In the middle of the hype around initial coin offerings — the fundraising phenomenon that has raised $1.2 billion in crowdsales this year for new projects, many of them little more than white papers — there are serious entrepreneurs focused on building transformative technology.
Their vision is usually of a decentralized internet dubbed Web 3.0. While it’s not entirely clear what this next-generation web will look like or whether it will actually come to fruition — the early days of the internet were full of idealistic visions of peer-to-peer communication, and now everyone talks to each other on centralized platforms like Google, Facebook and iMessage — one emerging hypothesis is that one of the earliest pieces of it to be built will be a decentralized infrastructure layer.
One prime example of infrastructure is data storage, which has several projects competing to take on the likes of Amazon Web Services — all of them doing so with a native cryptocurrency or token that incentivizes each actor in the network to engage in various acts such as offering storage on the network or paying for disk space.
One of the most anticipated of these, Filecoin, launches its token sale, which features some innovative design choices, next Thursday, July 27 –
“The amount of storage that is out there that is not in use is enormous,” says Juan Benet, founder of Protocol Labs,
The company behind Filecoin which is also known for its other initiative, the InterPlanetary File System (IPFS), a system that aims to create a more resilient web. Benet estimated that the amount of unused disk storage is “hundreds of exabytes” — with one exabyte being equal to quintillion bytes (100018).
“All that storage is getting depreciated and wasted and a lot of people are losing money every second,” says Benet. “All that storage could be put online and actually provide a valuable service to the world, and it could drop the price of storage significantly.”
Filecoin’s initial coin offering is also notable because it is pioneering a new method for holding token sales that attempts to address one of the questions hanging over these crowdsales: whether or not they are legal.
Since the Securities and Exchange Commission has not yet commented on whether crypto tokens that also function as equity in their networks are securities, the industry has largely tried to self-regulate. Protocol Labs, in conjunction with AngelList whose chief executive and cofounder Naval Ravikant is a Protocol Labs investor, has created a new venture announced in May — CoinList, which plans to connect investors with new tokens. Filecoin is the first offering available on the site. Protocol Labs’ other investors include Union Square Ventures, Y Combinator, Digital Currency Group, Winklevoss Capital and Fred Ehrsam, cofounder of Coinbase.
What makes CoinList certain that its token sale is legal is that it is restricting its buyers to accredited investors — the exclusive group of people with net worths of more than $1 million or incomes of $200,000 a year or more — who will have to complete U.S. investor accreditation and know-your-customer/anti-money laundering processes in advance of the sale. (It is also looking into allowing accredited investors in other jurisdictions to participate in the crowdsale.)
Benet addresses the criticism that requiring investors to be accredited contravenes the democratizing aspect of ICOs thus: Describing how risky these projects are because they are attempting to build unproven technology, he says, “this isn’t a standard investment or something so certain you can take a bank loan for. Instead it’s something you go to VCs for to help assess the risk involved …. We think that a number of investments being created in the space have significant risk — and whether that risk means only accredited can participate is a jurisdiction question.”
Comparing the boom in token sales to previous eras when people were suckered into buying stocks for bogus companies:
he says- “We will see a ton of projects being created that are just trying to create a quick buck rather than create something valuable for the long-term. … The regulations are in place for a reason.”
The other two innovations Filecoin is adopting for its ICO are meant to address some of the current problems of token sales — the first being the “ticket scalper” problem in which buyers during the ICO immediately dump the coins for a quick profit when trading opens on exchanges, which usually represents millions that developers could have instead earned to fund their project. This simultaneously has an adverse effect on the price of the token because having huge amounts of liquidity dumped on the market can cause large price fluctuations.
Instead, Filecoin will offer discounts based on vesting periods, so buyers who choose longer vesting periods, say, four years, receive larger discounts than those who choose a vesting period of two years. “We want the investors who want the network to grow and be good and solid,” says Benet.
Only 10% of tokens will be released in the sale, and while similarly small percentages will be reserved for the company and the Filecoin Foundation, the remaining 70% will be used to reward miners of the blockchain-based network, who will be incentivized to run the network by the possibility of winning new Filecoin. The token sale will accept U.S. dollars from AngelList investor accounts, as well as Bitcoin, Ethereum and Zcash.
Filecoin enters an already crowded field, with Siacoin, MaidsafeCoin and Storj also tackling decentralized storage. Sia, which recently received a $400,000 grant from Chinese blockchain investor Li Xiaolai’s INBlockchain, currently have 1,000 hosts offering more than 3 PB (which are 1015 bytes) of storage. Storj, however, has undergone leadership changes, with the CEO/CTO shifted to chief strategy officer and the chief operating officer/chief financial officer resigning, seemingly in protest of that change. At the same time, the value of the Storj coin has dropped, although it’s not clear if some of that has to do with a migration from one blockchain to another, which requires holders of the token to convert their tokens to the new form.
Filecoin, whose network won’t launch for another six months to a year, plans to differentiate its offering with some new technology, including something called “proof of replication.” Blockchains like Bitcoin’s and Ethereum’s use something called proof of work to secure the chain — to ensure that work goes into adding to it and that work, therefore, would need to be done in order to undo any part of the chain. While this is what keeps Bitcoin and Ethereum secure, it also uses a tremendous amount of electricity, which some view as a waste.
Filecoin, however, created a proof system that it calls useful rather than wasteful. While, in Bitcoin and Ethereum, the computers running the network compete to see who can compute faster, computers on the Filecoin network will compete to see which can store more files. Proof of replication asks computers on the network to prove that they are multiple independent copies of a file — replicates. As in Bitcoin where computers with more power will more often be the first to solve the constantly released math problems that result in the winning computer being awarded new bitcoins, computers in Filecoin that put more file storage on the system will more often win the Filecoin block reward. The system also awards more coins to computers that serve their data faster and make the network more efficient, such as those placed in crowded cities.
Original Author (source article): Laura Shin