Filecoin, created by Protocol Labs, is a decentralized storage network that aims to turn cloud storage into a marketplace for algorithms. It is a very novel and valuable platform as it allows its users to store files, turning their computers into a kind of database and enabling them to earn tokens as rewards.
Filecoin is complemented by IPFS, a protocol for storing and sharing data on a distributed network. All Filecoin nodes are IPFS nodes and can use libp2p to connect to other IPFS nodes and get data in IPLD format. Both systems are free, open source, and share many components.
The Filecoin platform mining works differently than the classic mining of Bitcoin and other cryptocurrencies. First, the Filecoin network has two consensus mechanisms. Proof of Replication (PoRep) and Proof of Space-Time (PoSt). In Filecoin, miners don’t contribute computational power but storage capacity for users/clients who want to store data. In Filecoin, five types of users can trade FIL tokens: developers, customers, miners, token holders, and ecosystem partners. Three types of marketplaces: file storage, file retrieval and token exchange.
The three types of miners are 1. Storage miners earn rewards in FIL tokens by storing data for customers and calculating cryptographic proofs to validate storage time. Unlike Bitcoin miners, the probability of earning per block rewards and transaction fees depends on the amount of storage these miners contribute to the Filecoin network, not on hashing capacity. 2. Retrieval miners: earn FIL tokens and mining fees for a specific file, depending on the market value and size of that file. Their bandwidth and the initial bid/offer time of the transaction determine the total number of transactions they can make. 3. Fix Miners: To be implemented in the future.
Each Filecoin miner has an associated power value on the network proportional to the amount of space contributed and determines the chances of winning the right to mine blocks per epoch.
In the Filecoin network, miners are rewarded for their contributions to the network with different types of rewards. For example, customers pay storage fees periodically after reaching an agreement in exchange for data storage, and miners regularly send storage proofs to the chain. These fees are automatically deposited into the miner’s associated wallet as they perform their duties and are briefly blocked upon receipt. The other is block rewards, whereby mining blocks, miners are rewarded, and charged fees based on the amount of storage space contributed to the network. Unlike storage fees, these rewards do not come from the customer in question, and it is the network “prints” new FIL tokens as a measure of inflation and as an incentive for miners to move on the chain.