Filecoin Boiling 2020: Web 3.0 infrastructure or a mining scam?

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The landing of real storage applications is the most important level in front of Filecoin.

Original title: “Boiling 2020: 7,000-character “Criticism” Filecoin”
Written by: White Night

2020 is a boiling year. From the 312 plunge to a new high for Bitcoin, from the DeFi frenzy to the launch of Filecoin. “A bull market can make 10 years of money”, but there are also people who contract losses that lead to tragedies. 2021 is ushered in amidst the noise. Don’t forget that the freedom of choice is ultimately in our own hands.

Filecoin stumbled in 2020 and ushered in the mainnet launch. In the case of extremely high heat, Filecoin mining machines have sold tens of billions, with a total market value of less than 7 billion, and the risk of investors losing money is not small. This article records the history of Filecoin in detail, and exclusively discloses many chaos in the industry, thinking that “as long as the real storage application of Filecoin cannot be done, it is a scam.” It is clear to listen to critics and readers.

The full text is as follows:


On October 15, 2020, Filecoin, which bounced multiple tickets, finally went live on the mainnet.

On Gate.io, FIL opened at $200 and then fell sharply until it stabilized at around $50 the next afternoon.

On the same day, there were rumors that Filecoin had a loophole. Some people discovered that the test coins of testnet nodes could be connected to the secondary market for transactions after the mainnet went online. This meant that a large number of test coins became the mainnet coins directly and passed the second The secondary market has completed cash out. The official strongly denied the clarification, saying that the direct conversion of the test coin to the mainnet coin is a long-standing plan.

Two and a half months have passed since the Filecoin mainnet went live, and the price of FIL has fallen to around US$20. Most people have long forgotten the “BUG” on the day Filecoin was launched. As for how many test coins flowed into the secondary market that day, the official did not list the FIL sub-inventions for clarification.

Although the test coin is just an episode, the disputes, interests, and chaos filled with it seem to be the epitome of Filecoin this year.

The ambition of IPFS & Filecoin

In 2014, JuanBenet (Juan), a Mexican who graduated from Stanford University, founded a company called Protocol Labs in the United States and initiated a project called “The InterPlanetary File System (abbreviated IPFS)”. IPFS translated into Chinese means Interplanetary File System.

IPFS is a point-to-point distributed network transmission protocol. The goal is to create a more open, fast and secure Internet.

In fact, the main underlying technology of IPFS is P2P, which means point-to-point transmission. If you have used BT seed downloading, you will be familiar with this technology. The download tools we used before, including eMule (eMule VeryCD), BitComet (BitComet), and now often used Thunder seed download, magnetic download, its practical is the P2P transmission protocol. IPFS is not a brand new project. It is an improved version of the P2P transmission protocol, which adds functions such as file slicing, hash deduplication, and intranet penetration.

So why is IPFS a star project? Because it has capital blessings behind it, such as Sequoia Capital, Stanford University Capital, YC Capital, Winklevoss Brothers Fund, Fenbushi, etc. The aura of capital, coupled with the strong praise of domestic mining machine manufacturers, IPFS has become a tall Web 3.0 basic protocol, and even “will replace the HTTP protocol.”

Currently, IPFS cannot replace HTTP. The underlying P2P protocol of IPFS mainly corresponds to “cold data”, that is, static data, such as videos, pictures, documents, etc.; in terms of “hot data”, such as dynamic web pages, games, AI intelligence, etc., the P2P protocol is not comparable to CDN What are the advantages, and cold data such as videos and software can easily lead to copyright disputes and content review. At the same time, because P2P technology will occupy a large number of networks, telecommunications authorities in various countries have different degrees of restrictions on P2P communication methods.

So why did the IPFS technology enter China and become widely known? Because of the encryption currency Filecoin.

Filecoin is also a project developed by the Protocol Lab, a peer-to-peer, decentralized distributed storage network. To explain in layman’s terms, Filecoin is a “blockchain (digital currency driven) + cloud storage” project.

The original idea of ​​Filecoin was to create a storage network. All free hard disks around the world can access this network and provide storage and retrieval services to customers. Customers pay FIL (Filecoin’s encrypted currency) for this service. However, due to technical factors, this idea is difficult to realize. Nowadays, the configuration and price of Filecoin mining machines are the highest among all mining projects, the difficulty of operation and maintenance and the consumption of electricity are extremely high, and the overall cost is the highest.

