Decentralized storage network Filecoin’s mainnet launch last week was touted as an alternative to large centralized competitors like Google Cloud and Amazon Web Services, but five of the project’s largest miners have quit in protest, potentially throwing a wrench into Filecoin’s ambitions.
Miners are complaining over Filecoin’s economic model, which requires a hefty amount of collateral to begin mining, according to a report by 8btc.com.
“The mainnet is online and all the miners are stopped there,” said Lai Chuhang, a prominent figure in the Chinese IPFS community and the chairman of Space Cloud Technology, according to 8btc.
“It’s really not a so-called ‘demonstration,’” Lai said. ”It’s helpless! It’s because everyone has no coins.”
Filecoin is a peer-to-peer network designed to store and share data through the use of Filecoin tokens (FIL), and is built on top of the InterPlanetary File System (IPFS) distributed file system. Both projects are developed by open-source research and development company Protocol Labs.
Strike or no strike?
Despite reports of a miners’ strike, IPFS project lead and Filecoin network lead Molly Mackinlay told Forkast.News that they haven’t seen any large miners turn off their operations.
“I wouldn’t characterize this as a strike,” Mackinlay said. “In something like a strike, miners would be slashed and penalized for going offline and breaking their promises around storage reliability — a key to the network’s utility.”
According to Mackinlay, miners were proactively advised ahead of Filecoin’s mainnet launch to focus less on fast capacity growth in the early days of the network, and instead to focus on storage reliability and usefulness. This means Filecoin expected a slow-down in data onboarding.
“Miners are still actively proving their storage capacity — and we’ve seen an additional 2 pebibytes added in just the past 3 hours,” Mackinlay said, at the time of writing. (One pebibyte is roughly equal to 1.1 million gigabytes.) “So all claims around a strike so far appear to either be political maneuvering or FUD (fear, uncertainty and doubt messages) from speculators.”
However, one of Filecoin’s top miners that had over 8,000 IPFS mining machines, Zhihu Cloud, left only 276 of its miners in operation on October 17. Other mining companies are choosing not to increase their mining power due to complaints of the project’s economic model, according to 8btc.com.
Filecoin rewards successful miners with tokens each day for 180 days, but the miners must also provide enough FIL as collateral to ensure the commitment is honored and protect data from being lost.
“But that’s a chicken and egg [problem], as nobody has $FIL to start mining and get $FIL,” said Twitter user @NicoDeva.
@filecoin has transitioned from calibration net to mainnet at block 148,888 after a 200M ICO and 3 years of dev.— Nico Deva (@NicoDeva_) October 18, 2020
Within 24h of launch a majority of miners are already on strike and talk about a failed wedding and forks.
“Here in China people are disgusted, 恶心 (nausea), this is the word repeated. A napkin calculation shows you early on that your mining system that requires $20k hardware also forces you to *buy* more coins. In a country where ponzinomics is an art, the 2017 poster boy just [blew] it,” Tweeted Nico Deva_, referring to Filecoin’s 2017 initial coin offering, which raised over US$200 million in token sales.
According to Mackinlay, committing up-front capital as stake that can be slashed if users participate in the network manipulation is a common economic model that helps align network participants with long-term success and value creation.
Space Race 1 and 2, which Forkast.News previously covered in partnership with Filecoin, were “expressly designed to help onboard miners and help bootstrap the network,” Mackinlay added.
Filecoin has sought to address miners’ concerns by accepting an inclusion into their next upgrade that would allow 25% of token rewards to be immediately available for withdrawal once a miner successfully creates a block on the blockchain.
The majority of mining rewards will still remain vested over 180 days as collateral to incentivize long-term mining activity and to guarantee storage reliability, according to the project’s update on Github.
Filecoin price volatility
FIL’s token price fluctuations since its launch last week was also a cause for concern for miners who might opt to buy the token from exchanges.
Opening trading on Thursday at US$26, Filecoin token prices peaked at US$63 before falling down to around US$31 at time of writing. At its peak, Filecoin’s market capitalization reached US$952 million, but is now at US$539 million. Market capitalization shows how much a company or cryptocurrency asset is worth as determined by its market.
The FIL listing was supported by a number of cryptocurrency exchanges such as Kraken, Huobi and Gemini.
Eric Turner, director of research at online database and crypto research firm Messari, told CoinDesk that the volatile trading may imply the market is “pricing in future inflation” for Filecoin’s supply.
Mackinlay told Forkast.News that the core Filecoin community is focused on the long-term value creation of the network instead of daily price fluctuations.
“The cryptoeconomic design of Filecoin rewards long-term actors, so the network participants that will be most rewarded are the ones that take a long-term orientation and focus on building, mining and storing on the network,” she said.
Multicoin Capital Managing Partner Kyle Samani said on Twitter that the Filecoin trading was “one of the most memorable market dislocations in the history of crypto.”
Exit scam allegations
FIL’s launch has also stirred up some controversy as blockchain platform TRON’s founder Justin Sun commented on the token sales on Twitter, alleging that tokens supposedly locked up for developers are being sold without community consent.
“Everyone in @filecoin including miners, investors and founders, should follow the linear vestings rules here: Breaking the vesting rules has serious legal and compliance consequences. Do you really think dumping like this is ok?” Sun tweeted.
Protocol Labs (PL) founder and CEO Juan Benet told Forkast.News that Sun’s accusations are false. “Neither PL or any team members sold any FIL as Justin Sun alleges, nor were there trades of the magnitude he claims.”
800,000 FIL tokens were reportedly transferred to crypto exchanges such as Huobi and others soon after Filecoin’s mainnet launch.
According to Benet, those transactions were part of a market stabilization program that has become an industry standard for the benefit of the community.
“These programs engage firms to provide liquidity and stability to the market in the early days after launch, when prices are at risk of being volatile,” Benet said. “In the first hours of a market, having liquidity available helps to prevent price manipulation, ensure small purchases don’t cause outsized price movements, and helps prices converge between exchanges which prevents speculative trading arbitrage opportunities.”
Sun is a controversial figure in the crypto community, most recently attracting public scrutiny following reports that a subsidiary of his Chinese company was awarded a US$2 million Paycheck Protection Program loan aimed at helping American businesses during the peak of the Covid-19 pandemic.
“His lies here are just another example of his attacks and jealousy of our success,” Benet said.
Filecoin is launching a “Filecoin Liftoff” event today with a series of panels including ConsenSys CEO and founder Joe Lubin to chart the network’s future.