- INVESTMENT IDEAS
FIL for File. IPFS, Filecoin and a $200bn market
- Filecoin (FIL) powers the IPFS - a protocol for decentralised cloud storage with ample capacity.
- Deflationary tokenomics and rising demand create a compelling case.
- Disgruntled storage providers and competition by AWS, Azure and GCP are the main risks.
- Asset-backed with data-centers and servers, FIL is a strong long-term play, as long as demand remains strong.
The currency of permanence - Filecoin (FIL)
The Interplanetary File System, or IPFS, is a hugely ambitious decentralised storage system. IPFS comprises thousands of nodes storing files in a redundant, censorship-resistant and decentralised fashion. With a current capacity of over 11 Exbibytes, it offers ample capacity and can rival centralised providers, like Amazon S3 or Google Cloud.
An intricate tokenomics scheme ensures that each consecutive year will see less additional supply, even with vesting periods of ICO participants and miners expiring. Filecoin implements ERC-1559 and a part of the transaction fees are burnt. More than $200m worth of FIL will be burnt in just the first year since Filecoin’s mainnet came to life on 5 October 2020.
Demand for IPFS storage is rising rapidly. Most NFTs store their content load on IPFS. While accurate data for IPFS storage use is scarce, long-term idle storage space doesn’t earn fees. To make a long story short: The network storage power will not be much bigger than the amount of data stored.
Buying FIL, Filecoin’s native token, allows investors to:
- Profit from demand for decentralised storage
- Hold a deflationary asset
- Support a censorship-resistant internet
The third point might sound like the usual Kool-Aid, but during Catalonia’s 2017 independence movement, IPFS was the only way to access pro-independence information, as the Spanish government blocked centrally-stored content on an ISP level.
The tulip that grew - IPFS and FIL
Filecoin founder Juan Benet, a poster child of the 2017 ICO craze, raised $257m in a sold-out coin offering. Many ICOs have perished in the last four years, but Benet and his team at Protocol Labs launched Filecoin mainnet on 5 October 2020. After an initial surge in price and some difficulties with disgruntled storage providers (called storage miners), his company steered the ship into calmer waters in the month since.
Filecoin storage contracts denominate in USD. The amount of FIL needed varies according to the FIL/USD price. That makes Filecoin a kind of real-world-asset-backed stablecoin. Wow, what a lot of hyphens! Almost as complicated as storage miner compensation.
With a maximum supply capped at two billion tokens and an Ethereum-like burn rate, Filecoin is a deflationary asset with rising demand.
That said, the next four years will see big supply increases as vesting periods expire. FIL price has remained steady and has slightly appreciated after an initial hype that was mostly caused by an unnaturally short supply.
Everything Filecoin is oriented towards the long term. Miners reap profits only after longer periods of dependable up-time and file-serving. The yearly additional token supply is going to decrease four years from now.
David vs GOOGliath
Market research predicts the cloud storage market will reach $225bn in revenue by 2027. On the one hand, this is a tremendous opportunity for IPFS and Filecoin. Capturing just a slice of this would create a compelling case for FIL.
On the other hand, Amazon, Google, Apple and Microsoft are formidable competitors. Renting 1 TB of storage space on Google Cloud costs $9.99 while the same 1TB on IPFScloud.store costs $33 plus retrieval fees. This fee drops significantly when purchasing over 50 TB, at which point prices reach $12 per month per terabyte.
Throughput and access speed are another consideration where IPFS can’t always compete.
Without demand, storage miners will roll back storage capacity and some will close their businesses. This will lead to the loss of access to some files and harm the perceived reliability of IPFS.
Hardware and maintenance costs are high. A top-end IPFS server costs RMB 660,000 (~$102,000), at IPFSUnion, and RMB 30,000 (~$4,400) in yearly maintenance fees.
Enterprise adoption is still very low even though IPFS offers clear advantages. Namely, the absence of vendor lock-in, low switching costs, interoperability across storage providers and the ability to mix and match features of cloud storage providers.
Filecoin and its FIL token are a unique crypto asset backed, in part, by actual physical assets such as storage devices, data centers and maintenance crews.
As long as demand for IPFS storage remains strong, FIL’s price will have a lower limit close to today’s prices.
Since there’s little reason to believe this decentralised cloud storage won’t capture a fair share of this enormous market, FIL can be seen as a great opportunity to buy and hold.
Nothing in this article constitutes professional and/or financial advice. The content is provided exclusively for informational and/or educational purposes. Nothing is to be construed as an offer or a recommendation to buy or sell any type of asset. Seek independent professional advice in regards to financial, tax, legal and other matters.