Filecoin puts a good face on the matter as miners flee the network

• Filecoin promised to become a decentralized version of Dropbox.
• Miners got rekt 24 hours after the mainnet launch.
• The team of the project believes that everything is ok.

The miners of the decentralized data storage network Filecoin started to abandon the project several days after the mainnet launch. They complain about the unjust economic model that forces them marketing FIL tokens to stay afloat. However, the team denies the rumors of the miner strike and says they are making tons of money. Let's dive into the story to see what's going on there.

Filecoin in a nutshell 

Filecoin claims to be a peer-to-peer storage network that stores "humanity's most important information". The project dates back to 2014. An American computer scientist Juan Benet created it as an incentive layer for the Interplanetary File System (IPFS), where users can earn money by offering their hard disk space for storing data and content. 

It's like a Dropbox, but instead of buying some space in a data center, you encrypt your files and store its pieces on computers scattered around the globe.

Unlike cloud storage providers like Amazon Web Services, Dropbox, or Cloud- flare, Filecoin offers the benefits of decentralization, claiming that the system protects the data from censorship and makes the web more accessible to people worldwide. 

The Filecoin's blockchain is based on proof-of-replication and proof-of-space- time mechanisms and uses the native cryptocurrency FIL as a payment means. Filecoin incentives participants to act honestly and store as much data as possible. Users can use the Filecoin network to store their personal data, apps, websites, datasets, whatever. It offers competitive prices and high security based on cryptographic storage proofs. 

In 2017, Filecoin raised $205 million during ICO and planned to launch its mainnet in the middle of 2019. However, it went live with a year-long delay, on October 15, 2020. 

Miners go on strike 24 hours after launch 

Despite the successful and much anticipated mainnet launch, Filecoin miners seem to be deeply disappointed with how it all came about. According to the Chinese blockchain-focused media outlet 8btc, five of the largest mining pools dropped from the network.

Meanwhile, one of the largest miners in the Filecoin ecosystem, Zhihu Cloud, slashed the number of operating mining farms from 8,000 to 276. They cited the unjust economic model of the project that required lots of FIL coins to start. The community is discussing a hard fork. 
 

 

Filecoin miners are supposed to earn rewards by providing their storage capacities. Virtually anyone can join the network and monetize their open hard drive space. However, you are qualified as "anyone" if you have a powerful computer with enough computational resources to seal a sector and generating regular Proof of Spacetime for every sealed sector. 

These are the basic hardware requirements for Filecoin miners: CPU: 8+ core with support for Intel SHA Extensions 

• RAM: 128 GiB at the very least, complemented with 256 GiB of swap on a high-speed NVMe SSD storage medium 
• GPU: capable of significantly speeding up SNARK computations. 
• 3 
• Disk: 1TiB NVMe-based disk space for cache storage; additional hard drives for the final storage of "sealed sectors", the Lotus chain, etc. 

Even the minimal configuration will cost you a pretty penny. A Twitter user, aka Nico Deva, calculated that one miner, which includes three servers (2 for computations and one for storing), will cost about $40,000. 

The cost of Filecoin miner configuration

Source: Twitter

Miners are limited by their computation resources and also have to stake FIL tokens as collateral for the space they provide. The idea behind the collateral is to ensure that users' data is not lost as miners lose their coins if they do not observe their space commitment. However, as Nico Deva notes, it is a chicken and egg situation, as nobody has FIL to start mining and earn FIL. 

Moreover, miners cannot reach their full capacity as they are limited by their computation resources. In the example above, the guy with two servers will have to wait a year before they can use all their storage capacity and mine with actual full space. 

The whole scheme is a bit complicated, but at the end of the day, miners are forced to buy FILs on the market to be able to increase the collateral before they reach their full capacity. Moreover, the coins they earn are vested by six months, meaning they have to wait for a half a year before they get any remuneration. 

It boils down to that miners invested no-joke amount of money in anticipation of the mainnet launch. But now they cannot increase their capacity as they have to buy FILs. No wonder miners are disappointed, to say the least. 

Commenting on the situation, ST Cloud CEO Chuhang Lai said: 

All the miners have been off since the mainnet went live, this is not some sort of protest, but we have to shut them down because we really don't have the tokens as collateral to mine. 

The Filecoin mining stats confirm that the players drop from the network or at least stop increasing their capacity. The daily power of growth is not increasing or even decreasing for many top miners. 

Top Filecoin miners statistics

Source: Filfox.info

To add insult to the injury, someone sent 1.5 million FILs to Huobi and OKEx right after the mainnet launch. The event caused some members to suspect an exit scam. Ironically, it was Justin Sun, TRON's founder, who alarmed the community.  The sell-off led to a massive FIL's price decrease. The coin dropped from over $100 to $32 by press time. 

FIL/USD 1-hour chart 

"Slow down... or pause until  you can afford to grow steadily" 

Meanwhile, Filecoin guys say that everything is awesome. No one has left the network, and miners are happy with the money they make. Juan Benet, the creator of the Filecoin, denied the crises and ensured the community that miners were following the procedure and earning lots of money. 

Also, the company launched new loan programs to help miners who need financial support. Notably, the loans should be used only for collateral purposes and subject to daily limits. 

Protocol Labs is working with a partner (TBA) to provide small loans to miners from now until broader loan markets take off. More on this during the week, Benet tweeted. 

The team also tried to address the concerns by allowing miners to withdraw 25% of token rewards immediately after a block is successfully created. 

Despite the talks about the hard fork, the team does not take the issues seriously. They consider that the mainnet launch was s success and went smoothly and according to the plan. 

"Overall, we're very happy with what we consider to be a very successful launch. The transition to mainnet has been super smooth, and the software works very well—which is by far the most important thing. Of course, we've seen some craziness, but no more than we anticipated, given all the excitement around Filecoin, and things are leveling out.," Ian Darrow, Head of Operations at Filecoin, told in the interview with Decrypt. 

Those who are not completely satisfied with their growth rates or have no money to cover the collateral needs should slow down or wait until they can afford the mining. 

"Slow down growth rate to match their token flow, or pause until they can afford to grow steadily." 

That's the advice the Filecoin founder gave to the miners who invested $40k+ in the equipment and waited for at least three years for the mainnet launch.