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A Comprehensive Guide to Filecoin Mining - Everything You Need to Know

A Comprehensive Guide to Filecoin Mining - Everything You Need to Know

If we were to rank the most anticipated crypto projects in 2020, Filecoin would be on the top of that list. Recently, many miners have asked OXBTC about Filecoin mining. They are all very interested in the potential opportunity and threshold of mining Filecoin.

From fundraising, mining machine investment, and application R&D to cloud hash rates, conferences, and forums, the discussions & promotions centering on Filecoin, including even the news of multiple delays, have continued to raise market expectation, which has attracted droves of investors planning to seize this new opportunity of wealth.

Not only that, even miners focusing on conventional ASIC and GPU mining have started exploring the new opportunities presented by the FIL network. How should conventional miners adjust their mindset to seize the FIL opportunity? How difficult will it be for them to switch to Filecoin mining? What should they do to avoid risks? To help miners find the answer to these questions, OXBTC has put together some well-reasoned illustrations and expert views on Filecoin mining.

Early-stage progress and the long wait: After multiple delays, where does Filecoin mining stand at the moment?


Filecoin and IPFS are frequently mentioned together, and sometimes people refer to one of them when they really mean the other. Although both are developed by Protocol Labs, IPFS and Filecoin are about two different things: the protocol layer of distributed storage (IPFS) and the incentive layer (Filecoin).

In 2014, IPFS ( InterPlanetary File System) released the whitepaper. The first version of the network was introduced in 2015, and a stable version was launched in May. Aiming to create a protocol layer for distributed storage and shared files, IPFS may replace HTTP and facilitate the arrival of Web3. In the past 5 years, IPFS has gained extensive recognition and adoption in the open-source community.

Filecoin, on the other hand, intends to build an incentive layer on this decentralized network protocol. Like IPFE, Filecoin also released the first whitepaper in 2014. Three years later, Filecoin published an updated whitepaper and created a new record of crypto fundraising on Coinlist ($275 million, including pre-sale).

Built on top of IPFS, Filecoin encourages participants to build a data market and provides incentives for people to store and retrieve data in more efficient ways. IPFS is not necessarily bound with Filecoin. Nevertheless, as the official incentive layer backed by an extremely popular protocol, Filecoin is expected to have extensive token applications.

It will take a long process for Filecoin to design the technology implementations, improve the coding, set up the parameters, and configure the hardware. Furthermore, for FIL followers, the postpones of the mainnet launch have made the wait even more miserable. From the second half of 2019 to March, May, June, August, and September of 2020, Filecoin's launch schedule has been "reset" many times. The project is now notoriously known for its delays.

Despite all this, the Filecoin network is now at **the end of the second testnet phase,** and the latest postpone is aimed to provide more time for developers to improve coding and prepare for the Testnet Incentive Program, also known as the Space Race. Normally, when a project enters the stage of testnet incentives, the mainnet will be ready to go. What this means is that the bugs have been spotted and fixed, and the mainnet is set to be launched.

According to the latest roadmap, Filecoin is carrying out the technical preparations for the launch, covering **security audit, test verification, and interoperability. Meanwhile, the network is also trying to work out the structure of the crypto economy, proof system, and the recommended mainnet hardware.

The FIL network will start a Testnet Incentives Program, nicknamed Space Race. This 3-week competition features a reward of up to 4.1 million FIL to be distributed within 6 months since the mainnet launch. Ranked by storage power, the top 100 miners globally, as well as the top 50 miners from each continent, will be eligible to earn rewards of up to 4 million FIL. In addition, the 20 largest reward winners will split a prize of 100,000 FIL based on the number of block rewards they collect.

The miannet of a project is normally introduced within a few weeks after testnet incentives. The Filecoin network is expected to be officially launched in September, thereby ending the three long years of waiting since its successful fundraising in September 2017.

From “hashing power” to “storage power”: What key aspects do you need to know about the consensus for Filecoin mining?


When hearing about FIL storage mining for the first time, many miners may think of similar projects in the past, such as "hard drive mining" or other projects of distributed storage. A simple comparison will tell us that Filecoin significantly differs from such projects:

What sets Filecoin apart from the previous PoC projects of "hard drive mining"? In the case of BHD, though miners rely on disk space to compete for block generation, the hard drives are not used for storing files. Upon receiving block rewards, miners can use the hard drives for any other purpose. In comparison, Filecoin requires the continuous storage of data.

What is the primary difference between Filecoin and previous projects of distributed storage? In the case of SC, how tokens are generated has very little to do with how they are used. Furthermore, miners mainly depend on hash rates to compete for block rewards. By contrast, Filecoin determines the likelihood of getting block rewards based on hard drive storage.