Judging from the current situation, Filecoin’s storage function is difficult to land. Filecoin is only suitable for storing cold data, and cannot interact and verify hot data. The network is currently not stable and BUG frequently occurs. The data stored by the miners is basically junk data generated by one click, and the main income of the miners is also from the explosion block, which is the so-called block reward.

On the other hand, Filecoin’s TPS is very fragile (system throughput is also the amount of system processing per second), network congestion has become the norm, and it is temporarily impossible to support large-scale storage application requirements of up to hundreds of thousands of transactions per second.

Flower in the wall

In July 2017, the Protocol Lab released the Filecoin white paper, and in August of the same year, it carried out a ICO, raised more than 200 million US dollars of start-up capital with 7.5% of the token share, and the payment methods were ETH, BTC, ZEC, USD and Other legal tender.

2017 is the year of the bull for blockchain cryptocurrency. This year, the highest price of Bitcoin was close to 20,000 US dollars; the price of Ethereum broke through 1,000 US dollars; also this year, many blockchain star projects including Filecoin, EOS, Tezos, Hdac, etc. have carried out 1CO, including EOS financing It continued until June of the following year and raised a total of 4 billion US dollars.

The bull market in 2018 has passed, and the best investment opportunity has been lost. The new leeks in the currency circle have become old leeks, and some people have become “investors” from leeks. Capital is ready to move, and people urgently need to find the next blockchain outlet. At this time, Filecoin began to surface.

If we go back and look at the first batch of Filecoin miners in China, we will find that most of them registered companies from May to August 2018. In other words, since that time, the concept of IPFS&Filecoin was officially introduced into China.

The main promoters of Filecoin are mining machine vendors. After Filecoin released the white paper, soon someone translated the white paper into Chinese and spread it in the circle. Mining machine vendors think this is a good opportunity. Following this project, you can sell mining machines, and you can also mine to obtain FIL coins. As a result, Filecoin was quickly packaged by mining machine vendors, and it was promoted on a large scale in terms of technology, prospects, subversiveness, wealth, etc. The promoters were called evangelists, and the evangelists and those who received the evangelism gathered together. Become a community.

Since Filecoin is a new thing, there was only one white paper that was ambiguous at the time, so when it came to promotion, evangelists would often start with IPFS and Protocol Labs. Sequoia Capital and other investment institutions became the best endorsements. Bitcoin Ether Fang has become an ideal benchmark.

Among these evangelists, there is a special group called the circle, which generally refers to teams such as “funding, MLM,” and so on. These teams often switch between projects and look for opportunities to make money. IPFS&Filecoin’s blockchain star project halo has a natural lethal power to people in this circle. As a result, the leaders of these circles have become mining machine dealers, promoting them through various channels. The Filecoin curtain is slowly opened in China.

On October 29, 2018, a seemingly very tall meeting was held at the Sheraton Zhengzhou Hotel. The name of the conference is “2018 Centaline Silicon Valley First (International) Innovation and Technology Ceremony and CAI Baifu Ranking Launch Conference”.

This conference was full of gimmicks because the organizer (Central Plains Silicon Valley Innovation and Technology Industrial Park) invited two heavy guests. They are Hurun, the founder of the “Hurun Report” and the Institute of Semiconductors of the Chinese Academy of Sciences. In fact, the participants knew that both Hu Run and the “Institute of Semiconductors of the Chinese Academy of Sciences” were only supporting actors in this meeting. The real core of this meeting was two other names that were completely unfamiliar to the outside world at the time: one named CAI. Virtual currency and a mining machine called “Snail Interstellar Server”.

The organizer advertised at the time that users can mine CAI before the launch of Filecoin, the IPFS token. After Filecoin is launched, users can dynamically switch according to the principle of maximizing revenue, forming a dual mining of CAI and Filecoin…

Today, we all know that this is a scam, and the price paid by those who enter the game is RMB 2 billion.

