Table of Contents

What is Filecoin ?

Filecoin is a decentralized storage solution build by Protocol labs. Filecoin is like  BitTorrent, a peer-to-peer file distribution system. But unlike BitTorrent, Storage providers are rewarded with FIL ie Filecoin token.

Anyone can use free space on their PCs to become a storage miner in the Filecoin ecosystem. Users buy storage space from storage providers(Storage miners) by paying FIL tokens.

Filecoin storage miners can convert earned file coin tokens to fiat on any of the available crypto exchanges.

Just like Airbnb allows anyone to rent out an extra room in their homes. Similarly, file coin allows anyone to rent out unused space on their computers.

Protocol Labs

Juan Benet founded protocol labs in 2014 and went through Y Combinator receiving 3 million in funding. Protocol labs aim to create a decentralized, efficient, and robust internet. 

They have continuously been launching new products which like IPFS, Libp2p, Multi formats, IPLD, etc which will help the internet transition from Web 2.0 to Web 3.0.

Filecoin was launched by Protocol Labs in August 2017 by raising over $257 million from accredited investors in ICO funding. 

Protocol labs want to make internet a better place. Protocol Labs launched Filecoin only because it was the next logical step towards their overall goal and not as a get-rich-quick scheme.

IPFS - Inter Planetary File System

IPFS was launched by Protocol Labs in 2015. It is a peer-to-peer decentralized system for storing and accessing information released like Torrents. 

IPFS stands for Interplanetary file system because the team believes that present internet protocols will not work in the distant future when humans travel to outer space. It will not be feasible to fetch data from a central server on earth as the data will take several minutes to travel to the planet even at the speed of light. Peer-to-peer protocol would be a better solution for such situations.

 IPFS was a successful system but why would anyone allow others to use free space on their computers. IPFS does not provide an incentive for people to provide free space on their computers to others. This was the main reason for making Filecoin which acts as the incentive layer for IPFS.

What problem does Filecoin solve ?

The web uses location-based addressing, all the web URLs resolve to a particular physical location of the server in the world. Filecoin aims to make internet location independent and migrate to file-based addressing.

In the real world, we seldom refer to content by location, you never say to your friend that you liked the new book that you picked up from thirty-first location of third section of first floor of the library, we just refer to the book by name. It does not seem to be a very effective way to refer stuff in the real world but, this is how the TCP IP protocol works.

This results in many problems like:

  • Centralization of the web: Although the web started as a decentralized project but has become vastly centralized. There are just a handful of companies that control majority of the internet. This has lead to accumulation of power and single points of failures.​
  • It is slow: Imagine I want to chat with my friend in my neighborhood, why should our chat be relayed through a server which on the other part of the world. The current model of routing all the data from a central server is inefficient in terms of bandwidth optimization and speed.
  • Centralization of internet presents a standing target which enables bad governments to censor the internet eg China, Venezuela etc.​

No privacy: You are storing all your photos, chats, and sensitive files over cloud storage providers who claim to not look at your data but how can you be sure that they will not ditch you when some government agency or their profit model forces them to ditch out your data.

  • There is limited market competition among companies, they get to decide how much you should pay to save your data.
  • Security: We trust that the storage providers that they will keep our data safe but their track record says otherwise.
  • Deny access: We think that we own our data but with till the centralized cloud storage provider deny you access to your own account and you can’t access your data
  • No 404 error codes: I know it is hard to believe but there might not be any broken links on Web 3.0 because it uses content-based addressing rather than location-based addressing.
  • Everyone has some space idle space lying around in their harddisks which can be put to use for financial rewards.
  • Reputation, not marketing: One can easily see ranking, past performance, and rating of storage provider rather than get carried away by clever marketing tricks of centralized storage space sellers.
  • No lock-in – no switching costs: Most of the centralized storage providers try to make it difficult for existing customers to migrate their data trying to retain their paying customer.
  • Open source code: Code of file coin is open to public. Anyone can see what is happening to their data how it is being encrypted, stored, and security in place. Everyone is welcome to share their contribution as well as learn from the existing code base

How does Filecoin work ?

