Filecoin Explained: Decentralized Cloud Storage for Web 3.0

Filecoin Explained: Decentralized Cloud Storage for Web 3.0

In contrast to Web 2.0, where centralized corporations such as Amazon and Microsoft control data storage, Web 3.0 offers a different approach. Decentralized file storage and sharing protocols like InterPlanetary File System (IPFS) and BitTorrent provide a more suitable alternative. IPFS, however, has an additional incentive layer that functions like an open marketplace for storage and downloading agreements, known as Filecoin. This article introduces the Filecoin network, its storage market, and its cryptocurrency token, FIL.

What is Filecoin?

Filecoin is a decentralized storage platform built on the InterPlanetary File System (IPFS) protocol. It allows users to store and share files securely and decentralized without relying on a single central authority or server. The network is powered by a blockchain-based token called Filecoin (FIL), which incentivizes participants to contribute their excess storage capacity to the network.

Filecoin was founded by Juan Benet, who is also the creator of IPFS and it is developed by Protocol Labs. It emerged as a leading figure in the 2021 cryptocurrency bull run, and its potential has made it more than just an investment option. Filecoin is often considered a functional Web3 alternative to leading Web2 cloud providers like Google Cloud, Amazon Web Services, and Microsoft Azure.

What's happening with the current storage market?

After the COVID-19 pandemic, the adoption of cloud computing has accelerated significantly. Cloud technology has played a very important role in maintaining business activities during the outbreak, as employees worked remotely and relied on cloud-based tools and services for communication and access to their work resources. According to Gartner, global public cloud spending is forecasted to reach nearly $600 billion in 2023. This represents a significant increase from the estimated value of $490.3 billion in 2022.

The three leading cloud providers in the world are Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform (GCP), with AWS having the largest market share of cloud infrastructure services at 33% in Q1 2022. In Q2 2023, enterprise spending on cloud infrastructure services reached nearly $65 billion, representing a sales increase of 18% or about $10 billion year over year

Where is this growing market leading us?

The growing market of centralized cloud computing has led to various concerns and drawbacks. One major issue is security risks, as centralized clouds are vulnerable to single points of failure, which can result in data leaks, loss of sensitive information, and other serious consequences. Also, users get limited control over their data and how it is stored, processed, and managed, which can be problematic for organizations with sensitive data or regulatory requirements. Another concern is vendor lock-in, where users are dependent on a single vendor, making it difficult to move data or applications to another provider if needed.

Centralized clouds rely on a single point of trust, which can be compromised, putting the entire system at risk. The risks of storing such huge amounts of data on centralized servers have been on display in recent years.

The Latest Cyber Crime Statistics by AAG IT Support showed that cyber-attacks globally increased by 125% through 2021. Additionally, the Thales CPL 2023 Cloud Security Report revealed that 39% of businesses experienced a data breach in their cloud environment last year, which is an increase of 4 points from the previous year.

Filecoin Vision

Filecoin's vision is focused on creating a decentralized storage network that enables users to store and share data in a secure and easy manner. This vision was first outlined in a whitepaper published in 2014 by founder Juan Benet, and despite numerous setbacks and delays, the Filecoin mainnet was finally launched in October 2020. Today, Filecoin is considered one of the known decentralized storage networks in the Web3 ecosystem, with the massive potential to disrupt the traditional cloud storage industry.

Filecoin's vision involves a number of key aspects:

  1. Decentralized Storage: Filecoin aims to create a decentralized network for data storage and retrieval, moving away from the traditional centralized cloud storage systems. This is intended to enhance security and privacy, as data is not stored in a single location that could potentially be a target for hackers.

  2. Security and Privacy: Filecoin employs encryption and redundancy methods to guarantee data privacy and security on the network. Before being placed on the network, data is encrypted and stored in various locations to prevent loss or damage. The decryption keys are only accessible to the data owner, ensuring that their information remains confidential and safe.

