ICO Analysis: Filecoin | Hacked: Hacking Finance
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ICO Analysis: Filecoin

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ICO Analysis: Filecoin

Introduction

This article was posted on Thursday, 01:57, UTC.

High Level Overview of Filecoin

Protocol Labs is behind IPFS, the Interplanetary Filesystem, which will likely revolutionize the way people connect to each other digitally within our lifetime, and Filecoin is a long-running project they have been working on. First envisioned as a standalone cryptocurrency in the way that Litecoin and others are standalones, its latest drive is to be an Ethereum token instead. The token is only the token after all – you can open your Ethereum wallet and generate one right now. Similar to Storj, Filecoin has had to pioneer their own way forward. Storj was formerly a Counterparty asset but eventually moved to Ethereum because much of the proceeds from the network were going to miner fees.

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The first whitepaper around Filecoin describes a protocol which relies on the Bitcoin network. It essentially verified the files in its network in concert with Bitcoin blocks. However, even then, Protocol Labs understood that this was probably not the best thing long-term. They wrote:

Instead, we observe that the Filecoin storage service can also be based on any robust distributed ledger, such as proof-of-stake-based systems [2, 5], or any Byzantine consensus mechanism [3, 6]. Since Filecoin’s goal is to make data available widely and cheaply, and to repurpose wasted computational resources to useful tasks, in a future version of Filecoin we propose replacing proof-of-work in the consensus mechanism entirely.

In the current version, for which they are raising funds through an ICO (and already raised over $50 million), they do exactly as described above:

The market runs on a blockchain with a native protocol token (also called “Filecoin”), which miners earn by providing storage to clients. Conversely, clients spend Filecoin hiring miners to store or distribute data. As with Bitcoin, Filecoin miners compete to mine blocks with sizable rewards, but Filecoin mining power is proportional to active storage, which directly provides a useful service to clients (unlike Bitcoin mining, whose usefulness is limited to maintaining blockchain consensus). This creates a powerful incentive for miners to amass as much storage as they can, and rent it out to clients. The protocol weaves these amassed resources into a self-healing storage network that anybody in the world can rely on.

From a technical angle, Filecoin is impressive. They introduce some new concepts:

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  • Proof-of-storage
  • Proof-of-replication
  • Proof-of-space-time

They also use zkSNARKS for its shortened proofs and security factors. Zero-knowledge Succinct Non-interactive ARguments of Knowledge underpin Z.cash and other interesting projects in the cryptographic world. That Filecoin is using such advanced technology so early is unsurprising: innovation is basically in their DNA, and this only occasionally leads to problems for start-up tech firms. It’s important that a firm focus on what it is intended to do instead of doing it with all the fanciest tools. There have been questions raised about why, for instance, Filecoin actually needs its own consensus mechanism. Evidence of them quickly making decisions is also out there; it seems until they released their latest whitepaper they were not sure if they would issue their own token or use Ethereum itself.

Filecoin Economy

Filecoin will have a few types of participants in its economy. Those who need storage will be the ones bringing the capital into the system, but those who provide the storage will ultimately determine the value of the token through their performance. The whitepaper describes a reputation system, the necessity of having well-connected nodes, and more things which make the system attractive for all types of parties. In a way, for people who want to provide services in the Filecoin network, their options are better than with Siacoin or Storj – even people without a lot of storage space can provide proof-of-retrieval services.

Speed is less important for the nodes that provide the most storage, but it doesn’t say anywhere that a party can’t act in both capacities.

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The cost of storage will be market-based – people have a lot more control over how much money they’re charging. With Storj, for instance, this is completely out of control of the person sharing their storage space. The price of the Storj token obviously plays a great deal into it, and this will be no different with Filecoin.

Protocol Labs

While there has been a bit of criticism that Protocol Labs is rushing the Filecoin ICO, we take a great deal of solace in their backing of this project. As earlies stated, this single firm is potentially on the cusp of revolutionizing the way humans and machines communicate around the globe, forging a more resilient and permanent web.

Founded a few years ago by coder Juan Benet, Protocol Labs has seen investment by the likes of Naval Ravikant and Ycombinator [link]. From both a technical and professional perspective, it is a big plus for this team to be working on Filecoin.

