TokenInsight Global Token Data & Rating Agency
Filecoin Rating Report Overview Rating BB As the project that has received up to now the largest amount of crowdfunding, Filecoin uses Outlook Positive the IPFS protocol and blockchain technology to try to create a decentralised, distributed Decentralised storage network. Building upon the foundation of the IPFS distributed file system, using Tags blockchain technology and FIL function as a medium of exchange, Filecoin has built a multi- Storage Network participant economic-ecosystem system. In terms of storage, Filecoin has rolled out two new Time July 4, 2018 proof mechanisms, used to ensure that user's files will be securely stored, and at the same time provide encryption options to protect the privacy of users' files. Price (USD) 7.54
Market Cap(USD) - In terms of security, FIlecoin also faces some problems. The first has to do with the money it has raised in the crowdfunding. Filecoin's conditions for participating in the crowdfunding as Ranking - well as changes in the price of the token mean that those investing at different times faced *Only forwarding trading is available at the time. different capital requirements for doing so. Taking advantage of "FOMO" (fear of missing out) Contents of participants, the cost of participating crowdfunding increases greatly over different rounds. Project Introduction ...... 3 In such a large crowdfunding, funds should have come from those who believe in the future IPFS ...... 3 of the project itself, instead of those seeking to speculate. Aside from this point, Filecoin also Filecoin ...... 5 has risks in other places, such as the legal risk that arises from the resistance to censorship, in Description ...... 5 terms of copyright and illegal material. Mining and the fees set for mining have a trend Market Scale ...... 6 towards centralisation; network resource search frequency entails certain risk on the distribution of storage resource, and so on. Risks ...... 7 Economic Ecosystem Risk ...... 7 The development of Filecoin is currently underway, but a concrete time of the mainnet launch Other Risks ...... 13 hasn't been given. As for the mining mechanism, miner's benefit chiefly depends on the storage capacity provided and network bandwidth; thus as for Filecoin mining machines on Team and Investors ...... 16 the market, TokenInsight reminds investors to exercise due diligence before investing. Project Progress ...... 17
Conclusion ...... 17 Outlook
The Filecoin project is huge and has a certain market prospect. The incentive layer design Analysts based on IPFS is more reasonable. However, the development process is slow and the launch Wei Zhao, ZHuowei Liu, Longwen Zhao time is not given yet. In general, the rating outlook is positive [email protected]
TokenInsight.com
1 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
Limitations and Disclaimers
TokenInsight Inc. hereby makes the following statement in connection with the issuance of the rating report:
1. There is no relationship between TokenInsight Inc. (including TokenInsight Rating Project Team Members, and Review Committee Members) and the subject of this rating would affect the objectivity, independence, and impartiality of the rating. 2. The project team members of TokenInsight Inc. take their due diligence obligations seriously and have a good reason to ensure that rating reports followed the principles of objectivity, truthfulness, and impartiality. 3. This report is an independent judgment made by TokenInsight Inc. in compliance with applicable laws, regulations and reasonable internal credit rating processes and standards, and there are no changes in rating opinion due to improper influence of the rating target or any other organization or individual. 4. All information contained herein is obtained by TokenInsight Inc. from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical errors as well as other factors, however all information contained herein is provided “AS IS” without warranty of any kind. TokenInsight Inc. checks verifies, as necessary, the authenticity, accuracy, completeness, and timeliness of the information relied upon in the rating report, without making any representations or warranties, express or implied, as to authenticity, accuracy, completeness, timeliness and feasibility and appropriateness for any commercial purpose. 5. The inclusion of a credit rating or secondary market price analysis in this rating report should and can only be interpreted as an opinion and not as a statement of fact or a recommendation to buy, sell or hold any token. 6. The risk ratings indicated in this rating report are valid from the date of issuance of this report until the date of the next adjustment; at the same time, TokenInsight Inc. will periodically or irregularly track the ratings of the rating recipient to determine whether to adjust the credit ratings and will publish them in a timely manner.
2 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
Project Introduction
Filecoin is, in the field of digital token projects, the largest recipient of crowdfunding to date: 257 million dollars. Strictly speaking, Filecoin can't work as an independent project; it needs to be built upon IPFS (the InterPlanetary File System). IPFS is a distributed network file system, a low-level protocol that allows for the transmission and storage of data on a network.
Filecoin has added incentives on top of the foundation of IPFS, using the Filecoin projects eponymous token ("Filecoin", FIL) as a medium of exchange. It has created a market for storage and transmission. As a file network system, it must provide sufficient capacity and resources in order to attract a sufficient amount of users; at the same time, as more and more users join the network, more and more storage space and resources will make the file network system continually expand. In traditional distributed networks, lacking a good reward mechanism, few users join in, which limits large-scale development.