The interstellar snail mining machine is essentially a NAS storage machine, which costs a few hundred yuan and does not have the function of accessing Filecoin mining. However, this type of machine was sold by various mining machine vendors as Filecoin mining machines from 2018 to 2019, and the price ranged from 4000-7000 yuan. It is said that a certain manufacturer in Shenzhen alone sold more than 10,000 units.

Under the esteem of miners, IPFS will replace the HTTP protocol, and Filecoin will subvert the centralized cloud storage represented by Alibaba Cloud, Amazon Cloud, and Huawei Cloud. Filecoin’s value is benchmarked against global cloud storage and has unlimited development space.

Before the test online in December 2019, Filecoin officially stated that Filecoin miners need GPUs for mining, which means that many NAS miners previously sold are completely scrapped.

After the test network went live, mining machine vendors launched their own nodes one after another, and they were happily competing for the node ranking. Because the higher the ranking, the more able to show their strength, and it is easier to promote the mining machine.

The competition among mining machine manufacturers is not only reflected in the ranking of nodes. In order to promote their own mining machines, more and more mining machine manufacturers have joined the industry media to organize activities and hold forums. For a while, various distributed storage forums are very lively. Gradually, capital begins to enter the game. Filecoin has become a star project ecosystem that can be compared with Bitcoin and Ethereum.

Driven by the trend of distributed storage, more and more people are starting to buy Filecoin miners. Interestingly, more than 95% of Filecoin miners, investors, customers, and media are from China. In the United States and other European and American countries, there is very little attention to Filecoin.

The promotion of Filecoin in China is so successful. It is roughly estimated that the mining machines sold by Chinese mining machine manufacturers may have reached tens of billions of yuan, while the current market value of FILECOIN is less than 7 billion yuan.

Mining machine trader “Empty Glove White Wolf”

As of December 29, 2020, there are more than 900 active nodes on the Filecoin network. These nodes are approximately in the hands of less than 200 miners. Among these 200 miners, those who can output technology independently More than 5.

Filecoin mining involves many technical aspects, such as algorithms, scheduling, networks, hardware, storage systems, etc. The standards of these technologies are still very high. In fact, most of the mining machine vendors are halfway out of their lives. They did not invest technical personnel at all before the Filecoin testnet, and only rely on marketing methods to maintain the image of a tall technology company.

It wasn’t until the testnet went live and more and more customers started to pay attention to the performance of the nodes, and the mining machine business realized that the marketing set was no longer possible, and it was necessary to use real skills. However, technology needs to be accumulated, and it is definitely too late to hold back. There are also miners who do not believe in evil and do it themselves, but they find that they cannot do it.

What should I do now? Very simple, outsource.

Among the entire technical modules of Filecoin, there are two most complicated.

One is the code (algorithm) optimization at the blockchain level, including zero-knowledge proof, copy proof, and space-time proof. The official code is very rough. If you want to use it, miners need to perform deep optimization on the basis of the source code. The purpose of optimization is to improve the packaging speed of data (sectors) and to better complete the space-time proof. Get more block packaging rights. In the area of ​​zero-knowledge proof, most domestic mining machine manufacturers are unable to complete it independently. This technology is basically outsourced to several technical teams.

Another complicated technology is the storage system. Few domestic miners can independently complete large-scale storage clusters. We see that the data volume of a single node on the network is several petabytes or dozens of petabytes. It is no exaggeration to say that most of them are outsourcing and operation and maintenance services provided by storage service providers such as Alibaba Cloud, Huawei Cloud, Inspur, and Sugon. This is a very contradictory behavior. While propagating that Filecoin will replace centralized cloud storage, miners are actively cooperating with centralized cloud storage service providers because they can’t manage distributed storage systems.

As for the mining machine hardware, it is even simpler. Filecoin mining uses a general-purpose server. What does it mean? It is the assembly machine. Anyone can buy server cases, motherboards, CPUs, GPUs, memory, SSDs, and hard drives by themselves to assemble a Filecoin miner, which is no different from assembling a desktop computer by yourself. Therefore, mining machine vendors don’t need to produce mining machines by themselves, they only need to find suppliers, buy accessories, assemble and debug.

What the mining machine business needs to do is to raise an operation and maintenance team, and the computer room still needs to be maintained on site; and to design a set of currency division software. Of course, there are also mining machine vendors who even save these and outsource them all.

