The Economy of Filecoin is Being Engineered
In August of 2020, the Filecoin team released a detailed document entitled “Engineering Filecoin’s Economy”. This document breaks down the value proposition of the network, how it works, how data storage is handled, how its native cryptocurrency FIL works, and much more.
What makes Filecoin’s network unique is that its protocol has built an entire economy around a marketplace for storing and retrieving data. It’s been set up in such a way that clients form agreement contracts with miners who are then rewarded for providing their storage space to the network and penalized for failing to prove they are indeed storing the data previously agreed upon by the client.
The economics behind Filecoin are perhaps the most interesting piece of the project. A self-described export economy, the team uses a metaphor of an island economy producing goods and services from raw materials to aid in understanding how it works. In this analogy, each trade is executed in the island’s currency, which must first be purchased in order to complete trades. The island’s inhabitants that wish to participate in trading must have capital in their currency to engage in activities. In Filecoin’s case, this takes the form of mining hardware and collateralized tokens.
How Engineering Filecoin’s Economy Network process?
Filecoin’s economy contains three distinct markets, as well as network participants who exchange different goods or services. There’s the storage market, wherein storage miners offer their digital storage for rent that is then verified by the Filecoin Network, then there’s storage clients who offer their filecoin for their data to be stored. There’s also a retrieval market wherein clients pay retrieval miners with filecoin to provide them with a copy of their desired data. Lastly, there are token exchanges which “could enable participants to trade to put filecoin in the hands of clients, miners, and other token holders”.
According to the team, “[t]he overarching goal for the whole economy, researchers, miners, developers, clients, is to make the production as efficient as possible and make the network as attractive as it can be to the outside world”. Like with any economy, supply and demand also play a crucial role: “In the long term, the Filecoin Network must be a protocol where demand from clients is so strong that mining is still profitable with little or no block reward.” As the network adapts and grows over time, so shall its community of miners, clients, engineers, researchers, etc.
Filecoin’s network and community are steadily growing, and with an ever-increasing demand for online decentralization and growing storage requirements for the next generation of the Web, it’s more than likely only a matter of time before we see the project’s true potential the team has set out to realize come to fruition.
To learn more about the Filecoin Network and how it operates at a deeper level, feel free to read “Engineering Filecoin’s Economy” in full which can be found at the following link: Filecoin’s Economy
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