Using blockchain technology, upon an IPFS foundation, users are encouraged to join the network and provide service for other users. Adding in the benefits of IPFS, Filecoin is working hard to make a totally new data storage network.
IPFS is a distributed file system initiated by Juan Benet in May 2014, developed with the help of the Protocol Labs open-source community. It has the special features of content orientation, versioning, and point-to-point transmission. The vision of IPFS is to form infrastructure for a worldwide decentralised internetwork. After three years of development, IPFS has already matured to a relatively high degree, and has been applied in many fields, such as Akasha (a social network application), computes.io (distributed computing), Alexandria (a decentralised content publishing platform, Orbit (a distributed chat tool), OpenBazaar2.0 (a decentralised online transactions platform), EOS.IO Storage, and Interplanetary Wiki2.
1. Features and Advantages
IPFS has modified and combined numerous previous point-to-point systems, including DHT, BitTorrent, subversioning system Git, and SFS. It has the following special characteristics:
Content Orientation
Unlike HTTP, IPFS has content orientation, rather than address-based orientation. When using address-based orientation the browser will look for a server at an address (IP address) based on a domain name the user inputs, and then query the server at the location for a file. In IPFS when searching for the address of content, every file put into the system will be given a hash value. As this value is calculated from the contents of the file, all identical files will have an identical hash value. Also, when a file is modified, its hash value will change. When users request a file, they only have to use the file's hash to send the request, and IPFS will
automatically search a distributed hash table (DHT) to locate a list of notes which have the file, and then retrieve the file to verify its data.
3 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
Version Control
IPFS uses a data structure based upon Merkle DAG (directed acyclic graph) and version control system similar to Git. Combining these two technologies with content addressing makes IPFS able to inspect and delete redundant storage, avoid wasted storage space, and improve efficiency. At the same time, IPFS provides the ability to roll back to previous file versions. This kind of storage logic allows data to be stored for a longer time, and ads to the stability of the content of the internetwork.
Point to Point Transmission
IPFS' file transmission is similar to that of the traditional BitTorrent protocol. In this kind of point-to-point data transmission scheme, IPFS users don't need to download data from a centralised server, instead obtaining data from other users that have it. For this reason, data transfer speeds no longer limited by a central server's bandwidth and accessibility. In many cases, data transfer and server response speed are faster than with a central server.1\f
2. Comparison
Compared with HTTP
From the first version of HTTP in 1991, HTTP has always been a very widely applied application for data transmission on the Internet. The IPFS development team believes "Centralised networks based upon HTTP are 'inefficient and expensive', and already gradually falling short of the increasing demands of users for information distribution speed." Point-to-point data transmission scheme can achieve higher data transmission speed through distributing load, and in theory save up to 60% in bandwidth fees2.
HTTP network servers need to rely on a centralised server and a backbone network3, whereas IPFS can work through a decentralised, distributed network structure. As it doesn't rely on a central server, the networks based on IPFS will find it easier to set up in developing countries and regions that lack Internet infrastructure. At the same time, IPFS network has a greater ability to deal with adverse events, such as natural disasters. A distributed, point-to-point data transmission structure is harder to interfere with or hack than a traditional centralised network; for this reason IPFS networks can better protect privacy and enjoy stronger security.
As IPFS uses a data structure based upon Merkle DAG and a version control system similar to Git, data stored upon it can have better storage efficiency and longer storage life.
1 A file is transmitted to a requester from a node on the same university network, whereas the server could be hundreds of kilometers away 2 Nguyen, K., Nguyen, T., & Kovchegov, Y. (2009, August). A p2p video delivery network (p2p-vdn). In Computer Communications and Networks, 2009. ICCCN 2009. Proceedings of 18th International Conference on (pp. 1-7). IEEE. 3 A backbone network is a high speed network used to connect multiple zones or areas. Each backbone network has at least one interlink to another backbone network. Different network providers have their own backbone networks which are used to connect to networks in other zones. When a few computers are connected to each other they can see each other’s files -- this is called a local area network. When all the computers in a city are connected, this is called a metropolitan area network, and when these cities are connected, it is called a backbone network. These backbone networks are those that a country permits to directly connect to foreign networks. When ISPs wish to connect to a foreign network, they must go through a backbone network.
4 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
Compared with BitTorrent
The file transmission scheme of IPFS is relatively similar to that of BitTorrent. However, in comparison with BitTorrent, the IPFS file transfer protocol BitSwap added two new special characteristics. The first is that it changed the relatively simple share ratio system of BitTorrent to a more complex BitSwap Credit scheme, a credit and account system which encourages nodes to share, and has better resistance to malicious attacks. The second has to do with Merkle DAG, adding a mechanism to data blocks that allows cross-file references, making BitSwap even more suite to a distributed file system like IPFS.
