Filecoin: Decentralizing Cloud Storage for Web 3.0

Filecoin for Cloud Storage is the answer to the risks inherent in centralized data storage and cloud giants.

The answer to problems with centralized storage

Filecoin is the economic incentive layer of a peer-to-peer decentralized network for data exchange and storage, the Interplanetary File System (IPFS).

IPFS and Filecoin are created by Protocol Labs, and are fueled by CEO Juan Benet’s vision of creating a decentralized and reliable framework for data storage. The Filecoin blockchain is built on the basis of IPFS, and has its own cryptocurrency FIL, which acts as a payment protocol that connects buyers and sellers of storage in the IPFS ecosystem. In reference to the Y Combinator graduate, an employee of Protocol Labs, it is often referred to as “Airbnb for Cloud storage”.

Filecoin attracted a lot of media attention in 2017 after raising $ 206 million, as part of its initial coin offering (ICO), which at the time was one of the largest ever, plus an additional $ 52 million in venture capital funding. Three years later, in October 2020, the main network was launched. In less than a month, Filecoin’s total network storage capacity exceeded 1 EiB (exbibyte), or more than 1.1 million TB (terabyte).

For comparison, one exbyte is enough to store 290 million 1080p movies.  Yes, that’s 2900000000 Marvel movies in Full HD. So, 1 EiB can hold 4,500 copies of Wikipedia, 685,000 years of video calls, and 19 copies of the entire non-commercial Internet archive of the digital library.

Currently, people generate about 1.145 trillion MB (megabytes) of data per day. As society relies more and more on the Internet for work, study, communication, and shopping in response to the pandemic, it is expected that data storage and computing needs will increase with the advent of 5G and other technologies such as the Internet of Things (IoT).

Even before 5G had a massive commercial impact, the Covid-19 pandemic in 2020 played a crucial role in the surge in global cloud consumption. According to technology market analyst Canalys, the global cloud computing market grew by 33% in the third quarter of 2020, which is $ 9 billion more than in the previous year. Amazon Web Services (AWS) currently dominates 32% of the global cloud storage market, while Microsoft Azure ranks second with 19% of the market.

The risks of storing such huge amounts of data on centralized servers have become apparent in recent years. For example, in 2012, a major cloud storage provider, Dropbox, disclosed a data leak that compromised more than 68 million user accounts. The stolen passwords and information were put up for sale on the Dark Web in exchange for payment in Bitcoin.

In 2017, the Turkish government blocked its people’s access to Wikipedia under Turkish Law No. 5651, which allowed the country to prohibit access to websites that were considered a “threat to national security”. Turkish citizens attempting to access an online encyclopedia containing information critical of the Turkish government have been met with an error code of 404. In response, the hacktivists saved a version of the Turkish Wikipedia and shared it on the IPFS network, which the Erdogan administration could not block due to the decentralized nature of IPFS. Turkey lifted the ban on the use of Wikipedia in January 2020.

How Filecoin Works

As a peer-to-peer network, Filecoin connects two major players: users and storage providers.

Unlike the traditional blockchain protocol, miners on the Filecoin network do not receive a FIL reward for verifying the proof of work of the block. Instead, miners on the Filecoin network have computers with an Internet connection and available storage for customers to rent. Storage providers are miners, and are rewarded with FIL for their contribution to the network storage.

On the other hand, users are customers or individuals in the marketplace who want to rent storage from storage providers that have implemented the Filecoin protocol.

Storing valuable information on someone else’s computer may seem wild and inefficient at first glance. To ensure that data stored by anyone on the Filecoin network cannot be accessed by hackers, Filecoin splits the data before saving it. Thus, if an attacker tries to access a file stored on the Filecoin network, they will only see meaningless pieces of data.

This diagram clearly shows how the Filecoin network works.

The agreement between the user and the storage provider is called a transaction. There are two well-known types of transactions in the Filecoin network: storage and retrieval transactions. As the names suggest, a storage transaction occurs when a miner has received data from a client for storage, and extraction transactions occur when miners withdraw data from the network.

When a storage agreement is agreed, miners must constantly prove that they are acting in good faith by storing customer data. Filecoin consensus mechanisms play a crucial role in removing third parties. To prove to the network that the data storage is in accordance with the initiated transaction between the client and the miner, Filecoin verifies the storage data using “replication proof” (PoRep) and “space-time proof” (PoST).

In PoRep, the storage provider generates a unique encoding of the data, which should run slowly. After encoding, storage providers must prove that a unique data encoding exists in the storage. Since the encoding sequence is designed to be performed incrementally, a quick response from the storage provider means that the data has been encoded and the client data is securely stored. However, if the storage provider cannot respond quickly, it will mean that the storage provider has created a new encoding and is acting in bad faith.

After a transaction is made between the user and the storage provider, the miners prove that the data is permanently stored (sealed) in the storage using PoSt. Random miners are chosen to prove that random data still exists in the storage.

IPFS and Filecoin

As mentioned earlier, IPFS allows users to share and store verifiable data through a distributed file system on a peer-to-peer network.

The current structure of the Internet is based on location-based addressing. In order for users to access the content, they must specify the content location or domain name. The problem presented in the current model is that because the content is stored on centralized servers, users may lose access to the content if the address is blocked by the government or the server.

To solve this problem, IPFS rejects location-based addressing and accepts content-based addressing. Instead of specifying the address of the content, users specify which content they want to access. In IPFS, the content is converted to unique hash codes, which act as a built-in security mechanism for verifying the content. When a user provides a hash code of the content, they can then download the content from what is available on the IPFS decentralized network.

Up to this point, IPFS could be compared to the operation of a BitTorrent peer-to-peer file sharing network. Like BitTorrent, the IPFS network does not have a built-in motivation mechanism. Files on the IPFS network can also become inaccessible when nodes are disconnected.

Filecoin solves this problem by encouraging nodes to participate in the long-term storage of verifiable information. This is achieved by creating a marketplace for decentralized storage. Although users do not need to use Filecoin to access content stored on the IPFS network, all Filecoin nodes are IPFS nodes. The two protocols are independent but they complement each other.

Applications and competition

The launch of the Filecoin core network also includes many large-scale applications that were once Web 2.0-centric, such as video streaming and social media, to now become fully native Web 3.0 applications.

An example of a potential Filecoin application is Starling, which will add a layer of verification using cryptographic methods to the Filecoin decentralized storage network. Starling, which is still under development and not yet officially launched, will use the Filecoin network to store information on the network for long-term storage. Filecoin’s ability to maintain consistency and verify the appropriate data store can also allow other important information to be removed or censored from the internet. Starling’s ability to preserve data and guarantee its provenance could potentially counteract the growing trend of deepfakes, which extends to both video and audio content.

Another Filecoin application is Livepeer, a decentralized video storage and live broadcast protocol built on the Ethereum blockchain. Filecoin provides storage and delivery of video content, and allows content creators to access low-cost storage that is independent of revenue from advertisers, as video storage and streaming services such as YouTube and Twitch do.

Although Filecoin is a popular and revolutionary protocol that provides data storage and memory for the Web 3.0 ecosystem, it is not the only one in the decentralized cloud storage industry. Its competitors are Sia, Storj, and Swarm, which also use blockchain technology to create markets for decentralized data storage.