The current situation of Filecoin is not optimistic as negative news emerges frequently. Can IPFS really be implemented on a large scale? Whether multiple futures products on the market can solve the current situation of Filecoin? And what kind of role can IPFS play in the future? This article will provide an in-depth analysis from a third-party perspective.
On October 15th, with the launch of mainnet, Filecoin finally opened its final chapter after preparing for three years. However, IPFS did not meet people’s expectations, and even various negative events happened one after another. What is the future of Filecoin?
Why IPFS was born?
To trace the origin of Filecoin, we must start with IPFS. The birth of IPFS is closely related to the current status of the Internet.
Internet technology has three basics elements: computing power, storage, and bandwidth, especially in the storage sector. Information storage can be said to be the foundation of the entire Internet. The storage methods HTTP used by the traditional Internet underlying protocol are centralized. That is to say, the traditional Internet needs to establish a centralized storage node first, and then connect all the terminals in the network through the HTTP protocol, and on this basis, to serve various applications in the Internet.
In general, centralized storage has three disadvantages:
First, the storage and transmission efficiency is low;
Second, the data security has serious problems;
Third, the storage cost is high.
In response to the shortcomings of these centralized storage, in 2014, Juan Benet, a computer doctor of Stanford University, innovatively proposed a concept of distributed storage to optimize the Internet system.
In May 2014, Juan Benet launched the IPFS Interplanetary File System, and got a huge investment in the YCombinator incubation competition in 2015, and finally established the development team Protocol Labs to build the IPFS system.
IPFS is essentially an underlying Internet protocol for hard-disk sharing. It is a storage network that allows people to share their idle storage space and obtain revenue.
The files stored in the IPFS network are broken up into several 256 kb file fragments through a special encryption algorithm, and then these file fragments are scattered and stored on the servers of miners around the world. When users need data, they only need to input instructions, and the nearest nodes that store the same data will transmit data to users at the same time.
IPFS can effectively reduce the possibility of high concurrency while greatly improving the efficiency of data transmission. The emergence of IPFS is indeed a revolution in Internet storage. Here’s an analogy: if all vehicles are driving on the same road, it is very likely to cause traffic congestion or paralysis. If there are multiple roads to choose from when the vehicle departs, the probability of congestion will be much reduced.
The working principle of IPFS is to divide the data into parts and store them in different nodes. What each node gets is not all of the data, but a 256kb file fragment. Therefore, the distributed storage method of IPFS can also effectively avoid security issues such as natural disasters, hacker attacks, and data leakage. At the same time, compared with HTTP, IPFS greatly saves bandwidth resources and reduces data redundancy. So this is why IPFS is so popular in the world and it is so important.
The application situation of IPFS
Based on its decentralized characteristics, IPFS received huge financial investments at the beginning of the project, including Bole YCombinator, Sequoia Capital, Winklevoss Brothers, Digital Currency Group, Stanford University, Anderson Horowitz Fund, FC Emerging Network Equity Crowdfunding Institution, Union Square Ventures USV etc., with a total financing of more than 257 million US dollars. However, these investments are to obtain equity in the parent company, and Filecoin did not give the investors any token commitments. It was not until August this year that IPFS Labs compromised and promised to give these shareholders in the form of tokens.
IPFS, which is born with gold, is also fully blooming in terms of real market applications. First, let’s look at the application of search engines.
Firefox product manager Mike Conca published an article on Mozilla’s official website stating that Firefox’s browser extension applications support distributed protocols including IPFS, that is, supporting for the “ipfs://” protocol.
Google Chrome is also adding a plug-in IPFS Companion to the extended application to help users better run and manage their own nodes locally, and view the resource information of IPFS nodes at any time.
Opera browser has cooperated with IPFS for a long time. Its Android version of Opera browser has launched IPFS support and developed crypto wallet in the browser with Android, iOS and desktop versions.
In addition to the three major engine browsers, there are also IPSE and Poseidon search engines. These two search engines are both search engines based on the IPFS network and mainly serve for blockchain projects.
The second is file transfer applications. IPFS already has some application carriers, including Partyshare, Pinata and IPWB. For example, Partyshare is an open source file sharing application built on the peer-to-peer hypermedia protocol IPFS, which allows users to share files using IPFS.
In community and e-commerce applications, applications like Indorse, Steepshot, Peepeth, Origin, Open Bazaar, etc. have also appeared. All of the above applications use the IPFS protocol.
On the whole, although the total number of IPFS related applications has reached nearly one hundred, the application of IPFS on the three mainstream engines is only in the form of a plug-in, and file transfer is only to improve the storage needs of IPFS. Peripheral applications are also on some related blockchain platforms, and there is no large-scale implementation.