Description
Filecoin is a decentralised storage network developed by Protocol Labs. Traditional network storage services mostly employ a centralised model, in which users entrust their files to a certain provider, and pay fees in accordance with the file size and storage
period. This method has some problems, such as: error tolerance for a single node is relatively low; a central organ holding the entirety of a user’s files or information leads to privacy concerns, and so on. Filecoin uses a distributed storage method, and doesn't rely on a single node, using other nodes on the network to store. Aside from storage, Filecoin also provides a retrieval service platform.
Filecoin uses IPFS for low-level technological support, and achieves a free market on the network through blockchain technology. Market participants use a Filecoin token as a medium of exchange on a free market, encompassing data storage and retrieval transactions, for which users attain service or remuneration. Blockchain technology is used for a portion of market order requests and fulfilments, recording some records of storage service transaction processes in a ledger. In terms of storage, using hash values as file markers, avoiding redundant storage, and saving storage space on the network. However, for the security of some important files and due to the weakness of some nodes, Filecoin also provides replicate storage features. This is to say, a user can elect to have files stored at multiple points in the network to ensure security.
In terms of data structure, with IPFS as the low-level technology, Filecoin is a content-oriented network. On the transmission network, information search operates on address orientation. The difference between the two is that in a traditional network structure, users searching for information must go through a corresponding address to find a corresponding server, and then request data from the server, whereas with Filecoin's content-oriented network users can directly search for data and position it,
no longer needing a server to transmit the data. Using shopping as an example helps understanding: in an address-oriented network, the user must first find a store that sells the desired product, then find it on a shelf in the store, whereas in a content- oriented network, the user directly searches for the product, and then a store will deliver it to the user though a "courier". In an address-oriented network, one must attain data from a specific server -- if the server has a problem (it is off, crashed, or lost data, etc.), the user may be able to find the address of the data, but will unable to retrieve it. A content-oriented network avoids this problem, and is centred directly upon user needs.
5 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
Market Scale
1. Market and Participants
On the Filecoin network there are two markets: A Storage Market and a Retrieval Market. The Storage Market’s data is recorded on the blockchain, and the Retrieval Market’s is off-chain.
The participants in the Filecoin network can be divided into four categories:
Those needing file storage: known as Storage Clients, they have a need to store files, and are on the demand side of the storage market.
Those providing file storage: known as Storage Miners, they provide storage service through free disk space, and are on the supply side of the storage market. Aside from providing storage, they are also creators of blocks on the Filecoin blockchain.
Those needing information retrieval: known as Retrieval Clients, users with need of a specific resource, looking to attain the resource via the network; they are the demand side of the retrieval market.
Those providing information retrieval: known as Retrieval Miners, they provide network bandwidth for those desiring a resource, helping them search for it; they are the supply side of the retrieval market.
The storage market can be understood as a decentralised exchange for storage service orders, where both partners broadcast their
needs or services on the exchange, and then reach an agreement based on the market price (of FIL) to settle a transaction. The entire process is recorded on the blockchain, and after it is completed data and remuneration are exchanged. This information is recorded in a manner similar to that in which Bitcoin transactions are recorded, collected by storage miners, packaged into blocks and then contested over amongst miners for the right to create a block and gain a block creation reward. It is different from the bitcoin blockchain in the sense that Bitcoin nodes gain more possibility of a reward the higher their processing power is, whereas in Filecoin, each node's power is defined by the amount of useful storage space it provides.4 In other terms, the more a node can provide in terms of storage services, the more of a possibility it has to gain reward.
In the storage process, users can select to encrypt their files in order to ensure they won't be leaked. User's files aren't stored bit- by-bit, but rather, after being uploaded, they are cut into small pieces5 and then stored as small files with different miners who are given FIL as payment. In order to combat malicious behaviour6 on the part of miners, they are required to put up a fixed deposit in proportion with the amount of free space they provide to the market. If a miner provides good service, he won't lose his deposit and will also receive remuneration of a set amount of FIL. If the miner doesn't complete his responsibilities, or a file is lost, he risks losing a portion of the deposit.
4 Space which can be used by users to store data. 5 Max 256 Kb 6 Malicious behavior such as not protecting stored files or purposefully deleting them.
6 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
The Filecoin retrieval market is off-chain, and also uses FIL as the medium of exchange. The reason why it is off-chain is that the blockchain network is slow in term of processing power. Users have high requirements with regard to searching for and retrieving resources, always hoping to see results within a few seconds. When a large number of users are retrieving resources at the same time, if a blockchain is employed, there would be no way to keep up with demand. In the retrieval market, retrieval miners provide resources (positions), and users obtain resources through these positions, whilst paying a fixed mining fie in FIL as remuneration.
