Cryptocurrencies have blown up so fast that most people haven’t stopped to consider the varying levels of utility in the various protocols. If you speak to people about cryptocurrencies, they usually get focused on the use case as a digital world currency.
Bitcoin is the most well-known cryptocurrency for this reason. Its use case is as a digital currency that allows for borderless commerce, which means there is a massive audience. At the same time, it means there are a lot of people competing in the same space.
But when you get past the conception of cryptocurrencies having the pure utility of buying goods, the idea of utility tokens becomes possible. The same way that euros are good for buying goods in Europe and Canadian dollars are good for buying goods in Canada, each coin has a certain utility it permits access to.
Utility Tokens Are Aimed at Certain Niches
Ethereum is one such example of a utility token (ether) which is then exchanged for computation, rather than goods. Another token that has received a lot of publicity is Filecoin. In short, Filecoin is an opensource cryptocurrency that was designed to facilitate the sharing of computer storage. You pay in Filecoin for the right to store your data on someone else’s computer.
The idea is so simple, as it is essentially an extension of Uber or Airbnb in that users are able to maximize the utilization rate of their storage systems by renting it out. And once you are in possession of Filecoin, it is easily converable into USD, BTC, or ETH.
At the same time, a marketplace for storage space is created, which results in competition pushing the prices down to make them more affordable.
By creating a market for data storage which is scalable enough to bring a lot of vendors and users to the market, Filecoin has a chance to capitalize on a complex problem with an elegant solution.
Background on Filecoin
The company was founded by Protocol Labs and raised $52 million in its Pre-ICO, followed by $200 million during the full ICO. Protocol Labs is a research, development, and deployment lab that creates network protocols like the ones that support Filecoin.
The ICO was executed in early August and raised money from 2,100+ investors. 30% of the tokens went to the genesis group, and the other 70% went to Filecoin miners. The genesis group was split up between Protocol Labs, investors, and the Filecoin Foundation. The first two parties are self-explanatory, but the 5% that went to Filecoin Foundation can be explained as money that is set aside for the long-term governance of the protocol, as well as community building and partner support.
The Filecoin token, FIL, is used to pay for storage, retrieval, and any other transactions on the network. Like many other tokens, the monetary policy is defined by having a limited supply that is set by the token sale. Just like with Bitcoin, you have minting earning block rewards in order to incentivize miners to maintain the network.
Filecoin’s Competitive Advantage
There are obvious security issues that must be faced. Most people have enough issues putting their data in the cloud, let alone on the computer of someone who is looking to make extra cash. This is why a protocol like Filecoin is necessary.
Centralized applications like Evernote and Dropbox have their own vulnerabilities that have come out over the past few years, and Filecoin can hopefully create a solution that transcends these issues.
By using strong end-to-end encryption, Filecoin makes it impossible for your data to ever be read while it is on another user’s computer. Additionally, you can be assured that none of your data is being stored on Filecoin’s servers, lest they be compromised.
When you deal with hosts on Airbnb, they are still a big part of the process. They set things up and make sure you get the keys and the place is clean. Filecoin works differently than that by handling all the file transfer and payment transactions. In this sense, it is not only decentralized away from there being company error, but also from vendor error or malpractice.
Filecoin Solves a Problem
In conclusion, Filecoin is enabling the reliable storage of data at hypercompetitive prices, by creating a scalable market for storage. Unlike mass cryptocurrencies like Bitcoin, utility tokens have specific uses, which is where all their value comes from.
The result is a coin that is scarce and can be used to purchase storage on others’ computers – a valuable resource in its own right. Filecoin has the right backing and seems to be building towards its goal in a sustainable manner, which makes it a token to watch in the near future.
Featured image courtesy of Shutterstock.
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