoin network went live on October 15, 2020. This meant that Filecoin was fully operational, storage providers could store data, and users could purchase storage using FIL tokens. Since the mainnet launch, there have been many network upgrades, including Hyperdrive and Watermelon. The latest upgrade, Watermelon (V21), was activated in December 2023 and aimed to simplify storage providers’ operations and make improvements to the protocol and FVM.
• 2022–2024: Web3 projects, NFT data, and storage solutions - The Filecoin ecosystem continued to grow after the mainnet launch. The color of the business changed, especially with the Filecoin Virtual Machine (FVM) coming to the mainnet in March 2023. FVM brought smart contract capabilities to the Filecoin network. This has enabled developers to build decentralized applications (dApps) on Filecoin and program storage workflows. With these developments, Filecoin has begun to offer Filecoin storage solutions in a variety of areas:

-Web3 native NFT storage: Projects like NFT.Storage use Filecoin for NFT content and metadata. With FVM, these NFTs can be stored continuously with automatically renewing contracts.

-Incentivized persistent storage: Platforms like Lighthouse offer lifetime storage at a fixed price.

-Enterprise and traditional web2 data archiving: Organizations like the Internet Archive and Panopticon use Filecoin for content preservation and backup. Even the ATLAS Experiment at CERN is expanding its pilot program with Seal Storage to bring 1 EiB of data to the network over a 5-year period, and the Filecoin Foundation (FF) is working on this opportunity.

- Media streaming and conferencing applications: Platforms like Audius (music streaming) and Huddle 01 (video conferencing) use Filecoin for decentralized storage.

- Artificial intelligence (AI) and computation: Filecoin is partnering with AI and computation projects to manage large datasets and support AI-driven applications. Projects like KiteAI, Nuklai, SingularityNET, and Theoriq are working on Filecoin integrations to archive AI training datasets and store metadata. The Filecoin Foundation supports the development of decentralized AI as a founding member of the Decentralized AI Society (DAIS).

- Data storage for blockchain ecosystems: Solana’s block history is being archived in Filecoin as part of the Old Faithful initiative. This is part of a broader strategy to provide data collection and storage support for other blockchain ecosystems (Layer-1s and Layer-2s).

Why is Filecoin Valuable?

In today's digital age, data has become a resource more valuable than gold for both individuals and institutions. However, the question of where, how and by whom this data is stored brings with it many problems, from privacy to security, from cost to accessibility. This is where Filecoin comes into play. So, what makes Filecoin so special and valuable? Let's take a closer look at the basic dynamics behind this powerful project.

Decentralized and censorship-resistant data storage infrastructure

One of its most important features is that it stores data not on central servers, but on the disks of thousands of storage providers in a distributed network around the world. This eliminates a single point of failure, reduces the risk of data loss and makes unauthorized access or censorship much more difficult. While traditional cloud storage services such as Amazon S3 can experience security breaches or data control being with the provider, Filecoin offers a distributed solution to these problems.

Users can both store data and earn income

The Filecoin network offers an opportunity for individuals and organizations looking to utilize unused hard disk space. Storage providers earn FIL tokens by providing storage capacity to the network or by mining Filecoins, i.e. earning block rewards by providing reliable storage services. The more storage they provide, the more potential they have to earn FIL coins. This creates economic value from idle resources and encourages network growth. Even ordinary users can use the Filecoin Station application to use unused computer resources for network tasks and earn FIL tokens. However, becoming a full-fledged storage provider can require significant capital and technical knowledge.

Data is stored transparently and securely

Filecoin relies on cryptographic proofs to prove that data is actually stored and accessible for a specified period of time. This proof mechanism ensures that storage providers act honestly and provide the storage service they promise. The network uses two main consensus mechanisms: Proof of Storage and Proof of Spacetime. Proof of Storage verifies that miners are actually storing data. Proof of Spacetime guarantees that data is stored for a specified period of time. This double proof system increases both security and reliability. Data is encrypted, fragmented and distributed before being stored.

FIL token is the basis of the payment and incentive mechanism

What is FIL token? FIL is the native cryptocurrency that powers the Filecoin network. All transactions on the network are made using FIL. Users pay FIL coins to store or retrieve their data. Storage providers earn FIL for their services. FIL also plays a critical role in the security and operation of the network. Storage providers must lock up FIL ​​as collateral to earn block rewards. If they fail to meet the reliability standards, their collateral and rewards may be slashed. Additionally, FIL holders can participate in the network governance process. The total supply of FIL is capped at 2 billion FIL. FIL issuance is tied to the network’s demonstrable utility and growth. More of the supply is minted as the network reaches certain growth and utility milestones. For example, under the Baseline minting model, 770 million FIL tokens are minted based on network performance (such as reaching a yottabyte storage capacity target). Uses of FIL drive demand on the network, adding value to the token.