2. Two Kinds of Proof Mechanism
Blockchain technology in Filecoin essentially functions as a middleman, making the transactions for both parties trustless. In a perfect file storage network, two basic requirements must be met:
1. Allow users to confirm their files have been properly stored;
2. Allow users to confirm their files will continue to be stored for a specific amount of time.
In order to solve these two problems, Filecoin has two proof mechanisms: Proof of Replication and Proof of Spacetime. The first guarantees that for every one of a user's files, each will have an independent storage certification. This can also prevent miners from conducting an outsourcing attack.
An outsourcing attack is when a miner does not store a user's files at all, but rather entrusts them to a third party, thus when multiple users have the same storage request, it is possible that multiple miners would entrust files to the same third party, with multiple requests being served by a single provision. This adds to the file security risk, and if the file has any error, all users will experience a loss.
The implementation of Proof of Spacetime can be thus simply understood: the storage miner must prove that files will be continuously stored for an amount of time, and when requested, be able to immediately produce proof of storage.
Risks
Economic Ecosystem Risk
The token in the Filecoin system is FIL, with a total volume of 2 billion. Its distribution ratio7 is shown below, with details of the distribution8in the index.
7 Filecoin Token Sale Economics. Coinlist.co. Retrieved on 1 July 2018 from https://coinlist.co/assets/index/filecoin_index/Filecoin-Sale-Economics- e3f703f8cd5f644aecd7ae3860ce932064ce014dd60de115d67ff1e9047ffa8e.pdf. 8 Filecoin Token Sale Economics. Coinlist.co.
7 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
Figure 1: FIL Distribution
Figure 2: Explanation of FIL distribution
Class Portion Number of Tokens Explanation
Miner 70% 1,400,000,000 Miner Rewards Rewards
Retained by the founding team, Protocol Labs, used for Team 15% 300,000,000 research, safeguarding the project, and continued development and promotion.
Purchased by investors via crowdfunding, encourages Investors 10% 200,000,000 network development and cooperation.
Retained by the Filecoin foundation to build a community Foundation 5% 100,000,000 and effect long term development.
Sources: Filecoin、TokenInsight
8 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
The portion of token for miner rewards will be created from blocks on the chain, used as remuneration for miners. The other three categories of token will be written into the genesis block, and will be vested linearly. What linear vesting means is that when each block is created, a specific amount of tokens will be released for use. For instance, the founder team's reserved 15%, vesting over six years, means that each month the ratio of tokens that will be released is:
푁 = 15% ÷ 6 ÷ 12 = 0.208%
That is, each month 0.208% of the FIL tokens held by the Founder team will be released into circulation.
Of the 30% of tokens in the genesis block, the team and the foundations tokens are vested over six years, and the investor tokens' vesting term ranges from between six months and three years.
Tokens Held By Investors10
The FIL that are held by investors have been distributed by crowdfunding. There were two rounds of crowdfunding: the advisor sale, and the public sale. Both rounds took place on the Coinlist platform.1112 The Filecoin project is regulated under the United States SEC Regulation D 506.13 Unlike most crowdsales, the Filecoin public sale was only open to investors who met certain requirements.14 Each investor had to buy in for at least 10 USD, with no upper limit.15
Investors buying in were able to pick the vesting period for their FIL, from one to three years in the advisor round, and from six months to three years in the public round. The longer a vesting period chosen, the higher the risk. To compensate for this, investors are given discounts: the longer the vesting period, the steeper the discount. The details are shown below:16
9 Filecoin Token Sale Economics. Coinlist.co. 10 Protocol Labs, Inc. (2017). Confidential Private Placement Offering Memorandum. Retrieved 1 July 2018, from https://coinlist.co/filecoin 11 https://coinlist.co/filecoin 12 The Coinlist platform is established in the USA and regulated there. The platforms crowfunding projects are all regulated by the SEC, and at the same time enjoy the platform's compliance services. 13 U.S. Securities and Exchange Commission. (27 Nov 2017). Rule 506 of Regulation D. Retrieved 1 July 2018, from https://www.sec.gov/fast- answers/answers-rule506htm.html 14 Protocol Labs, Inc. (2017). Confidential Private Placement Offering Memorandum. 15 Filecoin Token Sale Economics. Coinlist.co. 16 Protocol Labs, Inc. (2017). Confidential Private Placement Offering Memorandum.
