What is Filecoin?
Filecoin is a network and cryptocurrency which will allow anyone to monetize idle storage capacity by renting it out through Filecoin’s decentralized network. Filecoin is built on top of IPFS, a protocol built by the makers of Filecoin, Protocol Labs.
Filecoin’s Decentralized IPFS Protocol vs. HTTP
The Hyper Text Transfer Protocol (HTTP) that the majority of internet traffic today runs on is a ‘location based routing protocol’. What this means is that when you go to your web browser and type in a domain name such as bitcoin.org, the domain name bitcoin.org will resolve to the IP address
188.8.131.52. This IP address represents the location of physical servers connected to the internet that are hosting the text, pictures, and other content on bitcoin.org. The HTTP protocol has scaled with and served the internet tremendously well having been designed several decades ago. However, IPFS aims to improve upon some of HTTP’s shortcomings including speed, offline capabilities, content redundancy and permanence, and efficiency.
The IPFS protocol, unlike HTTP, uses content based addressing. In practice, IPFS works in a similar decentralized manner as BitTorrent. Each user that downloads a file helps perpetuate that file to other users looking to download it. With IPFS, instead of having to go through a potentially distant central server, you can get a file quickly – potentially nearly instantly – from the closest Filecoin node which has the content you need.
Filecoin aims to be a more efficient means of storage by letting its’ users earn its’ native currency, Filecoin, in exchange for hosting files on Filecoin’s decentralized network. Filecoin can be seen as an economic incentive layer on top of the IPFS network, motivating miners who store and duplicate data, and can in turn exchange Filecoin for other cryptocurrency tokens such as Bitcoin or Ethereum, fiat currency, or hold on to their Filecoin tokens in hopes of it appreciating in value as network usage and customer adoption increases.
On this robust global market the price of storage will be driven by supply and demand, not corporate pricing departments, and miners will compete on factors like reputation for reliability as well as price.
The Decentralization Economy
Filecoin vs. Airbnb vs. Uber
The Filecoin Team
Filecoin is the brainchild of Protocol Labs, the team behind the popular open source projects IPFS, libp2p, IPLD and Multiformats. The company has raised $720,000 in fiat money from the likes of Naval Ravikant, Vinny Lingham, Semil Shah, Digital Currency Group, Union Square Ventures, Winklevoss Capital and other well-regarded investors. Protocol Labs was part of Y Combinator’s startup accelerator program in 2014.
Protocol Labs is headed up by Juan Benet, a Stanford B.S. and M.S. CS graduate and veteran of the cryptocurrency space.
Dropbox vs Filecoin
One of the most anticipated Initial Public Offerings is the cloud storage provider Dropbox. The 10-year-old San Francisco based company, with its most recent valuation pegged at $10 billion, is expected to raise millions. Coincidentally, both Dropbox and Filecoin are graduates of the Silicon Valley based Y Combinator startup accelerator (Dropbox in 2007, and Protocol Labs in 2014). While both companies may be YC alumni and storage providers, the similarities end there. Dropbox is a centralized storage provider that sells premium plans to individuals and businesses, whereas Filecoin’s token economy is decentralized, with economic incentives being distributed to users of the network rather than the company itself. Filecoin will not sell premium plans, but rather, will serve as a fluid marketplace where the price of space (paid for with Filecoin tokens) will be determined by the decentralized market. Whereas Filecoin will provide participants in their storage network a recurring monetary incentive in the form of crypto tokens to participate in their network, the only such incentive Dropbox offers is their one-time new user referral bonus. This referral bonus, which helped propel Dropbox from 100,000 users to four million in just four months, gives existing users more free storage space for inviting new users to Dropbox.
A Decentralized Threat To Amazon?
Amazon (NASDAQ: AMZN) has been one of the shining stars among publicly traded companies in the past 10 years. A member of the so-called ‘FANG’ stocks (Facebook, Amazon, Netflix, and Google), part of Amazon’s tremendous growth can be attributed to the rise of its’ $12 billion revenue year AWS business. AWS is such a powerful force in fact, that if it were a standalone business it would be worth over $150 billion.
Amazon is the undisputed king of cloud storage, and as such, exercises its’ muscle by continuing to lower prices for storage and building out more features to avoid giving customers any excuse to switch to other companies. While it’s practically unlikely that Filecoin will compete with AWS at the onset, Filecoin does have a few tricks up their sleeves to build up the muscle to eventually go after AWS. Most notably, we believe token protocols such as Filecoin will give rise to a whole new breed of digital entrepreneurs that will increasingly rely on Filecoin and others as their primary source of income, with a particularly high concentration of these people in emerging markets and markets with volatile political structures with risks of censorship. As the number of these network participants grows, so too will the decentralized storage network, leading to a network that is much more powerful than the systems available today. It is possible to imagine Filecoin’s storage protocol being more important in parts of the world where the internet is difficult to reach than the internet itself.
Where To Buy Filecoin
Filecoin will hold an Initial Coin Offering (ICO) on Thursday, July 27th. The ICO will take place on CoinList, however, only SEC accredited investors1 will be able to participate in the token sale.
1 – SEC Accreditation
For additional information on investor accreditation including how to calculate your net worth, see the SEC’s official investor bulletin.
How To Invest In Filecoin For Unaccredited Investors
The Filecoin ICO will not be available to unaccredited investors due to government regulations. Juan Benet, the founder of Protocol Labs, stated that people who “genuinely care about the network can earn great reward mining or helping build it.” can earn Filecoin tokens.