Filecoin is a decentralized and tokenized storage network. Similar to existing cloud storage providers, such as Dropbox and Amazon S3, Filecoin provides a data storage solution for both individuals and institutions. However, instead using a centralized server to store that data, Filecoin distributes it through a network of computers. This tokenized network operates through an open marketplace, where Filecoin is medium of exchange between buyers and sellers of data storage.
The network proposes two distinct storage solutions, offered in separate marketplaces. The first is long-term data storage, which is suited for large amounts of data and does not need to be frequently retrieved, such as data backups. The second is web storage, which requires high retrievability and geographical positioning.
Storage providers, or miners, operate in both markets by running Filecoin’s software. Miners include users, companies, and data centers with internet connections and a willingness to rent out unused disk space. Miners can chose to participate in two markets. The first, the storage market, offers reliable storage of large amounts of data that will not need to be frequently accessed, such as backups. The second, the retrieval market, geographically optimizes where the data is being stored so that high-traffic areas of the web can be quickly accessed.
Once a deal has been made in one of these markets, miners post collateral in Filecoin, which will be locked in a smart contract for the duration of the storage. This is designed to align the interests of the miners with those of the clients – if a miner loses a file or the node is offline at the predetermined retrieval time, the client is entitled to the collateral previously posted by the miner(s). Content stored via Filecoin is encrypted end-to-end; only the party who uploaded files has to the decryption keys required to access the stored files.
The Filecoin blockchain is comprised of three layers: an allocation layer, where a hash of the location of all files is stored, an order book layer, where clients and miners are matched, and a transaction layer, where transfers of value take place. When a new block is added to the Filecoin blockchain, every node of the Filecoin network pins which file it wants to download.