Filecoin

Filecoin (symbol: FIL) is a decentralized storage network developed by Protocol Labs, designed to transform cloud storage into an open market. By leveraging blockchain technology, Filecoin enables users to rent out unused storage space and provides a secure, efficient, and cost-effective method for data storage and retrieval.

Who created Filecoin?

Filecoin is an open-source software that was created by Protocol Labs, the same firm that created technologies like IPFS and Libp2p aimed at replacing existing internet protocols.

For example, IPFS is a system that could replace the Web’s hypertext protocol, which specifies that web addresses must begin with the prefix http://.

Protocol Labs was founded by Juan Benet, who co-founded a game developer called Loki Studios while studying computer science at Stanford. The company was acquired by Yahoo in 2013. Benet then participated in the Y Combinator startup accelerator to start Protocol Labs.

Protocol Labs has received funding from notable investors like Digital Currency Group, Stanford University’s startup accelerator StartX, Coinbase co-founder Fred Erhsam and AngelList founder Naval Ravikant.

Filecoin’s initial coin offering, which ran from August to September 2017, further raised $257 million from a cast of noted venture capital firms like Sequoia Capital, Andreessen Horowitz and Union Square Ventures. The Filecoin offering was the largest of its kind at the time.

What is Filecoin?

Filecoin aims to create a global, decentralized storage solution that addresses the limitations of traditional cloud storage providers. By utilizing a peer-to-peer network, it offers increased security, redundancy, and resistance to censorship. The platform incentivizes participants to contribute storage resources, fostering a robust and scalable ecosystem.

How does Filecoin work?

Filecoin is a little like Dropbox, but powered by blockchains. Users who want to store some data on the Filecoin network must pay a miner to do so.

How much they pay is determined by an open market where miners compete with one another to offer the lowest price for storage. Filecoin claims this market will be “hypercompetitive” and thus be cheaper than centralized data storage such as Amazon Web Services.

Miners, in turn, have an incentive to provide storage because they stand a chance to receive rewards from the network in the form of Filecoin tokens. The more storage they offer the network, the better their chances of receiving a reward.

But these rewards aren’t free. Miners must perform several computationally intensive processes (called proofs) to prove to the network that they are storing the data they claim to be storing, and that they’re doing so reliably over a period of time.

If they do so reliably and provide enough storage, then they can create new blocks on the Filecoin blockchain and receive the network reward and the transaction fees.

  • Proof-of-Replication and Proof-of-Spacetime

Blockchains rely on mechanisms called proofs to ensure that all users of the network can agree on new transactions. The Bitcoin blockchain, for example, relies on a proof-of-work, where a miner must show it has performed a massive number of calculations to earn the right to add new transactions to the blockchain and claim newly minted Bitcoin.

Filecoin uses two new proofs to verify that miners are actually storing the data they claim to hold. Proof-of-Replication shows that a miner has truly stored the number of copies of data it claims to hold. Proof-of-Spacetime shows that a miner has stored the data over an agreed period of time.

Together, these proofs allow users to trust that miners indeed hold the data they claim

to hold.

  • Filecoin Storage Markets

Using these technologies, Filecoin will offer a market for disk storage where users who wish to store data can bid on available storage offered by miners who offer disk-space.

Miners who supply disk-space will also be judged based on their reliability as well as the prices of storage they are offering. Filecoin’s Storage Market will be similar to a financial market, where users can make bids and offer asks.

  • Filecoin Mining

Generally speaking, Filecoin miners are users who offer storage. This means any user can plug in a hard-disk, run the Filecoin software, and start to offer disk-space in the Storage Market. These miners are known as Storage Miners.

But there is one more category of Filecoin miners, known as Retrieval Miners and Services.

“The platform incentivizes participants to contribute storage resources, fostering a robust and scalable ecosystem.”

These miners are paid by users to retrieve data and to perform services that speed up the transmission of data, such as caching or participating as a node in a content delivery network.

Filecoin’s Integration with IPFS

Filecoin is closely integrated with the InterPlanetary File System (IPFS), a protocol also developed by Protocol Labs. While IPFS enables decentralized file sharing and content addressing, it lacks a built-in incentive structure. Filecoin complements IPFS by providing economic incentives for data storage, ensuring that files are persistently stored and readily accessible.

Use Cases and Applications

Filecoin’s decentralized storage network has a wide range of applications, including:

  • Data Archiving: Long-term storage of large datasets, such as scientific research data or historical records.
  • Content Distribution: Efficient delivery of media content, reducing reliance on centralized content delivery networks.
  • Decentralized Applications (dApps): Providing storage solutions for blockchain-based applications requiring decentralized data storage.
  • Personal Storage: Allowing individuals to securely store personal files without depending on traditional cloud storage providers.

Token Utility

The FIL token serves multiple functions within the Filecoin ecosystem:

  • Payment for Services: Clients use FIL to pay storage providers for data storage and retrieval services.
  • Collateral for Storage Providers: Providers stake FIL as collateral to guarantee reliable service, discouraging malicious behavior.
  • Incentives and Rewards: The network rewards storage providers with FIL for contributing storage space and maintaining data integrity.

Shariah Opinion

The FIL token can be considered Shariah compliant as there are no impermissible use cases. The Filecoin protocol has genuine use cases.

Conclusion

Based on and subject to the foregoing information, and for the purposes of this conclusion, nothing has come to our attention that causes us to believe that FIL is in breach of Shariah* principles and rulings as adopted by the scholars conducting this research.

*Attention is drawn to the term ‘Sharia’ and ‘Sharia compliant’ and its interpretation thereof as expressed in the following link https://shariyah.net/glossary/