The New Data Economy — Part 2/2
Data as a Commodity
Cloud Storage, and how Filecoin is Breaking the Mold
In the first part of this article I presented broad concepts and talked about core challenges. In this second part, We will discuss a specific aspect of the evolution of the internet — storage and content delivery. I will cover Filecoin and how it differs from other cryptocurrencies by tying economic value directly to a service. We’ll also briefly talk about the importance of NFTs beyond their widespread use in recent times.
The main strength of the Filecoin service is its ability to organize the available supply of hardware to provide storage for these networks in a high-quality service that other programs, services, and systems can rely on to sort their data.
That capability opens interesting possibilities by combining large-scale datasets with incentive structures and blockchain mechanisms. Things like running computation over distributed datasets without leaking any data to the end-user while implementing checks to ensure data isn’t being exfiltrated, creating a whole new kind of economic model for what people can do and can benefit from in their use of data. I’ll take this opportunity to take a deeper dive into the workings of Filecoin.
The Internet Native Storage Market
As Filecoin relies on the IPFS protocol — we’ll start with how IPFS models data. IPFS is simply a protocol for moving data in a content-addressed way. It uses cryptographic hashes in the same way that blockchains address information and make it verifiable and authenticated while moving it around. This model acts as a mesh where every node in the IPFS network can serve content, and clients can receive content from any node.
This new paradigm is distinct from the current cloud storage infrastructure. Take an image, say on Instagram. Instagram serves that image from one of its servers or one that it has authorized. If you then take that image and put it on any other website, as far as the internet is concerned, that is a different picture. You can see the inefficiencies begin to creep in as well as diminishing verifiability. So, as the client, you do not get that verifiability because any server could be modifying that data. However, because this “proprietary server” offers the best performance, it will fulfill your request. Additionally, you must keep reconnecting it because the data cannot be cached indefinitely, increasing load.
The alternative is a system much like a book where once your data is set, you just need to check it and verify it and make copies of it locally — so as long as this link is preserved and the data cannot be tampered with, you will be able to serve that data too.
Suddenly, the system’s efficiency improves, moving content becomes more painless, and verifiability becomes integral to the way applications and services are served. Furthermore, you open the door to the possibility of hiring the network to store your data, while from the end-user perspective, this storage service acts just like standard cloud storage.
Step by step, we move closer to a fully decentralized cloud storage network. The final step would be to incorporate a cryptocurrency as the payment mechanism to create a fully Internet Native system.
Let’s think about how cryptocurrencies fit in, consider the current cloud — If you wanted to hire storage on the internet, you would, at the very end, need to have an entity that has a bank account. It’s a legacy system that is still fundamental to using the internet’s services.
The real game-changer that Bitcoin and Ethereum and all the other networks provide is a system for modeling economic value, building mechanisms that organize groups while enabling transactions that are Internet Native.
So now you have this decentralized storage network operated with cryptocurrency. How does Filecoin align with this blueprint? The magic of Filecoin is in approaching this from a market perspective — there are service providers that supply the hardware and labor, managing the network, operations, and storage systems, and then there are clients, the applications or end-users that make use of the storage that is being made available.
The clients can now offer the service providers a payment to store their data or deliver data to a particular user. This concept scales up to a decentralized market with no need for any centralized entity, brand, or structure.
Filecoin vs. Traditional Cloud Storage
Contrast that with current cloud systems, where a few major cloud providers provide the storage services, and anything smaller can’t compete. So to get customers, you must not only beat the best party, but you must also have all the groundwork in place and develop the infrastructure necessary to be as competitive as the companies that have built this up over decades.
Filecoin combats this by relying on the features of the network, which is large enough and efficient enough to make sense to end users while still being built up from loads of small, independent parties and users that provide a large-scale service.
Fortunately, the economic structures that Filecoin would need can be built on the framework and incentive structures of mining. Filecoin weaves the mining process of a cryptocurrency consensus into the storage market mechanisms by coupling the power of miners in creating consensus in the network while providing storage service to the network. Compared to Bitcoin, where pay-outs are measured in hash rates, which is wasted work, with Filecoin, miners are providing services or different levels of a storage service which changes the incentive, alongside an additional incentive based on the ability of a miner to win the block reward which encourages amassing many participants into a vast network.