9 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
Figure 3: Token Vesting Time and Discount
Advisor Sale Public Sale
Vesting Time Discount Vesting Time Discount
6 Months (Shortest) 0%
1 Year (Shortest) 0% 1 Year 7.5%
2 Years 15% 3 Years (Longest) 30% 3 Years (Longest) 20%
Source：Filecoin、TokenInsight
During the advisor round, each FIL was priced at 0.75 USD; during the public round, the FIL was priced according to the following formula:
퐴푚푡. 퐴푙푟푒푎푑푦 푅푎푖푠푒푑, $ 푃푟푖푐푒 = 푀푎푥. 푉푎푙. (1, ) 40,000,000
The team has revealed17 the investor round raised about 52million USD, which means the public round’s price would have been 5.2/4=1.3 USD, which is more than 1 USD. For this reason the public round formula (*) was changed to:
퐴푚푡. 푅푎푖푠푒푑, $ 푃푟푖푐푒 = 40,000,000
During the advisor round between 69millon and 99million tokens were purchased. During the public round between 101million and 131million tokens were purchased. No official figures have been released.
Below, through some simple calculations, we discuss the possible risks in the crowdfunding mechanism:
Crowdfunding
17 Benet, J. (August 2017). Filecoin Answers to Questions from OneBlockCapital. Retrieved 1 July 2018, from https://ipfs.io/ipfs/QmNNiaFiZLEUqQJ7tFj4SXJb8V19HsTxamN1B9W4Tp3m1Z
10 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
Consider M FIL at price P. Assume the relationship between P and M is continuously variable, and every time someone invests, they only buy 1 FIL. According to the relation formula, a differential equation (see appendix 1), it can be known that P is an exponential function of M. In this kind of mechanism, in the public funding round, as the amount of sold FIL increases, the price increases exponentially, such that the final crow purchaser of FIL will buy at a price that is anywhere from a few times to an order of magnitude than the price the first purchaser enjoyed.
According to data released by the Coinlist18 platform, Filecoin raised 205 million USD in the public token sale. According to a rough financial calculation, we learn that the final price that investors bought at was around 6.43 USD (257mm÷ 40mm), 7.1 times the price of the initial price of the round, 0.91 USD (1.3× 70%).
Protocol Labs explains this price difference thusly: "As we acquire more capital, the risk of the project decreases, with earlier
investors having categorically assumed more risk."19 However, the advisor round already fully tested the Coinlist platform, reducing the risk that may arise on the Coinlist platform over time; the price function was already given, and logical investors on the market already grasped the relevant price information for the entire financing process; early investors didn't face any more uncertainty than investors later on, and in terms of risk tiers didn't assume more risk. This kind of mechanism was definitely intended to create hype around the project -- using FOMO (fear of missing out) psychology to encourage investors to buy in earlier and buy more FIL at one time. There were no logical warnings to investors, and rather, through a constantly growing price, illogical investor behaviour was encouraged.
Due to investor restrictions, the amount of investors was relatively small, about 2,250 in total (among them about 150 in the advisor
sale, and 2,100 in the public sale). The average amount invested per person was 110,000 USD. Restrictions on qualified investors excluded investors with low ability to shoulder risk, and reduced the volatility risk of FIL on the secondary market. However, the project needs users to participate in the Filecoin system at an early stage, and use Filecoin to buy storage and other services. Storage miners also need to put up FIL as a deposit to mine; the official project hasn't made any clear plans for extension into secondary market exchanges; right now, there are only a bit more than 2,250 that hold FIL, with the genesis block overly concentrated. For the above three reasons, there may be relatively large pressure on the system for practical popularisation as soon as it goes on line.
Miner Rewards
There is a total of 1.4 billion coins allocated to miner rewards. As blocks are created, rewards are given to miners. This is similar to Bitcoin. In the Bitcoin mechanism, the half-life for rewards is four years. Every four years, meaning that every four years half of the remaining tokens are rewarded; with Filecoin, this number is six: every six years miners while receive half of the remaining unmined tokens. In the Bitcoin system, during the four years, the reward for miners is fixed, whereas in the Filecoin system, the miner reward is adjusted twice a month. At the end of the Yth year, the amount of tokens produced by mining will constitute the P proportion
18 Filecoin Token Sale Economics. Coinlist.co. 19 Benet, J. (August 2017). Filecoin Answers to Questions from OneBlockCapital.
11 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
of total FIL according to the following formula.
1 푃 = 70% × (100% − ) 2푡/6
The graph below shows miner rewards compared with BTC. Worth nothing is that all BTC are created from mining, whereas with FIL this figure is only 70%.
Figure 4: Comparison of Supply Curve of FIL and BTC
100%
75%
50% Percentage 25%
0% 0 5 10 15 Year
FIL BTC
Source: TokenInsight
One can see from the graph that FIL's supply curve is much smoother than that of BTC, which means that it can reduce price fluctuations due to changes in block reward.
