The main question to be answered in this article is: What is Filecoin? We will also examine how Filecoin works, its key features, and how it stands apart from conventional cloud storage solutions.

To learn all about this innovative platform, keep reading!

Learn in This Article

  • Filecoin definition
  • How it works
  • Filecoin features
  • Filecoin staking
  • Is it a good investment

What Is Filecoin?

Filecoin is a decentralized P2P network that enables users to store and share their data on the internet. The Filecoin whitepaper was published in 2017 by Protocol Labs, while its mainnet launched in 2020.

As an open-source network, Filecoin uses the InterPlanetary File System (IPFS), whose task is to replace the HTTP protocol. IPFS locates data based on its content, not location. This makes the Filecoin network more secure and accessible.

The network is managed by the Filecoin Foundation, which oversees its development and privacy rights. One of the main objectives of Filecoin is to enable users to keep control over their data.

The Filecoin network can be used by both individuals and businesses since it’s free. Moreover, Filecoin enables Web 3.0 developers to create dApps and DAOs.

Filecoin has a native utility token called FIL that you can get as a reward for providing storage space. Likewise, it can be used as a collateral. Keep in mind that FIL is not an ERC-20 token since it runs on its consensus.

How Does Filecoin Work?

As mentioned above, Filecoin enables the storage of data on decentralized networks. To do this, it uses miners — storage providers. The task of Filecoin miners is to provide storage space to users who pay them in FIL.

Users can adjust their contracts based on different factors, such as storage price, duration, and redundancy. Miners, on the other hand, set their prices based on location, reliability, and availability.

Filecoin uses two PoW models — proof-of-replication (PoRep) and proof-of-spacetime (PoSt). The task of the first consensus mechanism is to ensure that the miner has stored the correct amount of data that it claims to have. On the other hand, the task of the second consensus mechanism is to prove that the miner has saved the data within the agreed period.

Filecoin’s storage model is made of providers, deals, and sectors. There are two types of providers — storage and retrieval. The role of the former is to store data on the network and provide proof of storage verification, while the role of the latter is to enable users to quickly access their data.

Storage and retrieval providers will also create agreements with users off-chain to specify details such as price, data size, and deal duration. After both parties agree on the terms, the deals will be published on-chain.

Sectors are places where storage providers store data from users. The sector size usually varies from 32 GB to 64 GB, but it can also be extended.

Filecoin Features

The main feature of the Filecoin blockchain is its decentralization. This means that it’s not governed by a central authority and is, therefore, resistant to censorship. Moreover, anyone can use it since it’s free. Filecoin also allows users to check their data history to confirm that it has been stored correctly.

Another important feature of this network is its protocol, which allows providers to access a community of users without the need to create a storage API.

Likewise, Filecoin allows users to store underlying digital assets for NTFs, given that digital art is too large to be stored on the blockchain. This is why the network is used by OpenSea, one of the largest NTF markets.

As mentioned before, Filecoin has an open-source code, meaning that all data on the network will be public and downloadable.

And finally, Filecoin allows users to customize their contracts based on cost, duration, and redundancy. They will also be able to store their data on any storage provider that implements the Filecoin protocol.

Filecoin Staking — How Does It Work?

Filecoin can be staked in two ways:

  • You can stake FIL on centralized exchanges that offer crypto-staking services, such as Binance
  • You can become a storage provider

If you decide to become a storage provider — a miner — you’ll first have to buy FIL from a crypto exchange. Then, you’ll have to set up a Filecoin node. To do this, you’ll need access to macOS or Linux on a device with 128 GB of RAM.

The next step involves placing a certain amount as collateral, which will depend on the offered storage capacity.

After completing all the steps, you’ll be able to start offering retrieval and storage services to network users, for which you’ll be rewarded with FIL tokens.

Is Filecoin a Good Investment?

Filecoin’s main goal is to enable fast, safe, and cheap data storage on its blockchain. As such, this project could become very attractive to large companies. Some of the most notable Filecoin clients are OpenSea, Microsoft ION, Shoah project Starling Labs, and Internet Archive.

Moreover, after the launch of Web 3.0, many other companies could start implementing the Filecoin protocol, which would increase its value.

When it comes to Filecoin supply, there are currently 496,833,525 tokens in circulation, while its maximum supply is capped at two billion FIL. This means that the token issuance rate will decrease proportionally with the development of the network. This may lead to higher demand.

At the time of writing, the price of the FIL token stands at $5.96, while its ATH amounted to $237.62 in April 2021.

Based on our analysis, FIL could be a good long-term investment, especially once its developers start implementing smart contracts. This would make the network more transparent and secure.

Another reason to consider investing in FIL is its reputation. Namely, FIL is one of the first tokens that the US SEC qualifies as a security, which could attract large investors. In addition to that, Filecoin’s developers, Protocol Labs, are known for creating reliable open-source protocols.


Knowing what Filecoin is takes you one step closer to deciding whether it’s worth the investment.

Filecoin has its blockchain and token that storage providers receive for providing storage space. Filecoin also enables the creation of dApps and DAOs, and it allows its users to check their data history.

Another thing that makes Filecoin unique is its ability to store underlying digital assets for NTFs. This is why it’s used by prominent NTF marketplaces, like OpenSea.

With that in mind, Filecoin could be a good long-term investment, whose value could increase significantly after the launch of Web 3.0.


What is the goal of Filecoin?

What companies use Filecoin?

Is Filecoin ERC-20?