The Filecoin cryptocurrency is primed to join a large family of projects that implement smart contracts, which entails compatibility with Ethereum and the possibility of building DeFi services on this platform.
The development team of the Filecoin project (FIL token) starting their own virtual machine is, in my opinion, one of the most important recent news. As a result, the Filecoin network will support smart contracts and become compatible with the Ethereum network. If everything goes as planned, then the test version of the virtual machine will get launched this year, and be fully operational in the second quarter of 2022.
Let’s remind ourselves of the “hero” of this story, a staple of the cryptocurrency industry, albeit far from its most famous players. Established back in 2014, Filecoin was intended to create a decentralized storage platform with its own integrated cryptocurrency, FIL. The project is the brainchild of the California blockchain startup Protocol Labs, also known for developing the IPFS system.
The central business idea of the project is to allow some PC users to earn FIL coins by providing other clients with the surplus capacity of their hard drives for storing data. The platform uses several IPFS components (IPLD, libp2p, libp2p pubsub) and runs on Proof-of-Spacetime (PoST) and Proof-of-Replication (PoRep) protocols. The first allows network participants to prove that within a certain timeframe, they will have enough space to accumulate information, and the second is designed to eliminate problems with storing multiple replications of the same data.
Of course, in light of disk drives’ current prices and capacities, the original business idea doesn’t look especially inspiring. The way for the project to succeed is primarily through the users willing to pay others for ensuring data security and storing the data itself both remotely and distributed.
From a technical point of view, the Filecoin system is operated by three parties: customers, storage miners, and retrieval miners. Customers request to store data at a set price with a specific replication factor in the on-chain storage market. There, they make a deal with the storage miners and provide them with their hashed data for a reward.
Storage miners then place files on their hard disks, which gets recorded in the blockchain allocation table with the provision of private access keys to the client. Miners put a stake into the system, which they may lose if their Internet connection is broken up or if they cannot confirm the storage of data.
To get their data back, the client places an order on the off-chain retrieval market and makes a deal with a retrieval miner, who returns the data for a fee. One person can simultaneously act as a retrieval miner and a storage miner.
Not a bad idea, but it is taking forever to implement: back in 2017, the project raised $ 52 million during the presales of FIL tokens and then another $ 205.8 million from accredited investors in the same year’s SAFT Crowdsale. It led to Filecoin having the most successful ICO in 2017.
However, according to the project rules, investors could only receive tokens after the main network launch, which took place years later – on October 15, 2020. Today there are 123.49 million FIL tokens on the market, the current price is $ 52.29 per token, the total capitalization of the project is $ 6.46 billion. All this allows Filecoin to stay in the crypto Top 40, though, in fairness, the project’s prospects look rather hazy.
That being said, there is clearly some progress: Protocol Labs’ chief engineer Raul Kripalani has recently presented the Filecoin Virtual Machine (FVM) project to the FIL community. It will allow not only storing data, as stated in the project’s initial business model, but also processing it using smart contracts. The virtual machine, according to Kripalani, will open ways of using data unavailable for centralized services. In particular, it adds decentralized computing to data storage without the need to output data from Filecoin to other networks or centralized services. It also enables the storage of socially important data using crowdfunding.
But the main advantage of the FVM is the potential to create decentralized autonomous organizations (DAOs) and tokenized datasets. Both the Filecoin community and third-party developers will have the opportunity to experiment freely with smart contracts and information storage. It will be possible to connect Filecoin to other networks and transfer applications from various blockchains.
The development of DeFi services requires the Filecoin Virtual Machine to be fully compatible with the Ethereum Virtual Machine (EVM). Essentially, the EVM solutions will be carried over to the Filecoin network. In addition, developers will be able to use the already familiar Solidity language. It also means that all the smart contract tools that exist in Ethereum will become available in Filecoin, so developers will immediately (without retraining) get the chance to create smart contracts for FIL.
The Filecoin network will become layer-0, and the virtual machine will be on the first layer, where smart contracts will be executed.
All the aforementioned innovations will be implemented in four phases. The IV quarter of 2021 marks the test phase of the Filecoin Virtual Machine, where it will be fully compatible with the current Filecoin network and not require any protocol changes.
The first phase will take place at the beginning of 2022, bringing changes to the current protocol. The architecture will change, and decentralized applications will work based on the economy of using gas. The second phase introduces support for decentralized user applications. According to plans, it will be rolled out in the II quarter of 2022. Right afterward, Filecoin will implement full support for smart contracts.
However, Protocol Labs is already inviting everyone to join the FVM development. And although the author of these lines still has doubts about the project’s prospects, the company still deserves praise for its persistence and the obvious advancement of Filecoin.