What is Filecoin Mining and How Does It Work?
How does Filecoin Mining Work? Yes It is a database in which the records are organized as a linked list. In a nutshell, miners earn Filecoin tokens (FIL) by providing decentralized data storage to the Filecoin network. Conversely, clients spend Filecoin tokens when they hire miners to store or distribute digital data.¹
The way most blockchain protocols work is by utilizing participants (known as “miners”) on the network that complete the necessary functions to advance the blockchain and maintain its validity. As an incentive for completing these computational services, miners are rewarded in the blockchain’s native cryptocurrency. So why are the network participants called miners?
Just as those in the California Gold Rush movement from 1848 to 1855 mined for gold using their own raw physical strength, today’s miners instead use their computer’s processing power to mine for a new kind of “digital gold”: cryptocurrencies.
Bitcoin, for example, utilizes a network of miners competing against one another using their hardware’s computational power to solve complex math equations and puzzles, giving the first to complete them the chance to receive BTC tokens as a reward.
Mining in the Filecoin network works a bit differently than Bitcoin and other cryptocurrencies. Instead of relying solely on raw computational power and offering rewards to those with powerful hardware systems, Filecoin’s network relies more on contributed storage capacity, a step away from traditional cryptocurrency mining protocols. This storage capacity is used in deals with clients who are looking to store their data.
Filecoin uses two types of miners:
Storage miners are likened to the “heart” of the network. They earn Filecoin tokens by storing data for clients and computing cryptographic proofs to verify storage across time. The higher the amount of storage each miner contributes to the Filecoin network, the higher the probability of earning block rewards and transaction fees.²
Retrieval miners are likened to the “veins” of the network. They earn Filecoin tokens by winning bids and mining fees for a particular file. The size of these rewards is dependent on the market value of each file’s size. What determines a retrieval miner’s ability to close retrieval deals on the network? Their bandwidth and bid/initial response time for deals (things like latency and proximity to clients). The maximum bandwidth of a retrieval miner will set the total quantity of deals each can make.²
So what exactly are these “deals” being made? A core function of the Filecoin network, each deal represents an agreement made between a client and a miner for a storage “contract”.
A client will decide on a specific miner to store their data with based on their available capacity, duration, and desired rate. Next, they’ll lock up the appropriate funds in a wallet to cover the cost of the deal. Once the miner has accepted the storage agreement terms, the deal will be published.
Once published, the client will prepare their data to be stored and transfer it to the miner.
After the miner has received all the data, it’s then packed into a sector, sealed, and the miner will begin submitting proofs to the blockchain. The deal has officially begun once the first confirmation has been “hit” and the client can rest easy knowing their data is indeed being stored on the network properly.²
Throughout the duration of the deal, the miner will submit ongoing proofs to the blockchain. Concurrently, the clients will pay using the funds they had locked up previously. If for any reason a proof is missing or delayed, the miner hosting the storage is penalized via a mechanism called slashing.²
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