Filecoin Review: Beginner’s Guide to FIL
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Cryptocurrencies are effective tools for creating decentralized peer-to-peer marketplaces. One such example is Filecoin a platform on which anyone can store data and provide storage services without the fear of censorship.
Filecoin is part of a blooming decentralized physical infrastructure network (DePIN) sector that uses crypto incentives to build and operate infrastructure for existing industries such as data storage, GPU computing, wireless connectivity and geospatial mapping.
In this Filecoin review, you will find all the information you need to know about the decentralized storage network. Without further ado, let’s learn what is Filecoin, how to buy FIL tokens and everything in between.
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Filecoin Blockchain Review: Summary
In this article, we explain what the Filecoin blockchain is all about and how it is different from traditional data storage services such as Google Cloud and Microsoft Azure. We will also talk about the relationship between InterPlantery File System (IFPS) and Filecoin. Not just that, you will find all the important details about FIL tokenomics and FIL mining.
Key Highlights
- Decentralized peer-to-peer storage: Filecoin is powered by decentralized community of storage providers and retrieval providers.
- Permissionless: Any one with unused hard drive space can join the Filecoin network and earn FIL coins for their services.
- FIL mining: There are there types of miners on Filecoin: Storage miners, retrieval miners and repair miners.
- Protocol Labs: Filecoin was developed by Protocol Labs, the same firm that created the InterPlantery File System.
- Hard capped: FIL token’s maximum supply is capped at 2 billion tokens.
- 2017 ICO: Filecoin allocated 7.5% of FIL’s total supply to its ICO conducted in August 2017.
What is Filecoin?
Filecoin is a decentralized peer-to-peer (P2P) storage network that allows anyone on the internet to store data or provide data storage services.
Filecoin differs from traditional data storage services like Dropbox, Google Drive and iCloud due to its built-in cryptoeconomic incentives that foster an open market for file storage and retrieval services. Unlike traditional counterparts, no single entity has authority over storage availability, pricing and data retrieval accessibility.
The project was introduced by its developers Protocol Labs in 2017. By October 2020, the Filecoin blockchain saw its main net release. Over the years, Filecoin has grown to rank among the top 50 most valuable public blockchain networks in the world.
Filecoin is down from its all-time-high of $236.16, set in 2021, but has decreased -1.64% over the past 12 months. It has a market cap of $3.18B.
- Filecoin
(FIL) - Price $5.08
- Market Cap
$3.17 B
History of Filecoin
Filecoin was created by an open-source software research and development company called Protocol Labs.
The company launched a decentralized P2P file storage protocol called InterPlantery File System (IFPS) in 2015. Filecoin was created to serve as an incentive layer for IFPS. Initial white papers of IFPS and Filecoin were released in 2014. Protocol Labs raised funding from tech investors including BlueYard and USC to support these ventures.
In August 2017, Filecoin completed its initial coin offering (ICO) when the project raised over $257 million. At the time, Filecoin’s ICO was the largest token raise. Prominent investors including Sequoia Capital, Union Square Ventures and Digital Currency Group took part in Filecoin’s token presale and ICO.
Filecoin Team
Filecoin was developed by Protocol Labs which was founded in May 2014 by Juan Benet. Benet invented IPFS and Filecoin after participating in the startup incumbator Y Combinator program in 2014. He has a Master of Science in Computer Science degree from Stanford University which he completed in 2012.
Filecoin is also supported by an organization called the Filecoin Foundation who are responsible for the governance of the protocol. Cryptocurrency & civil liberties attorney Marta Belcher is the president and chairman of the Filecoin Foundation. Members on the Foundation’s board include big names like Joseph Lubin, Katie Bieber, Rainey Reitman, Phillip Banhardt, Sheila Warren, Sandra Ro, Megan Klimen, and Brian Behlendorf.