Filecoin can be much more cost-effective than traditional cloud storage, especially for large data sets. Unlike the pay-per-use model of centralized providers, Filecoin’s marketplace offers competitive pricing driven by supply and demand.

The scalability of the network also adds significant value. As more miners join, the network can grow and meet demand. The smart contract capability that comes with FVM expands Filecoin’s use cases. It’s not just data storage, but also many innovative use cases such as data-driven computation (compute-over-data), data-driven organizations (Data DAOs), decentralized finance (DeFi) applications, and cross-chain interoperability.

Filecoin's working principle

The technical depth of the Filecoin network also adds value to FIL. In addition to the consensus mechanisms such as Proof of Storage and Proof of Spacetime that we just mentioned, the network is built on a number of basic components. These are Providers, Deals, and Sectors.

• Providers: Entities that provide storage and retrieval services to network users. There are two types of providers: Storage Providers and Retrieval Providers. Storage providers offer space to store users' data and earn FIL. They contribute to the security and integrity of the network. Retrieval providers, on the other hand, provide users with fast and reliable access to their data when they need it.
• Deals: Contracts between clients and storage providers for data storage or retrieval. When a client wants to store their data, they find a storage provider in the storage market and make a deal. This agreement determines how long the data will be stored, the price, and other terms. Agreements are recorded on-chain. There are also special types of agreements, such as Verified Deals. Smart contracts that come with FVM have enabled new approaches called programmatic storage. This allows storage agreements to be automated through smart contracts, such as Aggregated deal-making or Direct deal-making. Even services such as Data Replication, Renewal and Repair (RaaS) are being developed on FVM.
• Sectors: Storage units that storage providers commit to the network and cryptographically seal. A storage provider places data in a sector and proves that this sector has been committed and proven on the network. The sealing process is a computationally intensive process to verify that the data is correctly encoded and ready for storage.

The Filecoin network consists of a series of Tipsets instead of individual blocks. A tipset is a series of blocks of the same height, allowing multiple storage providers to produce blocks in each epoch, increasing network efficiency. Each tipset is assigned a weight, which allows the consensus protocol to direct nodes to build on the heaviest chain.

Filecoin's use cases

The answer to the question of what does Filecoin do? goes beyond just file storage. Filecoin is positioned as a fundamental building block of Web3. Many decentralized applications (dApps) and Web3 projects rely on Filecoin for secure, verifiable, and censorship-resistant storage. This adds to Filecoin's value:

• Decentralized storage: Filecoin offers an alternative to traditional cloud storage, allowing users to rent out unused storage space. Data is stored in multiple locations, increasing security and durability
• AI and compute: Filecoin partners with AI and compute projects to manage large data sets and support AI-driven applications. Filecoin’s storage providers have the same computing resources as the data, providing a unique location for compute-over-data. Projects like Bacalhau are working in this area.
• Improved performance: Upgrades like Fast Finality (F3) aim to expand use cases for low-latency applications by improving transaction times.
• Perpetual storage: Services like FVM and NFT.Storage make it possible to store data indefinitely through automatically renewing smart contracts.
• Data organizations: FVM enables the creation and management of data-driven DAOs (Data DAOs). These DAOs can manage data curation and protection, and monetize data access.
• DeFi ecosystem: With thousands of unique smart contracts and millions of transactions on FVM, Filecoin supports a robust DeFi ecosystem. Projects like Glif Pools offer Filecoin staking pools. Protocols like Thetanuts Finance offer automated options strategies.
• Cross-chain bridges: Projects like Axelar and Celer provide cross-chain interfaces, enabling payments for Filecoin services from other chains or the exchange of tokens and messages.
• Institutional adoption: Organizations from various sectors (scientific research, AI, healthcare) such as CERN, Hauska.ai, Hippocrat use Filecoin to store large data sets.
• Web archiving: Projects like Webrecorder use IPFS and Filecoin for decentralized web archiving. The Internet Archive uploads cultural artifacts to Filecoin.

Filecoin Virtual Machine (FVM)

FVM is also a valuable element of the Filecoin ecosystem. It is a runtime environment for running smart contracts (actors) on the Filecoin network. FVM unlocks the enormous potential of the open data economy by bringing user programmability to Filecoin. FVM is based on WASM and is designed to support native Filecoin actors written in languages ​​like Rust, as well as smart contracts written for foreign runtimes (like Solidity) such as the Ethereum Virtual Machine (EVM). With the arrival of FVM on mainnet in March 2023 (also called FEVM), developers will be able to deploy smart contracts written in Solidity.