  • A user who wants to save his data finds suitable file coin miners on the marketplace depending on his needs like location, redundancy, reputation, price, etc.
  • Once the deal is made by file coin miner and user, the details of their contract are committed to the file coin blockchain. The blockchain does not store user’s data but acts as a ledger for transactions, addresses, and agreements. 
  • User’s data is broken down into pieces, encrypted, and stored at different places so that even storage miners cannot access the data.
  • Storage miners prove that they have saved the data using proof of replication(PoRep). In addition, they also have to submit proof of space-time(PoSt) after random time intervals to prove that they are still storing the data.  In case the storage miners are unable to prove that they are storing the data they are penalized.
  • The user pays file coin miners for storing their data.
  • The user can retrieve his saved data in the future by paying retrieval miners. There are two separate marketplaces in file coin ecosystem one for storing and the other for retrieving data. Retrieval miners may be different from storage miners. You can think of them like CDN network.

Filecoin storage minning

  • Filecoin storage miners provide storage space to users in return for filecoin.
  • Miners also have to stake filecoin to become a filecoin miner. Their staked filecoin gets slashed in case they do not save the files honestly.
  • Initially, a storage miner acquires filecoin tokens that will subsequently be used for staking.
  • The storage miner also needs to meet system requirements for storing the files.
  • Then the storage miner lists himself in the filecoin marketplace where potential storage buyers can find him.
  • Storage miner commits to a suitable deal. The details get added to filecoin blockchain.
  • The user pays storage miner for storing the files. The storage miner does not receives complete payment upfront but gets a portion of payment at regular intervals till the lifetime of the deal. In addition to the contract fees the storage miner also gets mining rewards in proportion space provided by the miner compared to the overall network.
  • In case the storage miner is dishonest and does not fulfills his part of storage agreement his staked filecoin tokens get slashed.

Staking options

In case the storage miners can not afford to buy filecoin for staking upfront they also have the option to compensate by receiving fewer filecoin rewards for storing files.

Retrieval miners

  • Unlike storage miners, they do not store the data rather retrieve it from storage miners as fast as possible and get paid for it.
  • They are like DNS on Web 2.0.
  • Unlike storage miners, they do not have to stake filecoin.


For more technical details you can read Filecoin whitepaper here.


Filecoin is a live working product and is ready for prime time use. Examples of some projects using filecoin are:


Juan Benet founded protocol labs in 2014. He is passionate about the work he does and thinks really long-term.

You can learn more about him by watching his youtube videos here.


This is the list of people currently working in Protocol labs:


You can checkout filecoin community on social platforms:

Governance model & level of decentralization

Presently filecoin code is being maintained and updated by Protocol Labs, hence the project lacks decentralization in terms of governance.

Protocol Lans can be a single point of failure in terms of government regulation, making changes to protocol like increasing the max token supply, etc.

Protocol Labs plans to make the Filecoin decentralized, however, presently the network remains centralized.

Improvement proposals

Anyone can submit Filecoin improvement Proposals (FIPs) here.

The community can then discuss the FIPs. It’s a step towards decentralization of Filecoin but still the final decision to implement remains with Protocol Labs.


List of Filecoin competitors are as under:

None of the competitors has made as much progress and as popular as Filecoin.

How does it compare to centralized cloud storage providers like google and microsoft azure ?

Centralized storage providers may join Filecoin network in case they are not able to compete with Filecoin protocol in the open market. Centralized storage providers can always join Filecoin network as storage miners and earn Filecoin tokens which can always be redeemed in open market.

Future plans - Public timelines

You can checkout the timeline and updates here.

Money for future expansion ?

Filecoin ICO was done at the right time in 2017 Boom. The team raised around $ 257 million from accredited investors. Protocol labs do not seem to have any ongoing stream of revenue from Filecoin token sale. That being said, $ 257 is a huge amount and will last for quite some time. 


