Filecoin is a decentralized, peer-to-peer file storage system that leverages blockchain technology and the InterPlanetary File System (IPFS). Filecoin was first introduced in 2014, raised over $250 million in its 2017 Initial Coin Offering (ICO), and officially launched its main network in October 2020. Picture it like a massive network drive, but this network drive is built on blockchain. The distributed system stores data on computers all over the world, and instead of being bossed managed/operated by one company, it's run by a whole bunch of miners working together.

In the world of cryptocurrencies, where there are tokens, there are miners. Filecoin miners fall into two categories: storage miners (responsible for storing data) and retrieval miners (responsible for retrieving data).

Storage miners, as their name suggests, earn FIL tokens by renting out their idle storage space. When clients want to save data on the network, they create storage agreements with these miners. In turn, the miners store the data and showcase their dedication to preserving it by regularly submitting cryptographic proofs to the Filecoin blockchain. These proofs confirm that the miners have stored the data securely and without any modifications. As a reward for their services, storage miners are compensated with FIL tokens.

Retrieval miners, on the other hand, help users access data from storage miners. When a client requests data, the retrieval miner locates the stored information, delivers it to the client, and earns FIL tokens. Retrieval miners can also cache popular content to expedite access.

Filecoin uses FIL tokens as incentives for miners to consistently provide storage space and retrieval services. Miners can choose to exchange FIL tokens for cash or use them to pay for services within the Filecoin ecosystem. This mining process fosters the development of a decentralized storage network, facilitating secure and distributed data storage and retrieval.

Why should I opt for storage mining instead of joining the popular Bitcoin mining community?

The primary reason is that Bitcoin mining is becoming increasingly difficult. The total supply of Bitcoin is capped at 21 million, and the issuance rate is halved every four years. So far, there have been three halvings: in 2012, 2016, and 2020. Data indicates that as of July 5, about 19.42 million Bitcoins have been mined, which means over 92% of the total supply has been exhausted. Although it took 14 years to mine 92% of Bitcoins, the remaining unmined portion is exceptionally challenging to obtain. CoinDesk estimates that it could take nearly 120 years to mine the remaining Bitcoins, with completion expected around 2140.

Filecoin mining is currently more akin to the early days of Bitcoin mining. The total supply of Filecoin (FIL) is 2 billion, with halvings occurring every six years. Filecoin mining is still in its initial stages, with approximately 440 million FILs in circulation and a significant number of tokens awaiting miners.

Bitcoin mining requires substantial computing power to solve complex equations, rewarding those who find solutions first. Higher configurations result in increased rewards but also consume more energy. In contrast, FIL is issued based on IPFS, and its primary mining principle involves miners continually storing data on hard drives to earn FIL rewards, falling under the category of storage mining. The Filecoin mining machine is a storage server that converts effective data storage capacity into mining computing power, consuming significantly less energy.

Although the remaining mining potential of Filecoin significantly surpasses that of Bitcoin, and the mining difficulty is lower, there is a major drawback for ordinary participants: the entry barrier for Filecoin mining is quite high.

Unlike Bitcoin's POW (Proof of Work) mining model, Filecoin mining utilizes the POC (Proof of Concept) model. Bitcoin miners invest in electricity and GPUs to earn BTC rewards, and in the early stages, a personal computer was sufficient for participation. However, Filecoin mining is different. It demands miners to offer storage space and data retrieval services, which places higher requirements on miners' capital and technical expertise:

Filecoin mining necessitates a substantial initial investment in hardware and FIL collateral. For instance, 1 PiB of storage space requires a hardware investment exceeding $300,000 and a FIL stake of over $1 million. This presents a significant financial hurdle for aspiring miners.

Operating a Filecoin node is technically demanding and calls for a professional team and round-the-clock management, making it challenging for those without a technical background.

