Ultimate Guide to Filecoin: Breaking Down Filecoin Whitepaper & Economics (Part 1)

2020-10-02 08:06:43

What is Filecoin, How it Works? Understanding Technical & Economic Aspects of Filecoin.

Written by: Vasa (Vaibhav Saini) 

Initially Published At: https://medium.com/swlh/ultimate-guide-to-filecoin-breaking-down-filecoin-whitepaper-economics-9212541a5895


Since the inception of the decentralization revolution in 2009, a lot of promising projects have come up and changed the way we see and live in this world.


One of such projects is Protocol Labs, which has given birth to amazing projects like IPFS. If you are new to IPFS then check out the below post to catch up.


IPFS lacks an incentivization layer that can help in its mass adoption and hence its ultimate goal to replace HTTP.


Here is where filecoin comes in. Since its announcement filecoin has gained a lot of interest in the community. With the launch of the test network in December 2020, there is a lot you can explore.


There is a lot of information on its tech and economics on the web, which can be confusing as well as overwhelming. So, here we have consolidated all the information available in ONE SINGLE SOURCE.


So, buckle up and make a cup of coffee☕ first, it’s going to be a long one…


First, we will discuss the technical aspect of filecoin and then move to its economic aspect in our next post.


But before diving into the core technical stuff, let’s analyze today’s state of the file storage market. If you are only interested in the technical stuff, then jump to the next section


State of Today’s File Storage Market

Today, Amazon S3 is the juggernaut of file storage on the internet. There’re a number of reasons for this:

  • It’s Incredibly Cheap: $0.023 per GB of Storage. 0.04 cents per 10,000 read requests.

  • It’s Insanely Fast.

  • It’s reliable: Well, it has seen a few big downtimes, effectively taking down a big part of the internet offline; but it still has 99.9% uptime.

  • It’s highly scalable.

  • and it provides a great developer experience. It is easily integratable with a suite of other Amazon services for scaling(eg. CloudFront)




In a world where we have such an amazing cloud storage service, any competition will have to perform even better than this, or at least equivalent. At small scales, decentralized networks don’t work well. But if it(IPFS) gets adopted on a large scale(more adoption than BitTorrent) this may prove to be a better version of the Internet and hence will open a totally new economy.


An Overview of How Filecoin Network works:




There are 3 groups of users in Filecoin: clients, storage miners & retrieval miners.


Clients pay to store and retrieve data. They can choose from the available service providers. If they want to store the private data, they need to encrypt it before submitting it to the providers.


Storage miners store client’s data for the reward. They decide how much space they are willing to reserve for storage. After the client and storage miner agree on the deal, the miner is obliged to continuously provide proofs that he stores the data. Everyone can look at the proofs and make sure that the storage miner is reliable.


Retrieval miners provide client’s data at their request. They can get the data either from clients or storage miners. Retrieval miners and clients exchange data and coins using micropayments: the data is split into pieces and clients pay a small number of coins for each piece. Retrieval miner can also work as a storage miner.


Finally, the network represents all full nodes that validate the actions of clients and miners. These nodes count the available storage, check the storage proofs, and repair data faults.


Some terms used in the paper:


Pieces: A piece is some part of the data that a client is storing in the decentralized storage network. For example, data(maybe a cat

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