IPFS tries to move towards a path of full coverage in the blockchain application industry. Compared with the reports that the media claimed that IPFS will replace HTTP and subvert the entire Internet when IPFS was first born, IPFS has not been possible to complete that goal in recent years or more than a decade. The most prominent ability of IPFS is its decentralized storage capacity in a specific range. Blockchain is only a portrayal of database technology. For a behemoth like HTTP, IPFS currently does not have any practical application capabilities to shake it. IPFS still has a long way to go.
The incentive layer Filecoin
The association between Filecoin and IPFS is simple. Filecoin is the incentive layer on the IPFS protocol. To put it another way: IPFS is not a blockchain, nor a certain token, but an Internet protocol. Filecoin is the IPFS protocol token, a payment transaction token for distributed storage nodes under the IPFS protocol. Its purpose is to reflect the financial value of IPFS in the form of tokens for market circulation and transactions.
Filecoin’s blocks run on a new type of proof mechanism called “space-time proof”, and will be mined by miners who store data. The Filecoin protocol does not rely on a network consisting of a single coordinated and independent storage provider to provide data storage and retrieval services, among which:
(1) The user pays tokens for data storage and retrieval,
(2) Storage miners earn tokens by providing storage space,
(3) Search miners to provide data services to earn tokens.
Filecoin turns cloud storage into an algorithmic market. This algorithm market is based on a local protocol, Filecoin (FIL), where miners can obtain by providing storage to customers.
In turn, customers spend Filecoin to obtain storage space.
Filecoin was questioned when it went online
Filecoin token distribution rules are as follows:
The total upper limit of Filecoin is 2 billion, called FIL_BASE. In the distribution of Filecoin’s genesis block, 30% is allocated to financing, Protocol Labs and Filecoin Foundation. among them:
10% of FIL_BASE is allocated to financing institutions, 7.5% of this 10% is sold, and the remaining 2.5% will be used for ecological development, follow-up financing and other purposes.
15% of FIL_BASE is allocated to the protocol laboratory (including 4.5% to the laboratory team and contributors), and the final 5% is allocated to the Filecoin Foundation.
The remaining 70% is allocated to Filecoin miners as mining rewards for providing data storage services, maintaining blockchain, distributing data, running contracts, etc.
Over time, these rewards will support multiple types of mining, so this section will be broken down to cover different types of mining activities. The following is all the distribution rules of Filecoin tokens.
At 22:44 pm on October 15, 2020, Filecoin mainnet was finally officially launched. During the space race, miners were able to mine at a maximum rate of 1PB per day. On the second day of the mainnet launch, the leading miners collectively protested the strike and stopped increasing their computing power. Behind this was the helplessness of the miners.
On the morning of October 18th, less than three days after the launch of Filecoin mainnet, Filecoin official sensed the tremendous pressure from miners. Filecoin core staff Molly posted on Slack that the FIP-0004 proposal has been received by the community, and the content of the proposal will be applied when Filecoin network is updated next week, that is, 25% of storage miner block rewards will be released directly, and the other 75% will still be linearly released at 180 days.
On the morning of October 21st, Filecoin official momack2 posted the latest news on the slack channel saying: “The Lotus 1.1.0 version will be launched. The biggest highlight of this version is the FIP-4 proposal that has been passed a few days ago. The passage of the proposal means that 25% of the block rewards for storage miners can be released immediately.”
Many miners and crypto investors did not approve of this official move. The official retreat may be able to solve the current market problems, but the changes in the rules and models have made many people feel the crisis of trust in Filecoin. The biggest feature of the blockchain is the trust mechanism. Even if the good news is based on the change of the mechanism model, it is difficult to convince miners. After all, while some people benefit, some people will suffer losses.
The number of miners is not as expected and the market is bleak
Let’s look at the market participation status of Filecoin. In addition to Filecoin’s trust crisis in China market, PANEWS found in a Filecoin-related questionnaire survey conducted by worldwide investors that foreign users are not very interested in Filecoin.
PANEWS interviewed 22 interviewees in total, most of whom have more than three years of experience in the crypto circle. Of the 22 respondents, 19 respondents have heard of Filecoin, accounting for 86%. Only 22.7% knew about Filecoin and IPFS, and only 13.6% had participated in Filecoin mining or purchased FIL tokens and futures.
Among them, many interviewees claimed: They are not optimistic about Filecoin, and the it is more like a hype. Compared with participating in Filecoin’s ecology, people are more willing to use Filecoin to make quick money. In addition, some investors also believe that: Filecoin should not allow miners to bear mining pressure and legal risks at the same time.
In addition, there are some professionals who are not optimistic about IPFS, claiming that the underlying protocol of IPFS is still not comparable to existing cloud storage solutions such as Dropbox, iCloud, and Google, let alone to challenge and replace them.
More facts prove that Chinese miners account for 80% of Filecoin miners. Juan also stated it on Twitter: Thousands of miners around the world are using Filecoin. The vast majority are Chinese miners. In the FILFOX browser, almost all of the top ten mining nodes are from China.