Developing with all these factors in mind, Filecoin has become a fully autonomous massive, decentralized storage network where anybody can just show up and offer to pay cryptocurrency to have the network store their data. And the amount and type of data are as varied as there are users who use it — it could be Smart Contract data, Oracle data, or large-scale datasets that can scale from an individual up to a company or government or any entity that wants to persist data.
The remaining challenge is making this network as familiar to end-users as Web2 cloud storage systems and encouraging users over that barrier to adoption through improved UX design and more accessible entry points, which are crucial areas of current web development.
Another capability that I find particularly exciting is the flexibility and range of services that Filecoin enables in responding to customers’ demands. For example, web3 native mechanisms can create compelling joining incentives and allow for options such as bidding for services.
A client, for instance, could approach the network with a valuable dataset and enable miners to bid to win storage for that data, creating a system where economic benefits can flow in both directions, such as where miners begin paying clients to use their services. Again, this mechanic is alien to the Web2 infrastructure but native to Web3 because of those mechanisms at its core.
There is experimentation in that area with several projects exploring these ideas, and already we are seeing capabilities that are bringing Filecoin to parity with cloud offerings and surpassing them with new ways to organize and store and distribute content.
Having those concepts in mind, let’s shift now towards thinking of data as a commodity.
Data as a Commodity
Two requirements within the Filecoin service will directly associate it to the retail and storage markets. The first is delivering content to users quickly, and the second is that data should be persisted long-term. These can both be coupled with DeFi, creating fascinating constructions such as cloud storage futures contracts where a client might approach the network and say, “Hey, I want to store data, but not right now. I want to set some time in the future when I will use it”. This capability creates a scenario where you have a future contract to store data that can be updated, heavily commoditizing the cloud storage network. These systems also create endless possibilities in offering more efficient pricing structures for data storage in the network.
The network tracks miners’ performance and activity, revealing how well they control and maintain the storage and how available they are while exposing a list of metrics that could allow scoring and ranking miners based on different criteria while associating the storage service with application requirements.
On the flip side, these metrics would allow miners to interact better with clients and each other, using their ranking to borrow capital and expand, attract investment, or just borrow in a DeFi approach, if only for better rates, which enables scaling and making capital available for miners to scale their facilities.
The possibilities of data storage as a commodity, linking in with DeFi primitives and creating a more efficient market keep all the teams busy just with the volume of low-hanging fruit that is all exciting challenges and rewarding engineering problems to solve.
The NFT ecosystem and Filecoin
At its simplest, NFTs are just a digital representation of property with cryptographic capabilities for trading, selling, and managing it. Combining it with art is just one application — it created a way for artists to model their works and sell them. The broad interest around this led to an explosion of artists producing and selling their artworks to an enormous community.
The challenge, especially for digital artists, was that the high-quality imagery and video that they were creating needed to be hosted and distributed somewhere, leading some to turn to Web3 and IPFS technologies to satisfy that need. Additionally, it remedied the issue in Web2 — other users could go in and change the link. The problems that IPFS solved made it compelling for NFTs everywhere, leading to the next challenge, which was to back them up to Filecoin efficiently, opening up a space for developer-oriented services that in the long run should be a fully decentralized protocol, nowadays implemented as the gateway we’ve mentioned earlier, which is what is getting developers and users on board. Being able to expose developers to the types of API they’re familiar with is helping to fuel the rapid growth of the NFT ecosystem.
It is the API or gateway service that performs the heavy lifting, packaging NFTs and backing them up to Filecoin and pinning services. Developing a fully distributed NFT storage service is still complicated, but lots of effort is placed into turning NFT storage into a fully autonomous kind of DAO.
The real aim is to have this data, these incredible pieces of art as well as knowledge repositories, made available and backed up and persisted forever even if the original artist or the original platform where it was hosted is no longer around, as well as being able to model the movement of this data, which is precisely what IPFS and Filecoin were designed for.
In this two-part article, we have covered some exciting possible avenues for the evolution of web development, web services, and alternative applications of cryptocurrencies as enablers of Internet Native services that provide value to humanity. Next, we have explored how Filecoin works as a cryptocurrency that revolutionizes the cloud storage market and pays users for their service. Finally, we have touched on how our first forays into NFTs might be a gateway towards a tool that could help preserve our culture indefinitely and indelibly, ingraining it into our expanding digital universe. Stay tuned.