This newsletter is not investment advice, but an analysis formed by my opinion in combination with my AI co-writer.
Greet from Altcoin City,
Let's dive into the fascinating world of Filecoin (FIL) – a project that's all about decentralized file storage! 🚀
In 5 minutes, you’ll learn:
Filecoin's Decentralized storage mission
Real-world applications
Advantages of decentralized storage
Current status and inflation rate
Filecoin's growing ecosystem
Well, it's an open-source, public cryptocurrency and digital payment system that aims to revolutionize digital storage and data retrieval.
Created by the brilliant minds at Protocol Labs, Filecoin takes inspiration from InterPlanetary File System (IPFS) and allows users to rent out their unused hard drive space.
Unlike centralized cloud storage giants like Amazon Web Services or Cloudflare, Filecoin stores data in a decentralized manner, offering benefits such as enhanced data integrity, retrievability, and resistance to censorship.
Filecoin enables a wide range of applications, from storing Web3-native NFTs and metaverse assets to providing incentivized permanent storage.
For instance, NFT.Storage utilizes Filecoin to offer a simple decentralized storage solution for NFT contents and metadata.
Meanwhile, renowned organizations like Shoah Foundation and Internet Archive rely on Filecoin to back up their valuable content.
Additionally, Filecoin supports various data formats, including audio and video files, empowering Web3 platforms like Audius and Huddle01 to utilize Filecoin as their decentralized storage backbone for music streaming and video conferencing.
Decentralized file storage is becoming a major trend, and Filecoin is at the forefront of this revolution.
With our digital world becoming increasingly data-driven, the demand for secure, reliable, and affordable storage solutions is skyrocketing.
Decentralized file storage offers advantages over traditional cloud storage, such as censorship resistance, privacy protection, redundancy, and lower costs. Moreover, it opens up exciting possibilities for Web3 applications like NFTs, DAOs, and DeFi that rely on data availability and verifiability.
Filecoin, backed by a strong team, vision, and vibrant community, is leading the charge in this space!
As of July 21st, 2023, Filecoin boasts a market cap of $1.95 billion USD, placing it at #36 among all cryptocurrencies.
With a circulating supply of 437 million FIL out of a total supply of 1.96 billion FIL, the current price of FIL stands at $4.46 USD, down 98% from its all-time high of $236.16 USD on April 1st, 2021.
In the past year alone, around 206.70 million FIL tokens were created due to a yearly supply inflation rate of 92.15%.
Filecoin's tokenomics are designed to incentivize network participants to provide reliable and efficient storage services.
The network consists of clients and miners. Clients pay for storing and retrieving their files using FIL tokens, while miners earn FIL tokens by offering storage space and proving their proper file storage through cryptographic proofs.
Filecoin has three types of miners: storage miners, retrieval miners, and repair miners.
Storage miners handle file storage and generate proofs of replication (PoRep) and proofs of spacetime (PoSt).
Retrieval miners deliver files upon request and generate proofs of retrievability (PoRet).
Repair miners fix faulty or lost sectors and generate proofs of repair (PoRep).
To maintain supply and demand balance, Filecoin utilizes mechanisms such as block rewards, fees, penalties, collateral requirements, vesting schedules, and auctions.
Filecoin utilizes a groundbreaking consensus algorithm called Expected Consensus (EC). It's a variant of Nakamoto Consensus that combines proof-of-replication (PoRep) and proof-of-spacetime (PoSt) as cryptographic proofs to secure the network.
PoRep demonstrates that a miner has replicated a piece of data on a physical storage device, while PoSt proves that a miner has consistently stored the data over time.
EC works by having miners submit PoSts along with their blocks to compete for the right to extend the blockchain. The likelihood of winning a block is proportional to a miner's effective storage power, which is the amount of storage they have successfully proven using PoSts.
EC incorporates a weighting function that assigns higher weights to blocks with more PoSts, greater storage power, and lower block heights. This ensures that the heaviest chain possesses the most storage power and proofs of storage.
Filecoin boasts a strong team comprising talented developers, researchers, and advisors. Led by the visionary Juan Benet, founder of Protocol Labs and IPFS, the project has received backing from prominent investors like Andreessen Horowitz, Sequoia Capital, Y Combinator, and Winklevoss Capital.