Filecoin Token Distribution

200 million Filecoin tokens (FIL) will be generated for the sale. The sale may take awhile to actually complete because everyone investing has to become an accredited investor through AngelList. People who previously made investments in a pre-sale that was run will get a discount, their price will be 75 cents per token.

Two billion tokens will be the total cap on tokens ever generated through mining and the rest. The genesis block will be distributed in the following way:

This part is a bit confusing.

There is also the matter of you not actually purchasing tokens in this token sale. If you invest, you will be purchasing a SAFT, which is an instrument that Protocol Labs came up with to legally deliver tokens at a future date. It stands for Simple Agreement for Future Tokens.

The Verdict

The market for cloud storage and cloud computing in general is over 200 billion globally, and growing year over year. Companies and people are increasingly turning to always-available, networked services instead of building in-house solutions. Protocol Labs are well-equipped to deliver a viable product to compete with Storj, Dropbox, Siacoin, and the rest.

Risk

  • Firm may be overestimating its abilities and/or underestimating the cost of actually implementing the system in question. -2
  • The hurdles to investment may make it a non-starter for many crypto-minded investors, limiting actual interest in the ICO itself. A reduction in funds raised could be problematic, but then again, Protocol also has good connections. -.5

Growth Potential

  • Can likely lure miners and customers away from Storj and Siacoin if their first product delivers on its promise to be more efficient. +4
  • Well-positioned for marketing opportunities and business partnerships. +3
  • Capable development team will respond to user demands. +1
  • Will receive interest from significant amount of miners, which means it will have a huge pool of essentially free resources available, resources it is not responsible to pay for until they have been sold. +1.5

Disposition

Numerically, we conclude that Filecoin is probably going to do alright. We give it a 7. There is a vesting schedule for investors, meaning that a long-term analysis will be in order when things have gotten further along. We believe that getting hands on FIL tokens is probably a good long-term strategy, as Protocol Labs themselves are making waves whose arc we will not see the full effect of for decades to come.

Investment Details

Protocol Labs built their own platform to run their ICO, called Coinlist. You will have to be registered on this platform to invest in the Filecoin ICO, and in order to actually make an investment you’ll need to become accredited. This is a bit of a hassle, but potentially worth the time spent. More information about that is in the document. It would seem since most people will have to do that yet, you’ve got some time, but the ICO does open tomorrow, August 10th

Disclosure: the author operates a Storj node. Storj is in the same market as Filecoin. Author’s statements may or may not be influenced by this, knowingly or not, and so any action taken on his opinions should be done with his affiliation in mind.

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Feedback or Requests?

P. H. Madore

P. H. Madore

http://phm.link

P. H. Madore lives in Arkansas with his wife and children. He has covered the cryptocurrency beat over the course of hundreds of articles for Hacked's sister site, CryptoCoinsNews, as well as some of her competitors. He is a major contributing developer to the Woodcoin project, and is currently nearing the completion of a cryptocurrency exchange in concert with the firm he primarily works for, Vermont Secure Computing Consultancy.

Comments
  • user

    AUTHOR mvppvm_07

    Posted on 2:19 pm August 10, 2017.

    Why wouldn’t Amazon swallow this up through a wholly owned non-US based subsidiary once the legwork is done? This offering seems to augment an Amazon AWS (storage) model better than SIA and STORJ, with broader vision and intention by the FILECOIN founders.
    Difficulty of mining seems to have become background here: difficulty of access and participation its trump card for “acquiring” interested investors. A focus on authentication and vetting seems strategic for acquisition (KYC built-in from the platform level rather than the exchange level)…making due diligence by someone like Amazon much easier. This token,to me, seems primed for buy-out, not mature build out, with a major player having the wherewithal to suppress token pricing until it’s ready to buy. Without this risk, I like this model but I sense this is a significant risk to the success for investors.

    • user

      AUTHOR P. H. Madore

      Posted on 4:01 pm August 10, 2017.

      I think you are correct about positioning for buyout, however it’s unclear to my limited research how this would affect token holders.

  • View Comments (2) ...
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