  3. Integration and Cross-Chain Interoperability: Filecoin has shown interest in creating integrations with other blockchain technologies. For instance, the Filecoin Virtual Machine (FVM) was launched to unleash the full potential of the open data economy. This includes projects that are building DeFi lending protocols and cross-chain interoperability on top of the FVM.

  4. Web3 and Decentralized Applications: Filecoin's vision is also tied to the broader Web3 movement, which aims to create a decentralized and user-centric internet. This includes supporting the development of decentralized applications (dApps) and platforms that leverage Filecoin's decentralized storage capabilities.

  5. Sustainability and Social Impact: Filecoin has expressed commitment to sustainable blockchain innovation and the impact of distributed storage on global justice.

  6. Developer Ecosystem: Filecoin is committed to fostering a vibrant developer ecosystem. This includes providing developer tooling, organizing hackathons, and offering grant programs to stimulate the development of apps and services on top of the Filecoin network.

How does Filecoin work?

Filecoin relies on a network of storage providers, also known as miners, who offer their unused storage space to the network. These miners store and replicate files across their hardware, creating a decentralized storage infrastructure. Filecoin also includes a marketplace where users can buy and sell storage space using FIL, the native cryptocurrency of the Filecoin network. The marketplace uses a bidding system, where users can specify the amount of storage they need and the duration for which they need it, and storage providers can bid for the storage contract by offering a price in FIL.

Users who want to store data on the Filecoin network initiate storage deals with miners. During the negotiation phase, both parties agree on the terms of the deal, including the cost, duration, and starting epoch of the deal. Once the deal is established, the client transfers the data to the miner for storage. Files are broken into tiny pieces and stored across a network of nodes. Each node only has a small piece of the data, making it difficult for any single entity to access the complete file.

Filecoin uses consensus mechanisms called proof-of-replication and proof-of-space-time to ensure that storage providers are legitimately storing the data they claim to be storing. This mechanism requires miners to provide cryptographic proof that they are storing the data correctly and consistently over time. This helps to ensure the integrity of the stored data and reduces the risk of fraud. Users who want to retrieve their stored data initiate a retrieval deal with a miner. The retrieval nodes, which are located close to the storage nodes, compete to locate and retrieve the requested file for the user. The fastest retrieval node receives payment for its service.

Filecoin's blockchain framework provides transparency and verifiability. Users can verify their files are being stored correctly by looking at available proofs, giving them greater assurance that their data is secure.

What is FIL Cryptocurrency?

Filecoin's native cryptocurrency, FIL, serves as an incentive for network participants and ensures fair behavior. With a max supply of ~1.9 billion tokens, 70% are designated for distribution as "mining" rewards. Currently, there are 451,081,808 FIL in circulation, with an initial coin offering price of ~$3.19 per token. As a gas token, FIL plays a crucial role in the fee mechanism, which follows a similar structure to Ethereum's EIP-1559, splitting fees into a burnable base fee and a miner tip. This design creates deflationary pressure that increases with increased FIL transactions.

What is Filecoin mining?

Filecoin (FIL) mining refers to the process of contributing storage capacity to the Filecoin network and receiving FIL tokens as a reward. This process is different from traditional proof-of-work mining used in cryptocurrencies like Bitcoin, as it does require powerful hardware. Instead, anyone with a computer meeting certain minimum requirements (such as an 8-core CPU, 256 GiB RAM + Swap, Nvidia GPU with at least 11GB VRAM, 2 TB NVMe disk) can participate in FIL mining. Additionally, Filecoin is designed to be resistant to specialized mining equipment (ASICs).

The FIL token has several uses within the Filecoin ecosystem. It serves as a payment for transaction fees, staking for storage providers, securing storage deals, and paying retrieval fees to providers when downloading data.

Filecoin and IPFS

Currently, accessing online content requires knowing its location, which is provided by a domain name or IP address. However, this approach has drawbacks since governments or service providers can block access to specific locations, leaving users unable to access desired content.