Mining machine vendors package themselves through marketing; through outsourcing technologies such as algorithms, storage, and operation and maintenance; and then find several hardware suppliers. In this way, a Filecoin mining machine company, or a distributed storage technology company, is formed. Of course, there are certain risks in doing so. For example, when a company in Hangzhou purchased a patent on Taobao, it was intercepted by the Wangwang chat record, causing a lot of noise and notoriety.

The profit of the mining machine business mainly comes from two parts, one is the price difference of the mining machine, and the other is the technical service fee. A general-purpose mining machine on the market is basically priced at more than 200,000 yuan, and the cost may be between 40,000 and 50,000, which will be distributed to dealers 30%-40%, and the miner’s gross profit will still be 30%-40%. In addition, mining machine vendors generally charge a technical service fee of 15%-25%, which means that 15%-20% of the mining machine’s currency production must be given to the mining machine vendors. With just these two pieces, the mining machine business can make a steady profit without losing it.

In order to maximize profits, mining machine manufacturers have also spent a lot of thought on product design. Since the price of the entire mining machine is more than 200,000 yuan, which exceeds the purchasing power of most customers, most of the mining machine vendors can buy a mining machine together by default, and distribute the FIL income according to the proportion of each person’s investment.

On the other hand, miners will also play some tricks. Take hard disk backup as an example. Erasure coding technology is commonly used in the market, which can basically do 1.5-1.3 or even higher backup, which means that 1 TB of 1.5 TB or 1.3 TB of storage space is effective space. However, some miners advertise that they use double copies or even triple copies, so that there is only 1 TB of effective space for every 2 TB of storage space. The final delivery of the mining machine is the effective space. Compared with the erasure code, the double copy and triple copy can deliver a lot of effective space. Only this piece can save a lot of hard disk costs.

There are even worse ways to use second-hand accessories or oversold mining machines. After all, customers hardly go to the computer room for on-site acceptance, as long as they see the data in the background, they will be fooled.

In addition, there are many problems in the distribution of FIL income. There are two reference values ​​for FIL revenue: actual node revenue and average network-wide revenue. Node revenue may be higher than the average revenue of the entire network, or lower than the average revenue. Since mining machine vendors have received technical service fees, they should guarantee a certain level of technology, and the distribution of FIL income should not be lower than the average income of the entire network. If the performance of a node is lower than the average value of the entire network, the distribution should be based on the average value of the entire network; if the performance of the node is better than the average value of the entire network, the distribution should be based on the actual revenue of the node.

However, in fact, the mining machine business either distributes it according to the average income of the whole network or according to the average income of the whole network. So what is the significance of the technical service fee charged by the mining machine business? What is even more incomprehensible is that most mining machine vendors do not disclose their nodes, and investors do not know which node their mining machines are at and how much actual benefits they have obtained.

What’s more, some investors cannot afford the pledged coins, so in theory their mining machines will not participate in mining. But in fact, his mining machine is still up and running. His mining machine is used by the mining machine business to encapsulate data, and the income belongs to the mining machine business; some idle mining machines will also be rented by the mining machine business to others to package the data, and these The depreciation cost of the mining machine is borne by the investor, and the mining machine business makes a huge profit.

Ignorant investors

“It is about to replace the HTTP protocol, replace centralized cloud storage, Web3.0 infrastructure, blockchain star projects, and the next one hundred times currency and one thousand times currency, quickly return to the cost and high income”-in the face of these concepts full of halo, Those investors who are educated by the market have no resistance. Many people don’t even know what IPFS and Filecoin are, and can’t wait to buy mining machines.

According to estimates by industry insiders, so far, the sales of Filecoin mining machines in mainland China have not been less than 50 billion yuan, and some people have boldly estimated that it has exceeded 70 billion yuan. But some conservatives believe that it is between 10 and 20 billion.

So have investors made money? So far, many people do not.

If it is said that Filecoin allows people to make money, protocol laboratories, followed by mining machine vendors, dealers, hardware suppliers, storage service providers, IDC computer rooms, outsourcing service providers, and industry media are ranked first. Investors (miners) are at the bottom of this ecological chain.

