This network makes use of the power of blockchain technology to make it easier for people to store, retrieve, and host digital information, and at the same time earn crypto while at it.
When users perform any of the above activities, they pay for the services with FIL tokens, which are also used to cover the expenses required to keep the network running smoothly.
History of Filecoin
Traditional online storage providers and protocols like Amazon Drive, Microsoft One Drive, Google Drive, Dropbox, iCloud (and others) perform the primary function they were made for but most of them are centralized, expensive, or opaque.
These firms have the ability to access the private data of individuals uploaded on their storage system, they can control the information and activities with just a flip of a switch and when there is an error on the system and it fails, such data can be lost.
With the aim to offer a solution to the risks of using centralized cloud storage providers, at the same time maintaining the scalability of cloud-based data storage, Filecoin was created. The project was built on the InterPlanetary File System (IPFS) protocol by Protocol Labs, a company that was founded in 2014 by its CEO, Juan Benet.
Founded by investors like Digital Currency Group, Winklevoss Capital, Andreessen Horowitz, Naval Ravikant, Union Square Ventures, and Y Combinator, Protocol Labs produced IPFS, libp2p, IPLD, Multiformats, Testground, and Filecoin inclusive.
When Filecoin conducted its initial coin offering (ICO) in 2017, it bagged the largest fundraising ICO in history at that time with the price of each FIL at the ICO was $1.30. For the first hour of the fundraising, Protocol Labs raised $186 million of funding while the total funds gathered was $257 million.
Due to U.S. regulations, not everyone was eligible to participate in the fundraising, and it was open only to accredited investors. To ensure that the policy was adhered to, Protocol Labs sold FIL tokens to investors using SAFT (Simple Agreement for Future Tokens).
Individuals who invested in the project received their tokens on the genesis block of the Filecoin network at the time it was during unless they decided to vest their tokens and earn more.
How the Filecoin Network Works
After the ICO in 2017 Filecoin network delayed its launch for three years to ensure all regulatory compliance and finally went live in October 2020. The network aims to provide a reliable distributed infrastructure for storing and retrieving data while at the same time making the services cheaper and faster.
To access the services provided by the network, a user needs a computer that is compatible with the network. It can be something as simple as a single desktop computer or as grand as a large-scale server farm.
After successfully setting the computer system up, the user can start mining FIL as a storage provider to developers, or by making their hard-drive space accessible for use by the network and in return gets rewards.
The Filecoin network has two types of miners: storage and retrieval miners. The former ensures that miners store data accurately and reliably. After a user chooses a miner, he transfers the file to the miner to store.
To verify successful storage and receive rewards, a miner must first provide continuous proof of storage to the chain on time; failure to do so, the miner gets penalized.
In addition, retrieval miners supply the bandwidth used to retrieve the files. A storage miner can also do the work of a retrieval miner. After the user makes a payment, the retrieval miner extracts the data from the network off-chain through micropayment channels and gets his reward at the end.
What Happened to Filecoin?
Like every other cryptocurrency, the number of inflows and outflows recorded by exchanges, the economy, the media, public sentiment, etc can influence the price of Filecoin.
One incident that pushed the price of the FIL token downhill was an error that occurred when it was launched. When the token was released, it was claimed that millions of Filecoin testnet coins flooded the market via exchanges like Gate.io.
The testnet coins were released by the Filecoin team for vesting and not to be used on the mainnet. However, some exchanges allowed individuals to deposit the testnet tokens and sell them for other cryptocurrencies like BTC, USDT, and ETH. That situation was eventually abated and the Filecoin project blazed on
Is Filecoin Overvalued at This Time?
After recording an all-time high (ATH) of $236.84 on Apr 01, 2021, according to data on Coingecko, Filecoin is currently valued at $73. This price is telling since it represents an over 60% decline from its ATH.
For some context, other cryptocurrencies recovered to a closer value after hitting an all-time high earlier this year.
Bitcoin for example was at its highest on Apr 14, 2021, when it was sold for $64,804.72 but is currently selling at $47,393. Ethereum hit its ATH on May 12, 2021, at $4,356.99 and is currently at $3,138. Even smaller projects including Solana (SOL) and Cardano (ADA) have hit new highs as the market rebounded in recent weeks.
Unsurprisingly, the crash of Filecoin has also affected its position on the list of cryptocurrencies. The token was once known as part of the top ten cryptocurrencies, but now it is taking 24th place.
At its current prices, one might tend to conclude that Filecoin isn’t overvalued since it is currently trading over 60% below its all-time high. However, the fact remains that the project has failed to live up to its initial hype and could slump even further if the crypto markets turn completely bearish.
Whether or not one invests in Filecoin is solely their choice. However, doing so at this time looks like an attractive bet since any recovery will definitely yield massive gains and any losses will probably not be as substantial as buying it at the market top a few months ago.