The core concept of Filecoin’s consensus and storage algorithm: Expected Consensus + Proof-of-Replication + Proof-of-Spacetime

Filecoin's Expected Consensus (EC) determines how the network selects the recipient of block rewards. The more effective storage miners have, the more likely they will be selected for block generation. Unlike the race of hashing power in the BTC network, the core resource of the Filecoin network is storage capacity.

Here, "effective storage" refers to the amount of space that has been stored. Expected Consensus allows storage miners to submit tickets through non-interactive computations. After submission of tickets, EC elects the winning miner according to the effective storage (stored data) through zero-knowledge proof. The network can generate multiple blocks at one epoch to reward miners. These blocks are then recorded in a Tipset, which forms a Tipset chain with a DAG structure.

That said, how does Filecoin publicly verify storage capacity? Filecoin has established two storage algorithms: Proof-of-Replication (PoRep) and Proof-of-Spacetime (PoSt). The former confirms that miners have successfully replicated and sealed the data in their device, while the latter verifies that miners continuously and securely store the data they pledged to store. We will illustrate the specific process of such validation in the following paragraphs through hardware configuration.

How can miners gather more “storage power” for increased probability of block generation?

Firstly, miners can build up their storage power through early-stage participation. In the Filecoin network, the competition centers on “accumulation”. Thanks to the early-stage benefits of new tokens, early players can accumulate tokens with greater ease. More importantly, these miners can start accumulating effective storage ahead of newcomers. Furthermore, miners can accept storage orders or store non-specific data to indicate storage commitments, so that the corresponding storage space can be upgraded to customer data after orders are accepted.

The second approach is to raise the growth rate of storage power, which requires 1) faster sealing and stable storage hardware; 2)storage of "useful data" (i.e. statistics with practical value, such as weather conditions, maps, technology data, etc.) that have been verified as customer data. These factors will double the miner’s storage power by accelerating its growth. Launched by Filecoin in May, Filecoin Discover is one way to obtain validated customer data. To be more specific, the official data purchased by miners is stored on the hard drive and sent to the miners offline, and miners can get more rewards by sealing the data and store more useful data.

Profit model and risk control: What existing know-how needs to be updated?


The rewards and challenges of “long-term continuous participation”

Similar to PoW mining, the primary sources of miners' rewards or revenue are also new tokens minted in the network and miner fees charged for using the network. What miners should heed is the following differences between Filecoin mining and regular PoW mining:

* There are more roles in the Filecoin network, and miners can make revenues through both data storage and retrieval;

* Filecoin mining requires deposits. The amount of the deposited tokens should be large enough to bind miners to their commitment of long-term storage under deals;

* Part of the block rewards will also be locked, and the full sum will be distributed upon completion of the storage deal.

Before FIL applications are extensively adopted and when the retrieval demands are few, most of the mining revenue will be derived from the token rewards distributed to storage miners.

Regarding block rewards, 70% of the network’s total supply of 2 billion FIL can be obtained through mining. The remaining tokens will go to the developer team (15%), investors (10%), and the foundation (5%). In terms of block rewards, 50% of the minable tokens will be mined within 6 years.

The specific parameters of block rewards have not yet been finalized. Based on the design of the current testnet alone, Filecoin block rewards consist of "basic supply + network baseline supply". Before the network reaches a certain scale of storage (baseline), the distribution of rewards will be delayed. After the network reaches the baseline, the reward will be based on a simple exponential decay model.

When it comes to risks, miners need to focus on the uncertainties that may arise during "long-term participation". In Filecoin mining, the miner’s liquidity is compromised by deposits and locked rewards. Not only that, if the miner fails to submit the PoSt required by the network in the event of disconnections or delays, the network will deduct a certain proportion of the deposited tokens as a penalty. At the same time, the "storage power" will also be lowered.

Therefore, when dealing with this phenomenal project, miners should first consider whether they can reach the FIL threshold and maintain stable performance before trying to seize the opportunity.

The mainnet launch to start an "arms race": What is the threshold for entering the race of high-performant equipment?


Considering droves of miners are planning to achieve steady performance and accelerate the growth of their storage power, Filecoin’s mainnet launch is sure to trigger an “arms race”. However, the current testnet is primarily designed for code testing, instead of a storage power race among large miners, the real arms race will officially start until the launch of Space Race, a Testnet Incentives Program.

In terms of hardware configuration, miners should account for the functions of each component and build a mining rig that meets all sorts of needs.

The main components of a FIL miner include CPU, GPU, hard drive, broadband connection, etc. According to documents relating to Filecoin's second phase testnet Lotus, the minimal hardware requirements for "testnet + small scale" includes 2TB disk 8-core CPU, 128G memory space, etc.