Looking at the above mechanism's design, we know that the growth of FIL circulating through mining is exponential, and the circulation of coins held by the investors and the team is linear. The exponential growth will be much quicker than the linear growth; at the outset of the project powerful mining sites may quickly gain a large portion of FIL. Additionally, the team and foundation
hold 20% of supply and the investors only 10%, with the former being half of the latter. Although the team and foundation's vesting period is six years, and the periods for the investors vary, if the investors pick longer vesting periods, their risk will increase. The economic system is thus designed, that when Filecoin first goes online, the coin price will largely be controlled by the team and large miners, with investors having a relatively weak position. The table below shows a simple calculation, considering the holding ratios of FIL in the first 12 months. "Investor vesting period" indicates the average vesting period for investor-held coins. According to the aforementioned vesting rules, in theory, investors vesting periods vary from half a year to 3 years. Excluding extreme values,
we can look at 12-, 18- and 24-month periods.
12 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
Figure 5: Holding Ratios of FIL in Different Situations
Investor Total FIL Ratio Circulating FIL Ratio Perio Vesting Team + Team + d Miners Investors Miners Investors Period Foundation Foundation
12 months 1.667% 37.65% 15.60% 46.76%
1mo 18 months 0.671% 0.278% 0.833% 44.60% 18.48% 36.92%
24 months 0.278% 49.13% 20.36% 30.51%
12 months 10% 37.08% 15.75% 47.17%
6mo 18 months 3.93% 1.67% 5% 43.99% 18.69% 37.31%
24 months 1.67% 48.52% 20.62% 30.86%
12 months 10% 36.43% 15.88% 47.69%
1yr 18 months 7.64% 3.33% 10% 43.32% 18.88% 37.80%
24 months 3.33% 47.84% 20.85% 31.31%
Source: TokenInsight
We can see from the graph that in the early period of 12 months, miners will hold almost 50% of circulating FIL. If large scale mining operations appear, concentration will be relatively high, and there may be a risk of them controlling the price of FIL. For
this reason, the overconcentration of FIL holding is a problem the team should consider in the development process.
Other Risks
Filecoin is a decentralised distributed network. The storage resources on the network aren't centrally controlled at all, and it is this point that gives Filecoin a character in common with many other distributed blockchain projects: censorship resistance. There are no limitations upon what users upload to the network, which makes for very big problems with file contents on the Filecoin network; these problems are all part of the Filecoin project's legal risks.
Just like P2P file-sharing networks, Filecoin faces the problem of copyright. Users can directly share content with each other, skirting oversight; distributed networks have files scattered around them, making it difficult to deal with copyrighted material. BitTorrent has faced legal challenges over copyrighted materials. Aside from copyright issues, Filecoin also has very limited ability to deal with harmful content, which is a key point arising from censorship resistance. It's difficult to keep these harmful materials on the network out; there is also a low barrier for certain types of information (such as violent content) to entry; and for certain groups (such as those under the legal age of maturity), transmission of this information in large volume will have a serious negative
impact. Especially in the age of an explosion of data, there should be a threshold for contact with an information network, and Filecoin for the time being lacks any facility to accomplish any kind of limitation.
13 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
The design goal of Filecoin is to build a decentralised storage network; everyone can join the Filecoin network and become a node, using their free space resources to provide service to others. This method can raise the efficiency of use of all drive space and bandwidth on the network. The economic incentive mechanisms surrounding FIL can encourage nodes to provide more storage space. However, due to the settings of the mining mechanism (the probability of gaining rewards is greater the more storage space a miner provides), miners will expand their storage space as much as possible, enlarging the rewards they get from creating bocks. In the Filecoin system, disk space provided is similar to hashing power in Bitcoin. The original intention of Bitcoin to establish a distributed network has now evolved into a centralised structure of mining pools. 79.4%20 of Bitcoin's hashing power is controlled by the top 6 pools.21
20 July 1, 2018 21 Hashrate Distribution: An estimation of hashrate distribution amongst the largest mining pools. (1 July 2018). Retrieved 1 July 2018 from https://www.blockchain.com/pools
14 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
Figure 6: Disribution of Bitcoin Hashing Power
source：https://www.blockchain.com/pools
Filecoin has a mining system similar to that of BTC, with its "hashing power" being determined by how much storage space a miner
provides to the network, but unlike Bitcoin it doesn't burn a large amount of resources. From the perspective of the miner, if the reward yielded is greater than the cost of the storage space provided, this kind of "hashing power" will become concentrated. Aside from this, considering from the angle of users needing storage, they may prefer large-scale miners. Whether it's disk stability, features, or accessibility (some smaller nodes may not be online 24 hours a day), or other points, larger miners definitely have an advantage over smaller miners. An economy of scale also applies here; for each unit of space provided, one must furnish a physical location, cooling, and physical security, making the capital cost one that diminishes marginally. Thus, as small miner may not have any angle from which to compete, this may lead to the distribution of the network becoming (multi-)centralised.
Miners can gain remuneration through providing storage resources, and at the same time can work as retrieval providers, providing file retrieval services in exchange for a reward. In this way, when disk space is limited, miners will face the problem of choosing files to store. For popular, or "hot" files, they will be requested more often in the same amount of less popular, or "cold" files. Thus, storing hot files for a unit of time will yield higher expected profit than cold files. This will lead to miners preferring to not store cold files. In a free market, this problem can be dealt with a price mechanism; cold files will cost more to search for and retrieve. In this way all kinds of resources can yield an equivalent profit for the miner. A "hot" film or novel may have a search frequency that is tens of times higher than a "cold" documentary, which means that when a miner stores a cold file, in theory the price to do so should be tens of times higher, or even more, in order to make the choice equal. However, in the above analysis, whether users
15 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
would be willing to pay this higher price is still a question.
The loss of cold files is a problem similar to the situation known as "the tragedy of commons. Storing a cold file is a behaviour of positive externality (providing profit for the Filecoin system), however, for miners it isn't an optimal strategy (storing a hot file yields more profit). For this reason logical miners won't seek to store cold files, which can lead to these files being lost (in the tragedy of commons, logical entity will choose negative externalities that benefit themselves, leading to a lose-lose situation). Evidently, there is no measure in place on the Filecoin network to deal with point.
The Filecoin storage market is conducted on a chain. While the mining mechanism solves the problem of great resource expenditure, there's no way to predict the actual processing power of the network. There is no clear planned time for the Filecoin mainnet to come online; the specific features of the network are still an unknown.
FIL is the medium of exchange on the Filecoin network, and functions as a "universal equivalent" for storage and retrieval. However, if there are large fluctuations in the price of the FIL token, in a short period of time, the amount of service attainable for an amount of FIL may vary greatly, presenting a threat to the normal operation of the Filecoin network. Apart from the influence that factors such as the number of miners, market need, and supply state will have on the price of FIL, speculative behaviour in secondary markets will also cause the FIL price to fluctuate.
With regard to mining, there have already appeared on the market a number of "so-called" Filecoin mining machines. However, Filecoin hasn't released any version. Thus, the concrete details of how to conduct Filecoin mining are still an unknown detail. Whether they are Filecoin enthusiasts or those seeking to gain profit via mining Filecoin, what must be made clear is that, according to the Filecoin white paper, there are only two routes to earn profit through mining: the first is providing storage services, and gaining a reward through creating blocks on the chain -- although they are two types of rewards, they can be classed as in the same category; the second is providing search and retrieval services to users. What determines the size of the rewards attained along these two routes are the size of storage space provided, and speed and quality of service provided (bandwidth).
Team and Investors
The developing team of Filecoin, Protocol Labs, was established in May 2014. The core team announced that it believes that the internet has become an important technology for all of humanity; founder Juan Benet wishes to lead his team to upgrade internet technology, working hard in the three areas of storage, positioning and transmission of. In 2015, Protocol Labs launched IPFS, and is currently working on the Filecoin project.
Protocol Labs's core team is mainly composed of members with an engineering background, coming from 13 countries. Founder
16 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
and CEO Juan Benet graduated from Stanford University's computer science department, and served as CTO for two years at Loki Studio, in addition to founding Athena. One of the more experienced members of the team, Matt Zumwalt, has 14 years of experience.
Protocol Labs has received investment from 27 organisations and individuals, including Union Square Ventures, an investment firm with one of the highest ROIs in the USA -- it provided seed investment in Indeed, Tumblr, Twitter, YCombinator and others, more than 1,450 project in total, some of the earliest including Dropbox and AirBnB. Stanford University is also an investor, and provided consulting services to Protocol Labs.
Project Progress
The project team as only revealed its progress up to Q4 of 2017. A progress report reveals: the Filecoin team is developing the Filecoin protocol, and in the long term needs to work on building and testing various functionalities relating to Filecoin. They are:
Filecoin Blockchain Data Structure and Computation
State Tree
Core Smart Contract
Contract Execution
Repository Simplification
Low-level Prototype
Filecoin Mining Protocol, Serialised Work, and Consensus Calculation
Filecoin Economic Structure, Including Miner Collateral, Storage and Search Service Remuneration
The team's efforts are focused mainly on initial structure of mining nodes, integration of libp2p 22 and Filecoin, as well as other functionalities. Members of the Filecoin community hope to see things speed up with development. In terms of completeness of the plan, core development projects such as the smart contract and mining mechanism aren't in place yet. Looking at the progress of the plan and state of completion, and the fact that there is no clear time for or stated form of the final product, there is definite
risk.
Conclusion
Filecoin is a distributed file system built on top of IPFS which uses blockchain technology to construct a decentralised, distributed
22 A point-to-point transmission protocol.
17 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
storage network. Through the Filecoin storage network, anyone can participate, using or providing storage service. Its decentralised nature allows it to avoid the problem of concentrated control in traditional transmission and storage structures, and invites market competition. Theoretically it can effectively drop the cost of a storage network, and improve the network's resource efficiency. At the sme time in terms of file storage, it provides "proof of storage" and "proof of spacetime" as two proof mechanisms which serve to guarantee the security of users' files. In terms of privacy, users can select to encrypt the files they store. It uses the token FIL as a medium of exchange for the entire system; through adjustments in market price, it can reflect market supply and demand conditions and from the stimulate the market and participants to pursue profit maximisation, whilst at the same time maintain and ensuring the normal operation of the network.
Filecoin also has some problems: first, as the highest-funded project in the area of crowdfunded tokens, having raised 257mm USD
that only represents 10% of total tokens, Filecon's crowdfunding design had a "huge appetite", and contained a huge number of illogical areas. Additionally, the harm its resistance to censorship has towards the network's ability to control resources is worth serious consideration. In terms of the design of the mining mechanism, it will have a very strong tendency towards centralisation. In terms of network resources as a whole, Filecoin has a risk of a "tragedy of commons"-type problem arising from different request frequency of different files.
18 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
Appendices
Appendices 1
Consider M tokens at price P (USD) during the Public Sale:
Assume continuous change. Assume that C coins were sold during the Advisor Sale. C is between 69 and 99mm. Assume A, the amount raised. Take this price equation (1): 퐴 푃 = 40,000,000
The total amount raised A is the price of all FIL added together, thus we have the following formula (2):
푀 퐴 = 52,000,000 + ∫ 푃 푑푡 퐶 Differentiating the 2 sides of (2), and substituting (1) to cancel out A, yields:
푀−퐶 푃 = 푘푒40,000,000
Of these, k is constant and e is a natural logarithm. When M=C, the price is 1.3. Thus: 푘 = 1.3
Thus we get the price function（#）：
푀−퐶 푃 = 1.3 푒40,000,000
We know P is a differential equation of M, thus: in the crowdsale, as the amount of FIL sold increases, the price increases exponentially.
19 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
Appendix 2: Token Ratings
Rating Description
AAA The technical foundation is extremely solid, the status of operations is extremely stable, the extent of influence on the project by unfavorable changes in the environment or uncertain factors is extremely small, and risk is extremely low.
AA The technical foundation is very solid, the status of operations is very stable, the extent of influence on the project by unfavorable changes in the environment or uncertain factors is very small, and risk is very low.
A The technical foundation is solid, the status of operations is stable, the extent of influence on the project by unfavorable changes in the environment or uncertain factors is relatively small, and risk is relatively low.
BBB Technical feasibility is very good, the status of operations is stable, influence on the project by unfavorable changes in the environment or uncertain factors exists to a certain extent, and risk is controllable.
BB Technical feasibility is good, the status of operations is relatively stable, the possibility of influence on the project by unfavorable changes in the environment or uncertain factors exists to a relatively large extent, and risk is basically controllable.
B Technical feasibility is moderate, the status of operations is relatively stable, the possibility of influence on the project by unfavourable changes in the environment or uncertain factors exists to a very large extent, and risk is to a definitely limited extent controllable.
CCC The technical foundation or idea has certain problems, the application scenarios are limited, the project is susceptible to influence by uncertain factors, both internal and external, and has relatively large risk.
CC The technical foundation or idea has considerable problems, and application scenarios are highly limited, which makes for a project that has few internal or external factors to consider in the context of sound development, and carries a very large risk.
C The technical foundation or idea has considerable problems, and application scenarios are highly limited, which makes for a project that has few internal or external factors to consider in the context of sound development, and carries a very large risk.
D The project is riddled with problems and carries an extremely high risk of failure.
20 04 July, 2018 Filecoin Rating Report
TokenInsight Global Token Data & Rating Agency
TokenInsight Inc.
Global Token Data & Rating Agency
To obtain the newest data and rating reports of blockchain industry:
Website:
Data cooperation:
Other contacts:
Official Twitter:
Official Telegram:
Official Weibo:
WeChat public accounts
Official Twitter Account: WeChat mini App:
21 04 July, 2018 Filecoin Rating Report