Filecoin Tokenomics
Tokenomics refers to the supply, demand, and incentive structure of a cryptocurrency. Well-designed tokenomics can ensure the long-term sustainability, user adoption and investor interest. FIL is the native cryptocurrency of the Filecoin network. In this section, we explore the FIL’s tokenomics – everything from the supply of FIL to its distribution.
Supply and Distribution
The FIL token’s maximum supply is capped at 2 billion tokens. Here is how FIL is distributed:
- 2017 ICO : Filecoin allocated 7.5% of FIL’s total supply (or 150 million tokens) to its ICO conducted in August 2017.
- Ecosystem development: 2.5% of FIL’s total supply (or 50 million tokens).
- Protocol Labs: The founding team was allocated 15% of total supply (or 300 million tokens).
- Filecoin Foundation: 5% of total supply (or 100 million tokens)
- Storage mining: 55% of total supply (or 1.1 billion tokens) was reserved for block rewards and other mining rewards.
- Mining reserve: 15% of total supply (or 300 million tokens) was set aside as mining reserve to ensure incentives exist for all types of miners on Filecoin.
Consensus Mechanism
The network participants of Filecoin attain consensus using the Expected Consensus (EC) algorithm. According to Filecoin, EC algorithm is a probabilistic, Byzantine fault-tolerant consensus protocol that achieves consensus by running a secret leader election at set time intervals. Thereafter, a set number of network participants become eligible to submit a block to the chain.
Mining on Filecoin
On Filecoin, any individual or entity that provides data storage, data delivery or data replication services in exchange for token rewards is called a miner. There are three types of miners on Filecoin:
- Storage miner – Storage miners are network participants that provide data storage services to the protocol in exchange for FIL token rewards. Storage miners can also earn newly-minted FIL tokens by creating new blocks.
- Retrieval miner – Retrieval miner are Filecoin network participants that enter data retrieval deals with customers. Their main purpose is to supply the customer with a particular data set in exchange for FIL tokens. Retrieval miners are not eligible to create new blocks therefore cannot earn block rewards like storage miners.
- Repair miners – Repair miners are network participants that replicate data files to ensure their availability on the network when a storage miner presents a fault.
Users who have extra storage capacity on their computers can rent out the available space to the Filecoin network to store and retrieve data. To incentivize 24/7 availability from miners, Filecoins requires miners to deposit a portion of their block rewards as collateral. If a miner goes offline or prematurely terminates a contract, they will be penalized.
IPFS
The InterPlanetary File System (IPFS) is a P2P file sharing system created by Protocol Labs. It comprises of a suite of protocols designed for organizing, storing and transferring data. The IPFS protocol was created as an alternative to centrally located server systems like HTTP. Instead, IPFS is powered by a decentralized system of operators.
As IPFS is an open-source protocol, there are multiple implementation of it for various use cases. Although, its primary use case is for data publishing and content delivery. Anyone can join the IPFS network and run a node.
IPFS usage is popular within the crypto industry for its decentralization roots. It shares similarity with crypto projects as no single entity owns or control IPFS. Filecoin was created to serve as an incentive layer for IPFS. Essentially, Filecoin records storage deals and proof of storage submissions on its blockchain. Additionally, payments and penalties are enforced by the Filecoin protocol.
Smart Contracts
A key reason why IPFS and Filecoin are popular among decentralized application (Dapp) and blockchain developers is the smart contract data functionality provided by Filecoin. According to Filecoin, web3 developers can improve their speed and reduce gas fees by storing smart contract data on Filecoin. While data on Filecoin is stored off-chain, developers can generate verifiable identifiers and storage proofs to be included in their smart contracts.
Cross-Chain Interactions
Cross-chain bridges are critical blockchain infrastructure that enable isolated blockchain networks to interact with each other. These bridges support the trading of cryptocurrencies across multiple chains and enable access to dApp on foreign networks.
Filecoin has integrated its network with two blockchain interoperability protocols – Axelar and Celer. The two cross-chain bridges enable the use of wrapped versions of non-native tokens such as ETH, BTC, USDC and USDT on Filecoin.
Top 5 Filecoin Use Cases
Here are the top use case of the Filecoin network:
- Decentralized Cloud Storage: Filecoin relies on an open and P2P network of participants that provide data storage services in exchange for token rewards. This decentralized structure makes Filecoin immune to single points of failure and strengthens its censorship-resistant properties.
- Data Retrieval Market: Filecoin network participants known as retrieval miners supply customers with the required data set in exchange for FIL tokens. Crypto incentives ensure that data is delivered swiftly by miners.
- Data Archiving and Backup: Filecoin can be used to backup and archive important public data, scientific works, historical contents and more.
- NFT and Blockchain Data Storage: Filecoin is a leading choice for storing metadata and large files associated with NFTs. It complements other blockchain ecosystems by offering decentralized storage.
- Content Delivery and Hosting: Filecoin’s data storage and retrieval capabilities makes it an ideal solution to provide content distribution and hosting services for the internet.
How Filecoin Works?
Filecoin is powered by decentralized community of storage providers and retrieval providers. Any one with unused hard drive space can join the Filecoin network and earn FIL coins for their services.
On Filecoin, storage providers and retrieval providers offer their services to clients through deals. The deal making process typically begins off-chain. Here are the four distinct phases of deal making on Filecoin:
- Discovery: Client identifies storage providers and requests price.
- Negotiation: Client and network providers negotiate and agree on the terms of the deal.
- Publishing: The deal is published onchain on the Filecoin blockchain.
- Handoff: The user pays the miner to store files. Storage providers begin publishing cryptographic proofs of data storage.
Pros and Cons of Filecoin
In this section, we look at the pros and cons of Filecoin to help you understand the protocol better.
Pros of Filecoin: Cons of Filecoin:
How to Buy Filecoin?
If you have no intention of mining FIL token, you can always buy them off a crypto exchange.
Buy FIL on Centralized Exchanges: The Easy Way
Buying crypto on a centralized exchange is very easy. Platforms like Margex, OKX and MEXC provide users with convenient fiat onramp and offramp facilities.
To buy FIL on centralized exchanges you can follow these easy steps:
- Visit the centralized exchange of your choice. You can either download their mobile app or visit their website.
- Set up your account or log in. If you are creating an account for the first time, you will have to complete Know Your Customer (KYC) processes.
- Once you have set up an account. Use your debit card, credit card, or bank transfer to add funds to your account.
- Now you are ready to buy cryptocurrencies. Search for FIL token. Check the swap trade and complete the transaction.
Buy FIL on Decentralized Exchanges: The DeFi Route
If you are into self-custodianship, you may want to buy on a decentralized exchange (DEX) and store FIL in a crypto wallet. If you have never used a self-custodial crypto wallet, you will be happy to learn that there are plenty of options to choose from, including Best Wallet which is free to download on App Store and Google Play.
Once you have set up your crypto wallet, you can follow these easy steps:
- FIL is available as a BEP-20 token on the BNB Chain. This means that you can buy FIL tokens on BNB Chain-based DEXes such as PancakeSwap.
- Make sure you have enough native tokens in your crypto wallet to pay for transaction fees. In the case of the BNB Chain, it will be the BNB token. You will also need other crypto tokens in your wallet to buy FIL tokens.
- Visit the DEX website and connect your wallet. In the DEX interface, search for FIL token. Let’s say you have USDC tokens in your wallet and you want to buy FIL tokens using USDC. The DEX will show you the exchange rate for the token swap. Once you find an acceptable exchange rate, check the gas fee quote and execute the transaction.
- Double-check the signature request on your wallet to avoid getting scammed. Once you accept the signature request from the DEX to execute your transaction, you will get FIL credited to your wallet.
Is Filecoin a Good Investment?
Filecoin is the 40th most valuable crypto project in the world valued at over $4 billion, at the time of writing. The FIL token debuted in 2017 via a ICO when the token was sold for a price of $1.91 during the public sale. Since then, FIL has surged to trade between the $3 to $11 range in 2024. The FIL token’s all-time high stands at about $237 hit in April 2021. Meanwhile, FIL’s all-time low stands at $1.83 hit in August 2019.
In one of the reports, Blockworks Research said an emerging decentralized finance (DeFi) ecosystem and product-oriented founders on Filecoin indicate that the network is at an “inflection point.”
“We believe Filecoin is at an inflection point, as product-oriented founders are building on Filecoin with a keen focus on the feature-rich enterprise apps, tooling.” said Blockworks.
“Unlike most crypto ecosystems, whose fundamentals are highly circular and correlated to the crypto industry, storage and cloud services are stable, sticky, and uncorrelated with crypto markets. The historical lack of capital on Filecoin, coupled with potentially relatively stable fundamentals versus crypto peers, makes the Filecoin ecosystem an attractive opportunity,” Blockworks added.
How to Choose a Filecoin Wallet?
Looking for the best crypto wallets to hold your FIL tokens? Here are some recommendations.
1. Best Wallet
Best Wallet is non-custodial crypto wallet that is suitable for beginners and crypto-native users. Like any other crypto wallet, Best Wallet gives you total control over your cryptocurrencies. It also supports multiple blockchain allowing you to hold BTC, ETH and FIL all in one application.
Best Wallet Features:
- User-friendly interface – Best Wallet is known for its easy user interface making it a great option for beginners.
- Multi-chain support – Best Wallet supports numerous blockchains removing the need to maintain multiple wallets for different tokens.
- Built-in trading feature – Best Wallet has in-app trading features that allow you to seamlessly swap one token for another.
You can learn more about our top wallet choice in our dedicated Best Wallet Review.
2. Trezor Wallet
Trezor is known for creating cold wallets which are considered to be the safest types of crypto wallets out there. Cold wallets remain isolated from the internet which gives them an extra layer of security against online attacks.
Trezor Features
- Cold storage – Cold wallets remain isolated from the internet which provides an extra layer of security.
- Open-source software – Trezor uses open-source software which allows frequent and innovative updates from the community.
- Backup and recovery – Trezor provides easy wallet recovery in case your device is lost or damaged.
- Multi-currency support – Trezor supports multiple currencies making it a great altcoin and Bitcoin wallet.
We recommend the Trezor Safe 3 as an affordable and solid all-around hardware wallet. You can learn more about it in our Trezor Safe 3 Review.
Conclusion: Filecoin Review
Filecoin has a lot of ground to cover if it want to catch up to traditional rivals in the data storage and content delivery sectors. Nevertheless, the early signs are encouraging as seen with the growing adoption of Filecoin’s data storage services within the web3 community. As more individuals and organizations start aligning with the ethos of decentralization, we may see Filecoin grow to become a bigger and more significant crypto project than it is today. Whether you’re a software developer, or tech enthusiast, Filecoin is a project worth monitoring as it continues to push the boundaries of what’s possible in decentralized storage.
Frequently Asked Questions
How does Filecoin work?
How do I buy FIL tokens?
Is Filecoin a good investment?
How do I store FIL tokens securely?
Is it legal to invest in Filecoin?
What are the risks of investing in Filecoin?
References
- Filecoin ICO, CoinDesk, https://www.coindesk.com/markets/2017/09/07/257-million-filecoin-breaks-all-time-record-for-ico-funding
- Smart contracts, Filecoin.io, https://docs.filecoin.io/smart-contracts/fundamentals
- DePIN sector, CoinMarketCap, https://coinmarketcap.com/view/depin/
- IPFS, Protocol Labs, https://docs.ipfs.tech/concepts/ipfs-solves/#centralization
- Block Rewards, Filecoin.io, https://filecoin.io/blog/posts/filecoin-features-block-rewards/
- Glossary, Filecoin.io, https://spec.filecoin.io/glossary/#section-glossary.miner
- Cross-chain bridges, Filecoin.io, https://docs.filecoin.io/smart-contracts/advanced/cross-chain-bridges
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