Update 08/11/2017: Filecoin announced on twitter that they are temporarily pausing their sale. The sale raised $186 million in confirmed transactions in the first hour. The volume of transactions apparently overwhelmed their system.
Filecoin is a project launched by Protocol Labs, the open source tech research and development lab that created the Inter-Planetary File System (IPFS) a blockchain protocol for the decentralized storage and transmission of data. IPFS is imagined as the successor to HTTP in a decentralized, distributed web. At present, it is an open-source protocol for storing unalterable data, removing duplicate files, and indexing storage locations in a distributed network. The Filecoin project tokenizes the IPFS and provides an incentive mechanism for providing distributed storage resources.
Filecoin successfully raised $52 million in its presale. The main sale, which begins August 10th 2017 is only open to accredited investors within the United States. Investors outside the United States might have more flexibility to contribute depending on local laws regulating the issuance of securities. 10 percent of the network (up to 200 million Filecoins) will be made public during the sale and pre-sale combined. An additional 70 percent of tokens will be distributed to network nodes in the form of block rewards over the next sixteen years.
Filecoin will be a decentralized storage network utilizing IPFS for data storage and retrieval and Ethereum for blockchain and smart contracting functionality. The Filecoin network will operate as a decentralized, open marketplace for storage services. The marketplace is structured in much the same way that an asset exchange is: buyers and sellers are anonymously matched based on the price they are willing to execute a deal. The Filecoin marketplace will serve two primary user groups.
- Clients: Clients are users of the network’s cloud storage services. They can be individuals, companies, developers, organizations, or blockchain apps.
- Filecoin miners: Miners contribute storage resources to the network and host client data. Filecoin miners must make a deposit in proportion the amount of storage space they contribute.
The product for sale in the Filecoin marketplace are units of spacetime, a specified quantity of data stored for a specified future amount of time. Clients are matched with miners who can meet their spacetime needs. In turn, miners compete with each other to provide clients with the most spacetime at the lowest prices. This marketplace model distinguishes Filecoin from Storj which employs a tiered subscription price model, currently a standard in the cloud storage industry.
The Filecoin marketplace is split into two sides: the storage market and the retrieval market.
The Storage Market
In the storage market, miners compete to provide clients with the best price to meet their spacetime needs. When a client submits an ask to the network, it’s added to the blockchain-hosted orderbook and matched with a set of compatible miners. The client’s data is broken into pieces, encrypted with a unique hash, replicated, and stored in multiple locations on the network. The location of data pieces are stored in an on-chain allocation table, a ledger of hashpointers which enables the network to locate and reassemble client data.
There are two primary transactions involving Filecoin that take place in the storage market.
- Client bid: The client makes an offer in Filecoin which, once it’s accepted by the miner, is placed in escrow.
- Settlement: Once the data pieces are stored, miners must prove that the data is available for retrieval in order to access escrow funds from the client’s bid. The network will send a challenge to miners asking them to prove that the location of a given data piece matches the location recorded in the allocation table. When the miner responds with a satisfactory answer, then the client’s payment is unlocked from escrow and transferred to the miner. If a miner cannot provide a satisfactory response (if the data is missing, unavailable, or corrupted) then they are penalized by losing a portion of their deposit.
The Retrieval Market
In the retrieval market, miners compete to respond to client’s data retrieval requests the fastest. The retrieval market takes place off-chain. As in the storage market, there are two primary transactions that take place.
- Client bid: The client makes a bid to request data from the miners hosting their data pieces. Miners can accept or reject the bid. The bid, once accepted is placed in escrow until the data is received.
- Settlement: Miners which accept the client bid, compete to deliver data pieces the fastest. For every unique data piece that a miner manages to deliver before any other miner can, they earn a fraction of the escrowed payment.
What is the token being sold?
The object of the token sale is Filecoin (FIL) which is used as the sole means of payment in the network marketplace. FIL are also used to reward miners for block creation in the Filecoin consensus process.
Filecoin proposes a modified proof of stake consensus process in which the probability of a miner receiving a block reward is proportional to the amount of storage resources it contributes to the network. Essentially, Filecoin will be a proof of stake blockchain where coin stake is replaced with storage resources. Storage resources are measured in the spacetime to which they are committed. Miner nodes are periodically required to submit proof of spacetime reports to the network to verify their spacetime availability. Only reports which are approved by the majority of network nodes are used to update the allocation table. The nuances of using storage capacity in a proof of stake consensus process are still being explored by the project team. Section 6.2 of the Filecoin whitepaper describes the consensus process in more detail.
Token Sale Mechanism
The uncapped Filecoin token sale is using a unique pricing mechanism. Of the 200 million coins reserved for the pre-sale and main sale, somewhere between 69 and 99 million were sold to select investors during the pre-sale, raising a total amount of USD $52 million. The remaining balance of 101-131 million coins available in the main sale have a nominal starting price of USD $1.3 but the final price will fluctuate relative to investor demand based on the amount contributed to the token sale. The price per token will increase over time in proportion to the total amount raised.
Vesting based discounts
In addition, investors will be able to choose a vesting period, which will in turn determine discount rates on any coins purchased. This combination of an optional discount and the uncertainty of demand driving the final price of individual coins renders it impossible to estimate the amount the token sale might raise. At a minimum, assuming 131 million coins sold at $1.3 with all buyers choosing a 20% discount (the highest available), Filecoin could expect to raise around $136 million, but even that estimate is uncertain, given the lack of guarantees that investor interest in 136 million coins will appear. Conversely, should demand overwhelm supply, pushing prices higher and leaving the company able to choose those investors opting for no vesting period and a 0% discount, no theoretical limit exists on the amount that might be raised.
Who is the team behind the project?
Filecoin is a project of Protocol Labs, an open source network of developers aimed at creating protocol level innovations for the decentralized web. Protocol Labs was founded in 2014 by CEO Juan Benet. Juan holds a masters degree in computer science from Stanford University and has been involved with software engineering and computer science research since 2006. Between graduating from Stanford and founding Protocol Labs, Juan founded two tech companies and advised tech startups in the StartX program.
Protocol labs has a core team of 12 developers and a vast network of contributors. IPFS alone has over 36,000 commits and 32 verified contributors on github.
Protocol Labs has received investment funding from 14 different individuals and organizations including Winklevoss Capital, Stanford University, The Digital Currency Group, Ycombinator, and Civic CEO Vinodan Lingham.
|Incorporation status||Protocol Labs Ltd.|
|Team openness||Fully transparent|
|Blockchain Developer||Juan Benet|
|Technical White Paper||Yes|
|Available Project Code||IPFS code avalaible|
|Role of token||Payment rights|
|Token supply||2 billion|
|Distributed in ICO||200 million|
|Emission rate||Block rewards metered out over 16 years|
|Consensus method||Filecoin Consensus|
|Sale period||Sale starts August 10th 2017|
|First price||$1.30 USD|
|Accepted currencies||ETH, BTC, ZEC and USD|
|Investment Round||First public offering|
|Token distribution date||Upon product launch|
|Min investment goal||None|
|Max investment cap||None|
|How are funds held||Unclear|
|Minimal Viable Product||Unclear when Filecoin Chain will launch. IPFS protocol is already live and active|