Decentralized storage network Filecoin encountered its first notable issue a day after its long-anticipated launch, as miners chose to go on strike, following in an early release of token rewards.
As stated by 8btc.com last October 17 article mentioning interviewed miners, five of Filecoin’s biggest miners shut down their machines to object to the economic model because, “today miners actually have a lot of mining machines, but not enough FIL.” They’ve been providing the machines for a couple of years for the project. Despite that, they insist it’s wrong for the project to require a large amount of FIL as an “Initial Pledged Collateral” (as an insurance that the services will be delivered) for the miners even to start their operations.
Crypto critic Nico Deva commented on Twitter’s progress, asserting that miners didn’t stop mining blocks but stopped pledging and sealing capacity. Advancing into the technical details and calculations, the post argued a chicken and egg problem there, for which the Filecoin team designed ‘spaces races’ to solve.
Nevertheless, “miners need to *buy* FIL to keep ramping up to full capacity, or just stay at 1/7 capacity,” said Nico Deva. With reportedly USD 240m worth of hardware installed and ready at mainnet launch, “here in China people are disgusted,” said the thread. “A napkin calculation shows you early on that your mining system that requires [USD] 20k hardware also forces you to *buy* more coins. […] Miners provided huge support to the Filecoin team during the [development] years, and now are rekt.”
Some other crypto industry observers also criticized the project’s economic model. “The power requirements were absurd and required incredible commitment from before the mainnet even began, where miners had to shell out money for totally untested things without knowing what returns they’re getting or how secure their money would be,” said ‘LargeSnorlax on Reddit.
A general problem for untrusted file storage commented theoretical physicist Bob McElrath, “is that you must constantly interrogate the storage provider to prove he still has your file. In any design the computational load on storage is high.”
Miners can earn token rewards to use them as collateral, but the tips are released over 180 days, meaning that miners earn little when starting. And while FIL can be purchased, some miners don’t have the funds for that, and it might not pay off given the coin’s price and potential transaction fees.
One of the top initial coin offerings (ICOs) of 2017, Filecoin’s Mainnet, went live on October 15, with its FIL token seeing a substantial fluctuation in price soon after. After jumping to USD 114 on the mainnet launch day, it sharply dropped USD 57 on the same day, falling further since then, to USD 32 at the time of writing (UTC 7:44). CoinGecko shows a 19% drop in the last 24 hours.
Its market capitalization is nearly USD 547m, with some in the community wondering “how on earth” is it worth so much.
Because of the miners’ protest, the team behind Filecoin decided to release 25% token rewards immediately, with no vesting, while the rest will be released within 180 days.
The solution reportedly didn’t satisfy the mining community.
Meanwhile, some are questioning the very basis of a project such as Filecoin. “At the highest level the big problem is that there isn’t much of a market for dodgy storage which has no credible guarantees of long-term availability, but Filecoin has many more walls to smash through before splattering against that steel one,” wrote BitTorrent author Chia project’s Bram Cohen.
The project is starting its Filecoin Liftoff Week today, where they’ll discuss infrastructure, interoperability, and upcoming plans. It will feature speakers such as ConsenSys founder Joe Lubin and Aave CEO Stani Kulechov, among others.
We contacted Filecoin for a comment on the miners’ protest and will update should they reply.