Filecoin conspiracy theory
This wave of disputes among miners has not yet settled, and Filecoin’s price performance in the secondary market has also plunged. The data website shows that the current price of FIL is 24.3 US dollars, which is too far away from the expectation that the price of around 200 US dollars when it was launched.
Within a few days of the mainnet just being launched, 1.5 million FIL tokens were transferred from an unknown address, and 800,000 FIL was transferred to Huobi Exchange. According to Filecoin’s unlocking plan, early investors, officials and miners should unlock only 500,000 coins on the first day. With the official promise that FIL tokens will not be sold in the early days, where do these tokens come from?
In response, Filecoin team gave an official response, calling this unknown account an official account. The transfer of these FIL tokens is mainly to ensure market stability. The tokens are bought and sold on exchanges to provide market liquidity, stabilize price, and correct imbalanced incentives for miners. The transfer of these tokens is not a FIL sale by Protocol Labs. The market-making plan is for the benefit of the community to ensure that there is liquidity in the market at the beginning and maintain price.
On October 20th, another 30,000 FIL were transferred from an unknown address. As of the date of publication, the official team has transferred 909,000 FIL. If calculating on the basis of the price of FIL at 170 dollars when it was launched, the total value is more than 150 million dollars. Even if at the current market price which is 20 dollars, the value of these FIL is more than 20 million dollars.
Large amount of FIL flew into the market, and small investors are the biggest losers in the secondary market. The plunge in the price of FIL has a lot to do with the fact that the test coin can be bought and sold as the mainnet coin. According to Filecoin’s official statement before, all sectors in the space race zone 1 and 2 will be migrated to the main network, and the pledge of these sectors and the block rewards obtained will also be migrated to the mainnet. The encapsulated effective computing power, pledged FIL and mined FIL test coins will be migrated to the mainnet in a certain proportion.
However, after the mainnet went live, the flow of test coins was directly transferred to exchanges for trading, which also allowed the miners who dominated the space race to gain a lot of FIL. While those who hold FIL are rejoicing in absenteeism, it is a disaster for those who do not own FIL and the small investors in the secondary market.
In response to this incident, Filecoin official members explained that the test coin can be directly used as the mainnet coin is a special design, not a “bug”. This is to ensure the security of the network. The miners sold tens of millions of FIL immediately after the mainnet went live, which was “seriously exaggerated”, and the actual amount sold was only 1/10 to 1/100 of the number mentioned in the report. Regardless of the amount of data, it is undeniable that the selling behavior of these miners is one of the factors that contributed to the plunge in FIL price. And from the official explanation, it is obvious that it is to provide shelter for these absenteeism, and the so-called absenteeism is very likely to be an official black-box operation.
The reputation and price of FIL have both encountered Waterloo. Juan Benet sent dozens of Twitter to refute rumors and respond, but the fact that Filecoin is going down cannot be concealed. The only incentive layer, Filecoin, is in a deep development dilemma and it is difficult to survive. This makes the future path of trying to subvert the entire Internet application layer protocol standard IPFS again full of variables.
QFIL and FIL futures products
Back to the secondary trading market, FIL price plunged. Excluding mining income, FIL’s acquisition channels are more important in the early stage from exchanges. Before FIL is officially launched, FIL’s futures products have been the highlight.
Let’s take a look first, what are the futures products in the market?
FIL6: 6-month FIL futures products, with the same redemption period, which is 180 liner release period as the same as mining rules;
FIL12: 12-month FIL futures product;
FIL36: 36-month FIL futures product.
Based on the popularity of Filecoin, many exchanges have launched FIL futures in the early stage.
Among them, the QFIL product launched by QuickCash (QC issuer) and first released on the ZB.com platform has been popular by many users. Because QFIL supports redemption within 15-30 days after FIL goes online, it is faster than many 6-month/12-month futures. In addition, QFIL is an ERC20 token and supports DeFi mining. At present, ZB.com has also supported depositing QFIL to QC (1:1 stablecoin anchored to offshore CNY), and the price of QFIL, which supports multiple game modes, has surpassed FIL once.
Futures products like QFIL can solve the liquidity problem of FIL to a certain extent and also inject new market momentum into the development of FIL.
As far as the status quo of Filecoin is concerned, the future of Filecoin requires the efforts of various aspects. Filecoin bears the expectations of too many investors, but blindly pursuing investment returns will only destroy it. Only by continuously improving its own mechanism and strengthening its application can IPFS go further and further.
Arnav Reddy was an iconic writer known for his science-fiction and high fantasy short stories. He was raised in a household in which the exploration of article ideas and fact-finding was encouraged. He became one of the most decorated writers in the publishing fraternity, winning multiple prizes for his excellent writing.
Disclaimer: The views, suggestions, and opinions expressed here are the sole responsibility of the experts. No Times of Chennai journalist was involved in the writing and production of this article.