However, when it comes to the upcoming Space Race and the mainnet, it seems the "minimal hardware requirement" will not be sufficient due to the relevant network design and the early planning of FIL participants. Considering the market popularity and the long waiting period of Filecoin mining, miners need to think twice before building an advanced mining machine. Although the FIL race is about storage power, high-performance CPU and GPU, as well as larger memories, will give the miner an edge in the sealing process. It is noteworthy that the most time-consuming "preCommit phase 1" has become one of the key elements as miners try to improve their hardware configuration.

Built on the concept of idle space storage, Filecoin has no particular requirement for hard drives. However, to ensure the basic hardware quality and to reduce redundancy, miners will still need to make continued investments as they expand the scale of mining.

An entirely new ecosystem for Filecoin mining: Is it worthy to mine Filecoins for traditional miners?


Covering the current progress of the Filecoin network, consensus features, network rewards, and hardware requirements, the above introduction has painted a basic picture of Filecoin. By now, you probably already have an initial assessment of Filecoin mining. Whether you should invest in Filecoin mining depends on whether you are prepared for large-scale mining, or whether you have done enough homework so that you can choose a reliable partner. The bottom line is: Do not rush into anything before you obtain a full understanding of Filecoin mining.

For veteran miners in the traditional mining markets such as BTC and ETH, before exploring the bright new world of Filecoin, they should readapt to the entirely new ecosystem presented by the network.

Given that Filecoin mining differs from the real-time process of "mining, selling, and withdrawing coins" found in conventional mining (e.g. BTC), it is unlikely that miners can switch their mining machines on/off at any time based on the current token price, and the relocation of equipment in the "wet season" will also not be possible (some regions offer electricity discounts during wet seasons).

Filecoin requires that mining machines must stay connected to the network 24 hours a day. Moreover, FIL miners are not easily mutually substitutable. As such, mining farms, mining pools, mining machine manufacturers, and various participants in the FIL ecosystem should establish permanent cooperation and engage in frequent exchanges. Additionally, the stakeholders will have to conduct clustered mining through IDC rooms with improved stability and monitor all links of Filecoin mining. These requirements are completely different from conventional mining.

Regardless of which token they are after and what mining rules will apply, potential miners have to consider how to avoid “traps” and when to make the investment.

The core factors influencing Filecoin mining are cost-effective hardware + highly-customized mining system + stable O&M. Compared with conventional mining, Filecoin mining is more demanding in terms of hardware, software, and O&M," said OXBTC's CEO Wilson Guo.

In Mr. Guo’s opinion, the current market of Filecoin mining is a mess. The crazy promotions and vicious vendor competitions are daunting to traditional miners when they first enter the market. To avoid stepping into any trap, miners should update their mining know-how. "Miners who do not really understand hardware or mining will have a very hard time." As for the investment timing, he believes that miners should wait until the mainnet launch so that they will not become the victim to false expectations.

Bro Wolf, the co-founder of Wolfminer and a senior GPU miner, said, “Considering that Filecoin’s requirements for network environment and power stability are quite stringent, Filecoin mining is not easily accessible to the average miner. Plus, it’s a bit late for small teams to enter Filecoin mining since it also involves the optimization of the underlying software. However, although small miners may not be able to join the first round of Filecoin mining, they may still take part in later rounds by building up a mining rig as the mining software gets optimized. "

He also reminded miners to stay alert against products that promise guaranteed payback or quick payback. Bro Wolf also advised: **"mining in itself is a high-risk and high-yield investment."**

According to Mr. K of the CoinSummer Research Lab, miners should be reminded of the risks and revenues before going into Filecoin mining. He suggested that for the average person, an emphasis on the wording of Filecoin's "deposit mechanism" is the key to better judgment, even if they are only looking to buy "cloud hash rate" services. "When buying cloud hash rates, be careful about the liquidity cost of the deposited tokens and who will bear such costs. If the deposits are deducted as a penalty, who will shoulder the losses?" If a service provider is only promising revenues while avoiding any discussion on risks, then small participants should be on guard against the possible risks.

Though some FIL codes and parameters are yet to be finalized, and despite the traps and chaos of the mining market, in general, our crypto experts are very optimistic about the long-term prospects of the Filecoin network.

“Based on the allocation plan of FIL, 70% of the supply will be mined, which translates to incentives of 1.4 billion FIL offered to miners. Assuming the daily yield to be 400,000 tokens, then the value of the daily yield may exceed 40 million yuan ($6.184 million), which is roughly the same as that of GPU mining in the ETH network. If this hypothesis holds, then the scale of Filecoin mining may indeed be comparable with or even larger than that of GPU mining", according to the analysis by OXBTC’s CEO Wilson Guo.

We are about to see a clearer picture of Filecoin's network parameters and ecosystem layout. How stable will the network be? How will it shape the mining market? Let us wait and see.