Miners need to pay several costs to participate in Filecoin: the cost of purchasing the mining machine, 15%-25% technical service fee, the custody fee of the mining machine, and pledge coins.

Here we will focus on pledge coins. In order to constrain miners to perform storage agreements, Filecoin has a pledge mechanism: miners need to submit a certain amount of pledge coins for the storage space provided, which is about 9-10 FIL/TB, which is about 1,800 yuan converted into RMB. The storage life cycle of Filecoin is generally 540 days. During these 540 days, if there is no problem with the stored data, the system will return the pledge currency after expiration; if there is a problem with the data, the system will deduct the corresponding proportion of the pledge currency as a penalty.

Staking coins is a necessary condition for mining. Because of the high cost and it is impossible to predict whether the currency price will plummet after 540 days, most miners will not risk staking their customers, so miners only have to use the secondary market (exchange) Purchase FIL for pledge. Therefore, many miners pay for mining machines on one side, buy pledge coins on the other side, and pay for both ends, making contributions to the cash flow and currency price stability of the Filecoin ecosystem in obscurity.

As Filecoin’s GAS fee is getting higher and higher, it is said that some mining machine vendors plan to let miners bear the GAS fee. There are also mining machine vendors who have developed FIL’s lending business. The annualized rate is lower than that in the market. It is known as helping miners, but from another perspective, it is a bit like cutting and cutting miners again.

So can the miners make money back? Judging from the current situation, on the premise that the pledge currency is paid in full, miners can recover the cost after more than 100 days. However, due to Filecoin’s lock-up mechanism, 75% of the FIL produced in these more than 100 days needs to be paid in Linear release within 180 days. The FIL produced on the 100th day will not be available until the 280th day, and the pledged coins invested will not be available until 540 days. There is a risk here. No one can predict what will happen to FIL in 180 days or 540 days? What if the currency price falls to the bottom?

What’s more, at present, for every 1 TB of data sealed, the pledge currency plus GAS can be up to 20FIL, which is about 3,500 yuan. What is this concept? The equivalent of the GAS burned every day is close to the FIL output. If the GAS fees are to be borne by investors, it will undoubtedly be a mining disaster.

Is Filecoin a scam?

In October 2020, the Filecoin mainnet went live. Can the Filecoin project land? In the final analysis, it depends on whether it can become a decentralized distributed storage network as stated in the white paper. If this project only relies on miners to generate garbage data with one click to fill the hard disk, and rely on high-energy-consuming hardware calculations to obtain cryptocurrency rewards. Then it actually has nothing to do with real storage applications. As long as Filecoin’s real storage application fails, it is a scam.

At present, Filecoin has at least several essential problems: From a technical analysis, due to the technical characteristics of Filecoin, it is limited to only suitable for cold data storage; at the same time, its fragile TPS and poor code stability make it difficult to withstand large Large-scale concurrent storage and transmission requirements.

From the perspective of economic model analysis, Filecoin storage and retrieval transactions are built on FIL, and the price of FIL fluctuates at any time and cannot be used as a price anchor for storage and payment. The Filecoin economic model mechanism also leads to the stronger the strong and the weaker the weak. The alliance of several big miners can control the entire network.

From the analysis of storage cost, Filecoin’s storage cost is higher than that of traditional cloud service providers such as Alibaba Cloud and Amazon Cloud, and it cannot guarantee the safe and stable storage of data. From the perspective of storage security, Filecoin is actually inferior to traditional multi-site disaster recovery backup, and it is more likely to cause data loss.

Of course, Filecoin may one day realize the vision in the white paper, but it has only just begun. The current price of Filecoin is maintained by miners (investors). On the one hand, miners buy mining machines, and on the other hand, they go to exchanges to purchase FIL to pledge, which provides Filecoin with the main cash flow.

At the same time, due to the oversold of Filecoin miners, there is a serious excess of computing power. More and more investors have entered the game, which has diluted the income of the block and lengthened the return cycle. Once the investor’s income expectations fall short, it is easy to have mass rights protection incidents, and there have been many cases.

Similar to a game of drumming and passing flowers, what if one day no new investors buy mining machines and no new miners buy coins?

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