IPFS is being used by many projects and platforms in the Web3 space, especially for storing NFTs. NFTs are non-fungible tokens that represent unique digital assets, such as art, music, games, collectibles, and more.
NFTs offer a way to claim ownership of a unique piece of content, while IPFS ensures that this content will always be accessible, no matter what.
IPFS allows NFTs to represent data of any size and format in a secure, verifiable, and distributed way that can stand the test of time. Some of the examples of platforms that use IPFS for storing NFTs are:
- NFT.Storage: A free service for storing NFT data on IPFS and Filecoin.
- OpenSea: The largest marketplace for buying and selling NFTs.
- Rarible: A community-owned platform for creating and trading NFTs.
- Foundation: A platform for creators to auction their digital artworks as NFTs.
Filecoin is closely related to IPFS, as it is designed to be an incentive layer for the IPFS network. Filecoin allows users to rent unused hard drive space to store and retrieve data on the IPFS network, using FIL tokens as the payment mechanism.
The NFT.Storage service provides a simple user interface for storing NFT content and metadata on Filecoin. Conversely, Web3.Storage simplifies storing and retrieving Web3 data for Filecoin developers and end users.
Filecoin also enhances the security and availability of the data stored on IPFS, by rewarding miners for proving that they have stored the data correctly over time. Filecoin aims to become the world's largest decentralized storage network, enabling a more open, resilient, and trustworthy Web3 ecosystem.
Since its launch in October 2020, Filecoin has witnessed impressive adoption. According to the official website⁶, it currently boasts over 2.5 billion GB of storage capacity across 2,600 active miners in 50 countries.
A breakdown of the active storage deals by their industry use cases reveals the industries that leverage Filecoin most are Technology (41%) and Natural Resources (31%).
Moreover, Filecoin has attracted more than 100 applications built on its platform, ranging from NFT platforms and data marketplaces to video streaming services and gaming platforms.
Notable companies and projects, such as NFT.Storage, Internet Archive, Shoah Foundation, Chainlink, Textile, Livepeer, Audius, and Huddle01, have integrated Filecoin's technology into their operations, highlighting its versatility and potential.
While Filecoin excels in decentralized storage, it does face some challenges and criticisms.
One significant concern is its high yearly supply inflation rate of 92.15%, which can dilute the value of FIL tokens over time and deter long-term holders.
Additionally, the high entry barrier for miners, demanding substantial resources, technical expertise, and capital, may limit network accessibility and favor large-scale or centralized miners.
Network congestion and scalability issues have surfaced in the past due to soaring demand, affecting user experience.
Regulatory uncertainty and legal risks pose additional hurdles for Filecoin, given the complex and evolving regulatory landscape surrounding data privacy, intellectual property, and anti-piracy laws.
Considering all the factors discussed above, Filecoin presents an intriguing investment opportunity with a score of 3.5 out of 5.
*Edit: after an Altcoin Analyst community member mentioned I was too generous due to the inflation rate, which I agree on, I lowered the score from 4/5 to 3.5/5) .
This promising project aims to revolutionize the decentralized storage market with its innovative technology and strong vision. Backed by a robust team, a dedicated community, and a growing adoption rate, Filecoin has the potential to create significant network effects and value.
However, it's crucial to be aware of the challenges it faces, such as the high inflation rate (which holds me back rating 4/5), entry barriers for miners, network scalability, and regulatory uncertainties.
As a high-risk, high-reward investment, thorough research and due diligence are essential before considering an investment in Filecoin.
So, whether you're new to the crypto world or a seasoned professional, Filecoin's decentralized storage solution presents an exciting opportunity.
With its aim to disrupt traditional cloud storage models and enable a more secure, reliable, and affordable storage infrastructure, Filecoin is poised to make waves in the evolving landscape of Web3 applications.
Stay curious, keep learning, and who knows, you might discover the next big thing in the crypto universe! 🚀💫
The Altcoin Analyst
P.S. If you made it this far, you wanna join our Altcoin Analysts Discord (be quick, this link expires after 100 uses) where we discuss the latest trends in crypto together. Let's make magic happen in the world of altcoins! ✨💪
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