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Filecoin Review – Is It Worth Buying the Coin?
Filecoin is a decentralized data storage system designed to replace costly servers like Google and Amazon. This initiative leverages blockchain technology to ensure data security, with the Filecoin cryptocurrency (FIL) serving as a means of payment for available disk space. This review delves into the project’s framework, its appeal to investors, and potential risks.
Brief History of Filecoin
In September 2017, Filecoin managed to secure a whopping $257 million from its investors. Fast forward to October 15, 2020, the primary network was officially launched. By the time March 2021 rolled around, the value of Filecoin’s cryptocurrency, FIL, had multiplied by six, hitting an all-time high of $230. As of May 2021, it holds the 23rd spot on CoinMarketCap’s market capitalization rankings.
What Sparks Interest in Filecoin?
The Filecoin project rarely garners significant attention from investors. It was notably mentioned in September 2017 during its ICO and in March 2021 when the FIL cryptocurrency experienced a sharp surge in value. Let’s explore the factors that set Filecoin apart from other blockchain projects.
Founder: Filecoin was founded by Juan Benet, an American computer scientist who graduated from Stanford University. He gained recognition in the IT sector in 2014 when he developed the IPFS (InterPlanetary File System) protocol. IPFS is believed to be a more cost-effective and secure alternative to HTTPS, the protocol that currently powers most of the internet.
Despite its seven-year existence, the new protocol hasn’t achieved widespread adoption. The challenge in transitioning to IPFS lies in the fact that server owners have little incentive to make changes. To bridge this gap, Juan Benet founded Protocol Labs and began developing the Filecoin blockchain. Overall, IPFS and Filecoin are two components of Protocol Labs that address similar challenges.
Relevance: The volume of information on Earth is rapidly increasing. According to estimates by Seagate, in the next five years, the volume will almost quadruple, reaching 175 zettabytes by 2025. If you were to visualize this in terms of 10-terabyte hard drives, the stack would reach the moon. Sooner or later, humanity will need to find a more efficient way to store information.
Google, Amazon, and other major corporations currently offer fast and convenient access to information storage on their servers. However, the cost of these solutions includes payment for complex infrastructure: software, rent, security, and more. As the volume of information grows, so do the overhead costs and the storage price for end-users.
Technology: To address the information storage challenge, Juan Benet conceived Filecoin. Protocol Labs describes the project in their blog as a “data marketplace” where individuals can buy or sell available storage space. The process unfolds as follows:
- A client pays a fee and places a request to store their information. This is akin to posting an ad saying, “Looking for someone to save my file.”
- Miners propose their storage prices.
- The user selects miners that suit their needs.
- The file is divided into numerous fragments, which are encrypted and sent to the chosen miners.
- Information about where the fragments are located and how to assemble them is stored in the blockchain.
- To reassemble the file from its fragments, one needs the secret key, which only the file owner possesses.
- This ensures decentralized information storage. Clients directly purchase storage space for their files from miners. Miners compete based on price, reputation, and speed. The Filecoin blockchain ensures that the files are stored securely.
Filecoin is a decentralized information storage system. It’s akin to a marketplace where anyone can buy and sell storage space for data.
Regulation:Many blockchain initiatives often find themselves at odds with governmental regulatory bodies. High-profile instances include the halting of the Telegram Open Network (TON) and the prolonged legal proceedings involving XRP Labs. Yet, Filecoin managed to secure $257 million via an ICO on CoinList, a platform that adheres to the U.S. Securities and Exchange Commission (SEC) guidelines. As such, Filecoin stands out as a project that isn’t overshadowed by regulatory uncertainties.
Potential Pitfalls of Investing in Filecoin
Navigating the cryptocurrency landscape requires a discerning eye, especially when considering where to invest. For those eyeing Filecoin, it’s essential to weigh its advantages against its challenges. Two primary concerns arise: the competitive landscape and longevity.
Facing the Giants: While Filecoin has made waves in decentralized data storage, it’s not alone in the race. BitTorrent, a veteran in the file-sharing world since 2001, got a new lease on life when TRON acquired it in 2018, pushing it further into the blockchain realm.
Another noteworthy contender is Arweave, the brainchild of academics Sam Williams and William Jones. Launched in 2018, it was the preferred choice combined with IPFS, especially for securely housing NFT files, long before Filecoin entered the scene.
Endurance Over Time: The concept of Filecoin was introduced as early as 2014. Yet, with Protocol Labs’ focus on perfecting the IPFS protocol, Filecoin’s debut was postponed to October 2020. In this interim, several other data-centric blockchains sprouted.
The widespread need for decentralized data solutions might only peak in the next decade. For startups, staying afloat until then is no small feat. Filecoin faces the dual challenge of potentially depleting its resources and the pressure of outpacing its rivals.
Filecoin serves as a platform where users can buy and sell data storage space. It only caught the eye of investors in March 2021 when the FIL cryptocurrency’s price skyrocketed sixfold. It stands out as one of the few non-financial blockchain projects, and it distinguishes itself from other startups in several ways:
- Its founder is a renowned programmer and the mind behind the IPFS protocol.
- Filecoin addresses a pressing concern: the rapid expansion of data.
- With Filecoin’s technology, data storage becomes both more secure and cost-effective.
- The project is free from regulatory hurdles, having conducted its ICO in full compliance with the U.S. Securities and Exchange Commission’s regulations.
- However, considering FIL as an investment also comes with its set of risks:
- Competition is fierce, with numerous other blockchains vying for dominance in decentralized data storage.
- The issue Filecoin aims to solve might only become paramount in a few years, raising questions about the project’s long-term viability.