To minimize costs and operational difficulties, smaller mining operators often join mining pools and connect their servers to shared Filecoin nodes managed by larger pools. This results in mining pool centralization, which can lead to unethical practices by operators, such as delayed payments or falsified costs and rewards.

To fulfill the high collateral requirements, miners frequently need to borrow FIL from lenders, with interest rates on these loans sometimes reaching 40%. This further intensifies the financial strain of Filecoin mining.

Due to the limitations of capital costs and technical thresholds, most FIL token holders cannot participate in Filecoin mining. To enable more people to join Filecoin mining at lower costs, Filet Finance, a Filecoin staking and lending protocol, offers a viable solution.

Filet Finance: Bringing Staking and Lending on the Filecoin Virtual Machine

Filet Finance was officially launched in May 2021. In March, the platform introduced the Filecoin Virtual Machine (also known as Filet 2.0). Leveraging Filet 2.0, Filet Finance tokenizes Filecoin computing power and integrates it into the DeFi ecosystem. The platform aims to enable FIL token holders to participate in Filecoin mining with lower barriers and reduced risk while simultaneously achieving higher returns on investment.

Filet Finance has partnered with Filecoin officials and is audited by the blockchain security firm Certik. The platform utilizes decentralized smart contracts and cross-chain bridges to ensure service openness and transparency. As of July 6, Filet Finance has been operating stably for 770 days, boasting a total locked value (TVL) of 816,542 FIL and a distribution of 138,249 FIL.

The platform enables FIL holders to generate income through token staking services and also offers storage provider solutions to expand mining operations.

(1) FIL token holders: token staking

Featuring multi-chain support, FIL token holders can stake FIL on the Filet 2.0, Filecoin, or BNB chain.

The platform is compatible with various wallets, including WalletConnect, MetaMask, Topia, HiWallet, and Foxwallet.

Below are the estimated APY figures provided by the platform:

(2) Storage Provider SP: Token Lending

Filet allows storage providers to expand mining scale through FIL token lending. Currently, the platform has launched three collaboration services:

- Filet exclusive domain: Provide an independent domain name for storage providers to ensure that all assets pledged through the domain name are allocated to the corresponding miner ID.

- Filet Platform: SPs can settle and share staking pools with other providers on the Filet website.

- Filet SaaS service: Filet provides SaaS service for storage providers with specific brand needs. SP can have a custom domain name, and Filet can create an exclusive DeFi platform on demand. This cooperation model is especially suitable for large SP groups. It does not need to invest in development resources, but also allows SPs to create a pledge pool to achieve self-sufficiency.

Mining Economics of Filet Finance

As a decentralized FIL staking and lending platform, Filet enables all token holders to participate in Filecoin mining while attracting more storage providers to join and contribute to the growth of the Filecoin mining ecosystem.

The platform's revenue is derived from the mining output of storage providers. Mining rewards are distributed in two parts:

Filet deducts a service fee from the initial 25% upfront reward and transfers the remaining proceeds to the user's Filet account via a smart contract. After the staking period ends, users receive the 75% locked portion, which they can withdraw all at once.

Currently, Filet employs a 30-day sealing cycle to convert storage space into mining computing power. For example, if 12 FIL is staked to obtain 1T of computing power, this 1T computing power will be gradually released within 30 days until the full 1T computing power is realized on the 30th day.

Conclusion

Filet Finance brings a diverse array of DeFi approaches to Filecoin, effectively lowering the entry barrier for everyday users to participate in Filecoin mining while also catering to storage providers looking to grow their operations. With Filet Finance, users no longer need to invest in costly mining equipment, navigate complex technical maintenance, or rely on borrowing FIL from third parties at steep interest rates. By bridging the gap between token holders and storage providers, Filet Finance opens up new investment avenues, bolsters FIL liquidity, and drives the expansion of the Filecoin DeFi market.

According to the official roadmap, Filet also plans to establish a Filet DAO to promote transparency in Filet community governance decisions through decentralized processes and offer users more high-quality DeFi services.