A Complete Guide to Filecoin: Decentralized Data Storage Explained

what is filecoin decentralized data storage explained

No more cloud servers, but the future of decentralized data storage powered by blockchain technology

Filecoin has become the largest decentralized data storage marketplace and protocol. However, Filecoin is not only about storing files in a decentralized way, but more importantly also about scaling Web3 by becoming the storage layer of the internet. 

First things first, in Web3 and a time in which we value decentralization, it’s also important to think about storing files in a decentralized way. No longer relying on a centralized server park, but allowing data to be shared through a network of nodes, possibly powered by a community of passionate developers, enthusiasts and data companies. That’s where Filecoin comes into play.

What is Filecoin? 

Filecoin describes itself as a peer-to-peer network that allows users to store files. The network also offers economic incentives and cryptography to ensure the network can store files reliably for a long period of time. On Filecoin users pay to store their files, and the open market decides on the price of the data storage. 

Filecoin use cases

Filecoin allows users, developers and organizations various things to do, including asset storage of video game assets or NFT imagery. You can also imagine Filecoin to store Web2 data sets as a cheaper alternative to cloud storage. Moreover, it incentives users to share their disk space. 

How does Filecoin work? 

Filecoin uses blockchain technology to create a market for decentralized file storage. The technology behind Filecoin is complex and multi-faceted, and consists of various products and services. Filecoin also taps into IPFS, the InterPlanetary File System. IPFS identifies data based on its content identifier, instead of its location on a server. This unique feature adds security, accessibility and transparency to the Filecoin network. 

Users or companies can offer their hard disc space for rent, and therefore become storage providers. When clients utilize the storage provided, they need to pay FIL tokens. The Filecoin network matches supply and demand like a marketplace. Clients can customize their contracts according to their needs, such as duration, redundancy and storage price. In turn, minders can pick their own prices based on availability, reliability and the storage location. 

Filecoin uses unique proof-of-replication (PoRep) and proof-of-spacetime (PoSt) consensus mechanisms to store files securely and retrieve them from the network. 

Key features and advantages of Filecoin

  • Decentralized storage distributes data over a global network, reducing the risk of data loss. 
  • In addition, decentralized storage enhances privacy of both the provider and the client. 
  • The two consensus mechanisms ensure that the network integrity remains intact. 
  • Incentivized contribution from community members and third-parties. 
  • The bigger the community of contributors, the more competitive pricing becomes. 
  • A decentralized network can deal better with growth thanks to financial incentives. 
  • Storing data on Filecoin is more resistant to censorship or hacks. 

Filecoin also supports dapps

Filecoin isn’t only used to store data, but developers can also deploy decentralized applications, or dapps. The network offers various features that allow developers to build dapps, including chain data queries, oracles, cross-chain bridges and a decentralized database. Filecoin uses Filecoin Virtual Machine, which is EVM-compatible. And you can for example use cBridge by Celer Network to bridge assets over the Filecoin.

Filecoin Virtual Machine explained

Filecoin Virtual Machine, or FVM, is aimed at bringing on-chain programmability to Filecoin and also improving the efficiency of decentralized computing over data on Filecoin. It allows smart contracts to broker computational resources, incentivize compute execution, distribute workloads across available storage providers, and prove the validity of the computation’s result in order to claim rewards. 

Basically, FVM allows the Filecoin network to be a lot more than just a storage network. It introduces programmable storage primitives, cross-chain interoperability bridges, data-centric DAOs, and much more. You understand that FVM is what enable Filecoin to become a powerhouse, and for that it needs the FIL token.

Using FIL in the Filecoin ecosystem

The native currency of the Filecoin ecosystem is the FIL token, a utility token that users earn for sharing their storage through the Filecoin network. Storage providers earn FIL, and there’s a maximum supply of 2 billion FIL. 

Not all tokens are available, as Filecoin issues FIL tokens through two minting systems. Baseline minting only issues new FIL tokens when the network grows. This system will release 770 million FIL tokens if the network reaches a Yottabyte of storage capacity within 20 years. That would require the network to become 1000 times bigger than current cloud storage capacities. 

In addition, there are 330 million tokens that get released to the market on a 6 year half-life based on time. This means that almost all these tokens will hit the market over the next 30 years. An additional 300 million FIL will be held back to incentivize future types of mining tokens. 

Every storage provider needs to stake FIL tokens to open up their service to the network. The more disc space you provide, the more FIL you need to stake.

Filecoin and the future of Web3 and DePIN

The cloud storage market is growing, but it’s also ripe to be challenged by decentralized alternatives like Filecoin. Data availability and relatively low costs make Filecoin a potential alternative for clients look for data storage solutions. The rise of DePIN could open up more interest and a bigger market share for Filecoin, even though the technology does require a shift in business infrastructure as well as a fresh company mindset. 

In 2024 we’re seeing various modular chains gaining traction, and this trend could benefit Filecoin as well. For example, Fluence launched a serverless computing mainnet on top of Filecoin. This positions Filecoin as critical infrastructure for innovative ways of dealing with computing networks. 

In Web3, Filecoin already serves a purpose, and yet not every developer is aware.

Closing words

Filecoin offers ground breaking technology that overcomes the limitations from cloud storage and centralized data storage providers, but it’s seeking adoption. The rise of DePIN, the Internet-of-Things, and general concerns about data availability from legacy service providers, pave the way for Filecoin to gain market share. Demand for data storage will only increase, and Filecoin is already well positioned to take advantage of that trend in the years to come.

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