What Is Filecoin and How Does It Work?

Filecoin emerged as one of the stars of the 2021 cryptocurrency bull run, but the network’s great potential means that the project can become much more than an investment option for traders.

Arriving in 2020, Filecoin is a leading decentralized file-sharing platform. But how does Filecoin work, and what is its potential in Web3? Let’s take a deeper look at Filecoin’s longer-term prospects.

What Is Filecoin?

At its core, Filecoin is a decentralized protocol that allows users to rent out spare storage space on their computers. Naturally, people can also buy available storage listed on the network.

Filecoin’s worldwide network is free to join, opening the door for vast data storage to become available for use.

The potential for this level of storage in the Web3 age could be revolutionary as more systems become computerized and data-rich.

Accompanying Filecoin is FIL—the native cryptocurrency of the Filecoin network. As a means of listing or accessing storage listed on the network, users will need to hold FIL.

What Does Filecoin Do?

FIL is a proof-of-work token, which means that the Filecoin community can mine and earn more coins as a reward. FIL can also be used throughout the Filecoin network, where it’s possible to pay miners to store or retrieve their data. The token can also be used as collateral in case of invalid or missing proofs.

Filecoin’s native coin experienced a whirlwind rally in Q2 2021 as investors were inspired by the network’s DeFi potential, peaking at a value of $236. Considering the coin’s circulating supply of just under 300 million at the time of writing, such a rise in value must be interpreted as an impressive feat. Although the coin has since suffered severe corrections in the following months, it may emerge as a strong altcoin investment option as the necessity of data storage in Web3 grows.

At the core of Filecoin is its sprawling network, which offers a more evolved interpretation of data storage. With matters of trust and decentralization at the core of data and privacy, Filecoin may help us to envision a future that doesn’t hinge on centralized storage providers.

Who Uses Filecoin?

The network also allows users to connect as a “swarm,” allowing information like blocks and messages to flow comfortably throughout a collection of thousands of peers.

The beauty of the Filecoin network is that it’s possible to participate in various ways. The peer-to-peer distributed framework that Filecoin operates on can empower peers to communicate over secure channels to distribute information to the network, transfer data, and connect with other peers.

Much like with other private and public blockchain networks, Filecoin operates through nodes representing peers that synchronize the blockchain and validate changes occurring in each block.

These nodes can also verify and publish essential information on the network by broadcasting them publicly. This means that if you would like to transfer FIL between two accounts, nodes can automatically propose storage and retrieval deals to various Filecoin storage providers to pay for them as they are actioned.

When it comes to individuals running a Filecoin node, the task utilizes very little computational power, and the program can be kept running all day in the background. Furthermore, many Filecoin node implementations are available for users, with Lotus among the most popular today, according to Filecoin’s assessment.

How Filecoin Works

Although the prospect of decentralized storage is highly appealing to those who crave greater privacy when it comes to keeping files safe, Filecoin also ensures that files can be stored at extremely competitive prices with greater levels of verification along the way.

To achieve this, users can choose their preferences in terms of trade-off costs, storage speed, and space redundancy. In addition, Filecoin’s suite of applications can help to negotiate storage with various providers on the network, and there’s no need to implement a different API based on each provider–which is unlike the case when it comes to centralized storage systems.

Filecoin’s network works on a proof-of-work (POW) model, and unlike other popular cryptocurrencies like Bitcoin, FIL’s POW is linked to data storage. Filecoin uses two proof-of-work models to prove that work has been completed. These are proof-of-replication, which allows the network to confirm the replication of data to a unique location, and proof-of-spacetime, which verifies that the data is stored for a specific period of time.

These POW models are combined to form large-scale storage networks spanning multiple independent parties. This eliminates the possibility of forgeries in the network while increasing mining rewards. Significantly, Filecoin’s rivals, Storj and Siacoin, lack this level of security.

In other words, the beauty of Filecoin is that it’s entirely peer-to-peer powered, with miners offering their own available computer storage space in return for FIL. This empowers users and miners to arrange storage in a live marketplace where matters of space requirements, timeframe, and cost are confirmed and tied up within an algorithmic contract.

Filecoin stands as a functional Web3 alternative to leading Web2 cloud providers like Google Cloud, Amazon Web Services, and Microsoft Azure. Here, the key benefit is that users don’t need to rely on centralized storage. Furthermore, there are cost benefits associated with Filecoin storage, with one month’s usage weighing in at around 0.0015% of the cost of storing data on Amazon Web Services, for instance.

The key reason behind this price difference is the sheer volume of storage providers available within the Filecoin ecosystem.

Furthermore, Filecoin’s blockchain framework allows users to verify that their files are being stored correctly by looking at available proofs for greater levels of assurance and the knowledge that even though your files are stored on someone else’s computer, they cannot access your data.

Can Filecoin Reach $1,000?

With an all-time high market price of $236.84 recorded in April 2021, Filecoin certainly has the potential to climb to a value of $1,000. However, the reality is that such a feat won’t be easy.

The coin’s total supply of almost two billion tokens means that it will ultimately become 100-times more commonplace than Bitcoin, meaning that it would need to outperform the world’s most famous cryptocurrency in its current form to reach a value of $1,000.

However, at present, FIL has a circulating supply of around 320 million, a figure that improves the scarcity of the coin and thus makes $1,000 a little easier to obtain.

Despite this, it would take a seismic adoption rate to see Filecoin reach a market value of anything close to $1,000.

Who Runs Filecoin?

Filecoin’s whitepaper was published in 2014 by Protocol Labs and Juan Benet. Protocol Labs is an open-source R&D lab that looks to build blockchain and cryptocurrency solutions to incorporate into the Web3 landscape.

Although Filecoin is Protocol Lab’s most widely-known project, it also has a series of other projects like IPFS, SourceCred, Testground, and Multiformats.

Juan Benet is the founder and CEO of Protocol Labs and works closely with the company’s many crypto-facing projects.

Who Accepts Filecoin?

Hand holding a credit card to make a payment

On a global scale, more than 300 businesses accept Filecoin payments for goods and services. These stores include Chipotle Mexican Grill, a range of electronics shops, and even some charitable organizations.

There’s also potential for a great number of other businesses to accept Filecoin in the future, thanks to platforms such as NOWPayments, which supports FIL transactions for outlets.

Where to Stake Filecoin

Here, it’s important to note that Filecoin doesn’t directly support traditional staking or yield farming, so if you’re interested in staking your FIL, you will need to utilize a third party that enables Filecoin staking (hopefully, with strong APY).

Platforms like Binance and Gemini reportedly offer a little over 7% APY for Filecoin staking, respectively. Furthermore, users can look to Filet, AAX, and YouHodler for more staking prospects for Filecoin.

Which Wallets Support Filecoin?

Although many exchanges operate as perfectly reasonable options for investors to hold their FIL, several wallets support Filecoin addresses, making it easy to send and receive FIL with ease.

Wallets like Achain, Freewallet, Carbon Wallet, and BitGo can generate Filecoin addresses to better support FIL holders as they spend and receive their coins.

Filecoin Is the Future of Web3 Cloud Storage

As the age of Web3 continues to loom over us, Filecoin offers a fresh opportunity for users to better manage their data-rich applications through a fully decentralized and blockchain-enforced platform—all with competitive pricing structures and a native cryptocurrency that can reward users.

Although we’ve seen Filecoin’s native cryptocurrency revert to lower prices in recent months–a move that indicates cooling interest, it seems clear that there’s certainly a key role for the decentralized storage platform to play as the next generation of the internet continues to evolve.

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