  • Network effects: More storage providers will attract more storage buyers and vice versa. IN case Filecoin is able to set the ball rolling it will enjoy exponential growth and build a strong moat.
  • Data growth: More people are coming online and are saving an ever-increasing amount of data.


Filecoin is a centralized protocol being maintained by a single private company. There is no guarantee that the company will not face difficulties like government regulations, lawsuits – for selling unregistered securities, internal disputes, etc.

Protocol Labs plans to decentralize the governance of Filecoin but as of now, the project remains centralized.

Also Filecoin can be used for storing illegal files like child porn etc. I could not find any mention during my research how the team plans to tackle such issues.


Filecoin did their ICO in 2017 crypto boom. Token allocation was as follows 

  • A major portion of token is reserved for filecoin miners. This is a good strategy to incentivize and kickstart the Filecoin economy till the time it becomes a self-sustaining infrastructure. As a result of storage miners earning through mining rewards, the storage cost is being subsidized for the users.
  • Rest of the tokens were allotted to Protocol Labs , Investors and Filecoin foundations which can be sold to fund Filecoin development.

Vesting schedule is as under:

  • Investors: 1 year minimum (advisor pre-sale), 6 month minimum (public sale)
  • Protocol Labs: 6 years, linear vesting
  • Foundation: 6 years, linear vesting
  • Miners: Release half-life of 6 years

Hence Coin supply graph would look like this:

Filecoin has a max supply of 2 Billion. As can be seen from the graph slope – the token release rate will increase rapidly initially and will reduce subsequently.

As of writing this article in 2021 circulating supply of Filecoin was around 75 million hence we can see that most of the tokens are yet to come into circulation. This would be a considerable supply shock – resulting in drop in price

Filecoin is a revolutionary project that has the power to change how the world organizes the data but tokenomics do not seem to be favorable for investors at this time when circulating supply is just 3.5 % of max token supply.

Once most of the tokens are in circulation, then Filecoin tokenomics can become deflationary as slashed miner stakes get burned. 

Market cap analysis

The market for global cloud storage is expected to be around 90 Billion in the year 2022. In best-case scenario if Filecoin is able to capture complete market then each of its 2 Billion tokens should be worth $ 45

This calculation and relative price of Filecoin gives an idea how expensive or cheap Filecoin is right now.


Google trends for Filecoin is as follows:

Traffic to filecoin seem to be growing:

File coin YouTube channel is growing

File coin Twitter following is growing

Other qualitative indicators to look out for are:

  • More web browser supporting websites on IPFS
  • Search engines starting to index websites hosted on Filecoin ecosystem
  • Tools and documentation
  • More developers learning Filecoin infrastructure
  • Filecoin become DAO
  • Partnerships with projects
  • Filecoin storage space growth
  • Currently most of the DeFi frontend is hosted using centralized server. One by one they will be migrating the front end to decentralized storage provider. It will be interesting to see if they will choose Filecoin or one of its competitor.

Final Verdict

Cloud storage was invented because we ran out of hard disk space – things seem to have come a full circle 😄

I expect many decentralized projects to take advantage of Filecoin infrastructure. One can Use ENS or Unstoppable domains along with Filecoin to host a website that can not be taken down. Imagine WikiLeaks having such an option when it was founded 🤩

Filecoin opens up the possibility of decentralized websites that run on their own by generating revenue selling services and buying storage space on Filecoin🤖

Filecoin project has a great team, good financial backing, and favorable tailwinds in terms of ever-increasing data storage needs. The team is definitely thinking long term:  Imagine choosing a name IPFS Inter planetary file system🚀. In addition to all the features of decentralization if Filecoin can become faster and cheaper(which is completely doable) it will be game over for centralized storage providers. 

I strongly feel that Filecoin will play a major role in future for providing decentralized storage solution. But I cannot justify investing in Filecoin because of tokenomics: Circulating supply being 3.5% of max supply.

Do further research

You can follow continue your research on Filecoin by following these links: