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Filecoin (FIL) Token

Filecoin (FIL) is the native cryptocurrency of the Filecoin network, a decentralized data storage system set up on the Interplanetary File Storage (IPFS) protocol. FIL protocol aims to disrupt the cloud storage industry by offering a more secure, efficient, and decentralized alternative to traditional cloud storage solutions, providing permanent storage for Web2 dataset, Web3 native NFT, Metaverse, and game assets. 

The incentive structure of Bitcoin mining inspired the FIL protocol to encourage as many people as possible to add hard drives, utilize unused storage spaces, and create a decentralized storage system. The Filecoin token serves several functions in its ecosystem. It serves as collateral, establishing economic motivations to ensure dependable data storage over time and fortifying the security of the blockchain. 

About Filecoin Blockchain

Filecoin consists of tipsets rather than chains of blocks, where a tipset is a set of blocks with the same height and parent tipset. This setup allows multiple storage providers to produce blocks for each epoch and increase the network throughput.

Filecoin uses a unique consensus mechanism called Expected Consensus (EC), where storage providers run a leader election to submit a block every epoch. Zero, one, or multiple storage providers can be elected to propose a block. Elected providers must generate a Winning-Proof-of-Storage (WinningPoST) before submitting a block. These generated blocks are then grouped into a tipset, the tipset with the biggest amount of committed storage is selected.

In addition to EC, Filecoin employs Proof-of-SpaceTime (PoST) consisting of WindowPoST and WinningPoST, Proof-of-Replication(PoRep), and Proof-of-Storage(PoST).

FIL Token Use Cases

FIL is a native utility token of the Filecoin network and it has the following uses in its ecosystem:

Governance: The Filecoin network is governed by a Decentralized Autonomous Organization(DAO), where FIL token holders can vote on key decisions such as the development and the direction of the network. 

Collateral: Storage providers are required to provide FIL as collateral, guaranteeing a minimum service level.

Rewards: FIL is used for providing incentivized rewards to storage providers for their services such as data storage, distribution, and retrieval of data. 

Gas Fees: FIL coins are used to pay for Gas Fees on the Filcoin Blockchain. 

FIL is also utilized to pay in the blockchain ecosystem to elected storage providers for validating and adding new blocks to the Filecoin blockchain. The primary purpose of the Filecoin token utility is to incentivize reliable services and facilitate the on-chain economy. The storage market exists entirely off-chain but is anchored on-chain by messages containing cryptographic proofs of storage. 

Economic value

FIL token has a total supply of 2B tokens, out of which 497.2M tokens are in circulation, with a market cap of $2,952,746,101 at the time of writing this article. The tokens are distributed as 10% to investors, 20% to founders, 5% for its foundation, and the remaining for premined rewards and future airdrops.

FIL received as penalties for storage faults and consensus faults with a small amount from fund on-chain computations and bandwidth are burned to create a long-term deflation of the token. 

Challenges

FIL tokens are essentially rewarded to those who participate in the network and contribute to its growth, leading to the concentration of governance tokens in the hands of a few holders. Filecoin network has high transaction fees, making it expensive to use Filecoin for small-scale storage, meanwhile, other decentralized storage networks such as IPFS and Sia are offering similar services with lower gas fees.