InterPlanetary File System (IPFS) addresses this problem by abandoning location-based addressing and instead using content-addressed data. With IPFS, each piece of content has a unique hash code that serves as a built-in security feature to ensure authenticity. Users only need to provide the hash code to retrieve the associated content from the decentralized IPFS network. While IPFS functions similarly to BitTorrent, it lacks an inherent incentive mechanism to encourage participation in storing files. Moreover, files may become unavailable when nodes go offline.

Filecoin resolves these issues by establishing a marketplace for decentralized storage, motivating nodes to partake in long-term storage of verified data. Although using Filecoin isn't necessary to access IPFS content, all Filecoin nodes double as IPFS nodes, making the two protocols complementary.

Key Features of Filecoin

Here are some of the key features of Filecoin.

  • Decentralized Storage: Filecoin allows users to store and retrieve digital information in a secure and decentralized manner. This decentralization ensures the network is robust and resistant to attacks, providing a legitimate economic rationale for files to remain available over time.

  • Storage for NFTs: Filecoin can hold the underlying digital assets for non-fungible tokens (NFTs), providing a solution for storing digital art, music, and videos that are too large to be stored directly on a blockchain.

  • Proof-of-Replication (PoRep): Filecoin uses a Proof-of-Replication consensus mechanism to ensure the network's decentralization. This mechanism needs a node in the network to prove that it has duplicated a piece of data by dividing and storing it in multiple locations.

  • Proof-of-Space-Time (PoST): The Filecoin network uses a Proof-of-Space-Time (PoST) consensus mechanism to make sure that storage providers are actually storing the data they claim, making the network more secure and reducing the risk of fraud.

  • Incentives for Miners: Miners in the Filecoin network are incentivized with FIL tokens for storing and retrieving data. Miners use their own storage and computational resources to provide storage space to the network.

  • Data Privacy: Filecoin keeps user's data safe and private on its network by using special codes and making extra copies of your data in different places. This way, the user's data won't get lost or messed up. Only users can unlock and see their data because it's like having a secret key that only users have.

  • Applications: Filecoin has multiple real-world applications, such as decentralized cloud storage, data archiving, content delivery networks, and gaming.

  • Block Rewards: Filecoin rewards block-producing miners with FIL tokens for mining a new block in the chain. Filecoin has a distinctive block reward system that sets it apart. This system is unique in how it decides who gets block rewards and the motivations it creates for earning them.

  • Building Decentralized Applications (DApps): Web3 developers can leverage Filecoin’s storage infrastructure to build decentralized applications (DApps), data-decentralized autonomous organizations (DAOs), and other solutions.

What is an IPFS gateway (like Spheron Network, Pinata, Infura,

Managing and storing data on IPFS or Filecoin can be a complex task, which is why there are services that simplify decentralized storage, known as IPFS gateways. These platforms allow users to easily upload their data, which is then stored decentralized on the IPFS network.

Some well-known solutions for IPFS storage include

  1. Spheron Network

  2. NFT.Storage

  3. Pinata

  4. Infura


To know more about these platforms, follow the blog Navigating the IPFS Landscape: An Insider's Perspective.


In summary, Filecoin is changing the way we store and share data by creating a secure and decentralized storage network. This comes when the demand for cloud computing is soaring, but centralized solutions have drawbacks, including security risks and limited control over data.

Filecoin's vision, led by its founder Juan Benet and developed by Protocol Labs, is ambitious. It aims to provide decentralized storage, enhance security, promote cross-chain interoperability, and support the broader Web3 movement. These goals align with the need for more secure and sustainable data storage solutions in today's digital landscape.

Filecoin is at the forefront of a storage revolution, bringing decentralized and secure data storage to the forefront. As it continues to develop, it has the potential to challenge the dominance of centralized cloud providers, offering a more secure and user-centric approach to data storage in our increasingly data-driven world.