After the BTC halving, many followers of crypto mining have turned their focus to Filecoin FIL. According to the official roadmap, the project is expected to launch anywhere between July to August. After multiple delays, will Filecoin be launched as scheduled? Is Filecoin a big deal or a nightmare?
On June 18, Tuoluo Informal Meeting (an event organized by Tuoluo Caijing, a Chinese crypto news website) invited OXBTC CEO Wilson Guo and the chief editor of IPFS China Community to share their views on IPFS and FIL mining and Filecoin’s mainnet launch.
The Highly-anticipated Filecoin Features High Mining Thresholds (Home Pcs Cannot Work)
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The BTC halving this year has brought stiff competition for BTC miners, and increasingly, BTC mining has become a race of funding. As such, some miners started to consider Filecoin mining. CEO Wilson Guo thinks that during the past two years, the mainstream market only saw a few value-based cryptocurrencies, and the snowball effect is particularly strong in BTC mining. He also suggested that the clustering effect of BTC during the last two years has exhausted part of the benefits that Bitcoin mining promises.
As the huge profits of BTC mining end, miners will consider reallocating their mining assets, which is why some have shifted their focus to the lesser-known tokens. The investment advice of mining mainstream cryptocurrencies is a more prudent choice, while the lesser-known tokens come with greater risks and higher returns. Filecoin has become one of the most trending projects because its mainnet may go live this year, which has attracted more miners who plan to mine Filecoin. CEO Wilson Guo believes that the project’s final market success will depend on the introduction of its mainnet in August and whether it can build a sound mining ecosystem.
Mining is never a solo show.
There are two reasons:
First, the mining chain consists of complex links.
One day, like the BTC mining, FIL mining will also have specialized teams that excel at hardware, software, and operation & maintenance. To optimize the mining efficiency, Filecoin must work with all potential partners.
Based on the project’s underlying coding logic and algorithm, FIL mining is very demanding in terms of hardware, software, and operation and maintenance. As such, the only way to obtain steady streams of high mining revenue is to bring together a large number of mining resources, which is why regular home PCs cannot be used for FIL mining.
Secondly, Filecoin has also introduced a penalty mechanism that requires the mining machine to stay online 24 hours a day.
For home PCs, once the machine is disconnected and punished by the Filecoin network, the miner may face significant losses. Hence, the proposition that home PCs can be used for FIL mining is an outright lie.
Filecoin Mining Features a Penalty Mechanism, Compared to BTC Mining
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Filecoin mining drastically differs from BTC mining in terms of the mining principle and profit model. CEO Wilson Guo illustrated the difference between the two through the analogy of “wheat-cutting by harvesters”.
Concerning the mining principle:
The scale of BTC hash rates of a miner is determined by its proportion in the Filecoin network hash rate, whereas the Filccoin hash rate depends on the proportion of the effective storage data generated by the miner in the total network storage power. In other words, the hashing power of a BTC miner stays constant, while that of a Filecoin miner grows with time.
This is why most of the Fileoin miners have adopted a cluster architecture, which is a large-scale collaborative system similar to harvesting wheat. In this system, the computing units (CPU and GPU) function as the harvester, cutting down wheat with maximum efficiency, while the file storage units are like an empty bag that stores the wheat. Given that the final participants of block generation are bags full of wheat, the speed of wheat-cutting is crucial, and so is the starting time of loading the wheat. This is a huge difference between FIL and BTC that has been neglected by the average miner.
In respect of the profit model:
The mining revenue of Filecoin is derived from three sources:
- 1) Block reward and fees of transactions: The release of FIL tokens is fixed according to the specific algorithm (similar to BTC);
- 2) Storage fee: Users pay storage fees to miners;
- 3) Retrieval fees: Fees paid by users for accessing content. Retrieval fees are normally paid to retrieval miners.
