Filecoin and IPFS: the backbone of web3’s decentralised storage

What is IPFS? 

IPFS or the Inter Planetary File System is, as described by the team, a modular suite of protocols for organising and transferring data, designed from the ground up with the principles of content addressing and peer-to-peer networking. The peer-to-peer network is a distributed file system, to be precise, which looks to connect computing devices throughout the world within this very system. 

You could say IPFS sounds similar to the world wide web, but it is actually more similar to a single BitTorrent swarm, allowing the exchange of files within one Git repository. But it’s important to note that IPFS is a general-purpose file system using a DHT or distributed hash table to route and transfer content-addressed data, which sets it apart from protocols like BitTorrent and Storj, which have a more specific focus and data storage system respectively. 

Developed by Protocol Labs, IPFS is open-source, which means there are several implementations of IPFS. Filecoin happens to be built on IPFS from the same maker, but that might be where the similarities begin and end.

IPFS use cases

IPFS finds its primary use cases in publishing data such as files, websites, directories, and more the decentralised way. 

What is Filecoin? 

Filecoin is a peer-to-peer network to store files, and it comes with economic incentives for storage providers so as to ensure the complete security of the files stored. The native FIL coin is used for payments on the network, along with as an incentive mechanism for the service providers. Filecoin uses the proof-of-replication consensus mechanism.

Filecoin is built on the very same software powering the IPFS protocol. While Filecoin aims to be a decentralised storage marketplace, IPFS is a broad network using content addressing for permanent references to data, and simply looking to connect computers in one file system instead of counting on specific devices or cloud servers for addressing content, as mentioned above.

Here’s how Filecoin works:

• Users can pay a small fee to store their files on storage providers connected to the Filecoin network.
• The storage providers are rewarded with Filecoin cryptocurrency for their services, given they store the files with the maximised possible security 
• The price of the storage available is not determined by any single entity, and depends on the supply and demand dynamics across the entire decentralised network 

The open market Filecoin brings is definitely one of the earliest implementations of DePINs- decentralised physical infrastructure networks. A DePIN (have to link the relevant 1F blog here), for the uninitiated, is a blockchain-based platform that crowdsources industry-specific hardware to meet user requirements in a decentralised fashion as opposed to traditional marketplaces controlled by a centralised entity. Filecoin is one of the earliest examples of such protocols. Here’s how:

• Filecoin operates as a global network of independent storage service providers, forming a decentralised network spanning the world. Anyone can offer up their unused storage and get rewarded, and all assets are owned by the community instead of individual entities.
• The FIL token is used to reward storage providers, incentivising more suppliers to join the network and helping it offer competitive prices to end users.
• There are hundreds of real-world institutions (including but not limited to universities, research institutions, non-profit organisations, media entities, and of course, web3 native projects) storing their data on the Filecoin network, which means the blockchain protocol finds its real-world value- a key to all DePIN projects. 

Reward distribution in Filecoin

In just 18 months since January 2023, the Filecoin network has seen remarkable growth in safeguarding humanity's data. Total client data onboarded has quadrupled, now totalling an impressive 2 million terabytes stored on the network.

Furthermore, currently (May 16), the Filecoin cryptocurrency (FIL) is trading at around $5.83, with a total market capitalisation of approximately $3.22 billion.

Since we were just discussing rewards, let’s get into a bit of detail. Here’s how Filecoin rewards are distributed:

• All storage providers earn FIL tokens for their services, i.e. storing and retrieving data as necessary.
• The storage providers are subject to slashing (which means a cut or a complete elimination of their designated rewards) if they engage in malicious activities or if there’s a downtime/an error.
• Overall the reward system with FIL brings about a self-sustaining ecosystem where every user is cared for, and their incentives are made clear.  

Filecoin use cases

Here are some prominent use cases of Filecoin:

• Filecoin provides a potent storage solution for NFTs, metaverse assets, and blockchain games, serving as the backbone of decentralised storage in the Web3 ecosystem. This decentralised approach aligns with the nature of decentralised tokens, guaranteeing that assets are securely stored in a distributed manner. 

As a result, Filecoin and IPFS have become the go-to choice for storing a significant portion of NFT assets, highlighting their pivotal role in supporting the decentralised storage needs of Web3 applications.

• Filecoins enables the archival of web2 datasets as a cheaper substitute to cloud storage. 
• Filecoin supports a diverse array of data formats, so everything from documents to audio and video files can be saved.

Let’s see some examples for real-world uses of Filecoin:

• NFT.Storage uses Filecoin for a decentralised storage solution for its NFT contents and metadata.
• Shoah Foundation and Internet Archive use Filecoin to back up their data. 
• Web3 streaming platforms like Audius and Huddle01 use Filecoin for music streaming and video conferencing respectively.
• Web.Storage is backed by both Filecoin and IPFS.

We hope this post has been enlightening, and has answered some queries you may have had regarding decentralised storage and the differences of Filecoin and IPFS! For more updates on the world of crypto and blockchain, stay hooked to India Crypto Research