Privacy is an important part of our daily lives but it is increasingly in jeopardy in the modern world as our digital footprint continues to grow exponentially. Even more concerning is that our data is centralized on the servers of the companies that run digital platforms and services. But what if we had a decentralized system where data is securely stored?

What is Filecoin and how does it work?

Filecoin is one of the projects currently exploring the idea of having a decentralized file system where data can be stored in the most secure way possible without central actors. It is the incentive layer developed by Protocol Labs to support the interplanetary file system or IPFS. The latter is a different approach that facilitates decentralized hosting of web content where the content exists on multiple computers rather than the traditional centralized server approach.

FIL is the native token on the Filecoin blockchain and it is an essential part of the system because it facilitates transactions between clients storing data on the system and storage miners. The blockchain uses a Proof of Replication mechanism through which storage miners provide proof of data storage once they strike a deal with clients. Storage miners are also required to provide proof of stored data regularly and the approach is known as Proof of Spacetime. If they fail to provide the proof required, some of their staked FIL tokens are slashed.

Storage miners earn fees from storage deals, as well as block rewards based on the amount of storage they provide to the Filecoin network. Clients pay a small fee in the form of FIL to retrieval miners. The Filecoin blockchain gives preference to the retrieval miners closest to the clients to facilitate rapid data retrieval.

Filecoin development started in 2014 but its mainnet was launched in 2020 and has been growing rapidly since then. Its total storage capacity was 1.1 billion gigabytes in November 2020, just a month after securing a partnership with Livepeer, a platform that offers decentralized content streaming. Filecoin announced in December 2020 that it had provided grants to more than 25 projects developing on its blockchain.

FIL Demand and price analysis

Most of the demand for the FIL token is from miners who need it for staking purposes. There are 79.4 million FIL tokens in circulation and it is believed that more than 50 million of them have already been staked by storage miners. The token currently has a market cap of more than $5.64 billion with a price tag of $69.98 per coin.

FIL is currently heavily discounted compared to its all-time high of $238.20 which it achieved at the start of April 2021. FIL’s price spiked earlier this year partly in alignment with the crypto bull market. Greyscale’s Filecoin trust may also have contributed to the price gain.  Its performance had previously been subdued by some of the challenges that the platform has been going through, such as the supply squeeze of the FIL token which made it quite expensive for miners to offer more storage space to the network.

FIL’s past performance, especially its historic high is an indicator that it has a lot of wiggle room for growth especially as demand for storages continues to increase.  Filecoin is still undergoing vital development but it is a project whose value cannot be understated. Server outages and all the problems that arise due to centralization highlight the need for a new and reliable database for file storage. Filecoin’s decentralized approach to solving those problems is quite promising and will likely become popular in a few years.