These smart contracts can access Filecoin functionality by calling native actors. Existing Ethereum tools are now compatible with Filecoin. FVM also enables compute-over-data capabilities. This allows for direct computations on data using compute resources near storage providers, without having to move data to external compute nodes. Projects like Bacalhau provide a platform for running Docker containers and WebAssembly (Wasm) images as tasks on data stored in Filecoin. All of these features make Filecoin an important cornerstone of Web3 file management and the decentralized internet in general.

Who is the Founder of Filecoin?

Who is the founder of Filecoin? There’s a straightforward answer to this. The man behind Filecoin and many of the technologies that power it is Juan Benet. As we mentioned earlier, he’s the founder and CEO of Protocol Labs. Juan Benet holds both a BS (2010) and an MS (2012) degree in computer science from Stanford University. He’s known for being the inventor of the InterPlanetary File System (IPFS) and Filecoin. Benet and his team lead the research, development, and deployment of groundbreaking internet projects like IPFS, libp2p, and Filecoin. The IPFS project has grown into a massive open source movement to re-decentralize the web, protect our data, and improve our applications.

Juan Benet is described as obsessed with information, science, and technology. His vision is to re-architect the web and ensure that IPFS, Filecoin, and other protocols become the building blocks of a better internet. He leads a team with impressive experience in areas such as distributed systems, quantum research, cryptography, and financial technology. This vision and the team’s talents were one of the main reasons why the Filecoin project attracted significant investor interest from its early stages. The Filecoin Foundation’s board of directors and advisors include Internet Archive Founder Brewster Kahle, ConsenSys Founder and Ethereum Co-Founder Joe Lubin, and Stellar Development Foundation CEO Denelle Dixon. The Internet Archive received a grant of 50,000 FIL coins (worth around $10,000,000 at the time) from the Filecoin Foundation, and its founder Brewster Kahle and Partnership Director Wendy Hanamura joined the advisory boards of Filecoin and the Filecoin Foundation for the Decentralized Web. This shows the strength of the team and supporters behind the project. After all, the main driving force and architect behind Filecoin is Juan Benet, who has a vision to build decentralized and robust infrastructures for the future of the internet.

Frequently Asked Questions (FAQ)

You may still have some questions about Filecoin, which we have covered in detail. Below are some frequently asked questions and answers about Filecoin:

• What is Filecoin and how does it work? Filecoin (FIL) is a blockchain-based decentralized data storage network where users can earn FIL tokens by renting out their free storage space. It aims to provide a secure and censorship-resistant alternative to traditional cloud storage. So how does Filecoin work? Filecoin uses a blockchain-based system where storage providers verify that they have stored data with cryptographic proofs (Proof of Storage, Proof of Spacetime). Clients pay FIL for storage, while providers earn FIL for their services and proof of verification.
• What does the FIL token do? The FIL token is the native currency of the Filecoin network and funds all transactions within the network. Users pay FIL for storage and retrieval services, while storage providers earn FIL for providing these services and contributing to the network. FIL is also used as collateral for network security and encourages participation in governance.
• How is data stored with Filecoin?: Filecoin uses the IPFS (InterPlanetary File System) protocol to store data on a decentralized network. Users upload their data over IPFS and receive a content identifier (CID). This CID is a unique ID for the data. These pieces of data are then distributed to storage providers participating in the Filecoin network. Storage providers make agreements with users to store data for a certain period of time and are rewarded with FIL tokens for this service. Filecoin uses cryptographic proof mechanisms such as "Proof of Replication" and "Proof of Spacetime" to verify that the data is actually stored and accessible.
• What is the difference between IPFS and Filecoin?: IPFS is a protocol that allows decentralized sharing of files. Users can share their data in a content-addressed system by uploading it to the IPFS network. However, IPFS does not guarantee how long the data will be stored or accessible. Filecoin is an incentive layer built on IPFS. Filecoin ensures that data is stored long-term and securely by rewarding storage providers with FIL tokens. In this way, users can be sure that their data will be accessible for a certain period of time.
• How is Filecoin mining done?: Filecoin mining is a process in which storage providers earn FIL tokens by offering storage space to the network. Miners use “Proof of Replication” and “Proof of Spacetime” mechanisms to store data and prove that this data is accessible for a certain period of time. A high-performance CPU, a large amount of storage (terabytes), at least 128 GB of RAM, and a stable internet connection are required for a successful mining operation. Additionally, miners must deposit a certain amount of collateral to earn FIL tokens.

Check out our JR Kripto Guide series to explore the data infrastructure of the decentralized internet and learn about Filecoin’s role in the Web3 ecosystem.