Compared to Bitcoin, Filecoin comes with new sources of revenue: storage fees and retrieval fees, which are key to the application of the project. In other words, these fees are essential for the future commercial value of Filecoin. Core factors of FIL mining are similar to those of BTC mining, covering hardware with high cost-performance, customized mining systems, and stable operation and maintenance. The difference is that FIL mining is more demanding on all three fronts.
Rampant Filecoin Scams As a Result Of Market Bubbles
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In 2017, the popularity of the crypto market was at its peak. At the time, the fundraising record for early blockchain projects created by Filecoin attracted much attention. However, the delayed launch of the Filecoin mainnet has led to huge expectations. As such, in the past two years, the market saw plenty of scammers trying to sell IPFS and FILmining machines, including many companies planning to defraud crypto newbies.
For example, the companies that started selling specialized Filecoin mining machines before 2019 were all running scams. This is the case because, firstly, Filecoin's code was not open-source at the time, and secondly, some scammers were running a con in the name of IPFS.
What's more, according to the testnet data, more than 80% of vendors lack a tech team. Given the considerable market bubble in FIL mining, many investors may suffer significant losses. In such a scenario, a great number of investors will claim against the mining machine vendors, which will damage the development of the IPFS and Filecoin ecosystem.
However, if more irrational traditional investors, who are newcomers to the crypto/mining sector, take part in FIL mining, they may bring more funds from other sectors into the crypto community, which may expand the industry’s scope of influence.
Facing Market Excitements, Investors Should Remain Rational. In The Long Run, a Crypto Project Can Only Thrive Through a Sound Ecosystem
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Regarding the value of Filecoin, although CEO Wilson Guo and other investors gave different answers, they agreed FIL will flourish in terms of ecosystem and application.
CEO Wilson Guo suggested that concerning tech development, application, and ecosystem, Filecoin has built a blockchain-based distributed storage protocol. In the future, applications in the fields of secure data storing, permanent file storage, and data right confirmation may arise from the Filecoin ecosystem. Some investors hold the view that the current futures trading of Filecoin comes with certain risks. Plus, the differences in Filecoin prices among different exchanges are substantial, and the investors cannot make transactions of their FIL holding across exchanges. However, some investors also suggested that the Filecoin price of futures also reflects, to a certain extent, the market expectation for the future Filecoin price.
Regardless of how the market may evolve, we should remain rational in the face of market excitements.
Frequent Asked Questions on Filecoin FIL (FAQ)：
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Q: What is Filecoin?
A: Filecoin is a decentralized data storage network built by Protocol Labs that allows users to sell their excess storage on an open platform
Q: Why does Filecoin sell hard drives?
A: Filecoin sells hard drives to encourage its ecosystem to store data with value instead of massive ineffective data. In the future, Filecoin will offer more illustrations as to how content can become valuable data.
Q: Is it safer to invest in FIL mining when the Filecoin price stabilizes after the mainnet launch?
A: The risks are in proportion to the returns. When to invest depends on your understanding of FIL and how much risk you can accept.
Q: If illegal or infringing materials have been stored on IPFS, can the infringer be held accountable?
A: We can address such issues through technical measures and legal processes. The decentralized storage system containing such materials is harmless, but whoever disseminates them will be held accountable.
Q: Will Filecoin diminish after the mainnet boom like EOS? I am a little worried.
A: No, EOS diminished because it launched the mainnet before it is fully developed. Plus, the EOS mainnet was rolled out at the end of a bull market, which was bad timing since the market benefits were exhausted. Furthermore, I must stress that Filecoin is backed by a solid foundation!
Q: If the mining machine cannot be used for mining due to one reason or another after few years of operation, will it have any scrap value (i.e. a backstop mechanism)? For example, can I lease out the machine as a decentralized storage network for continued revenue?
A: Considering that hard drives, CPUs, and GPUs are all essential components with strong demands, the machine will definitely have a scrap value. It is too early to tell how that scrap value can be used. After all, mining machines (storage servers) are customized electronic products that come with limited service life.
