In this article, we present our thesis on Filecoin. We start by providing an overview of the current storage solutions and their main problems. We then highlight the benefits of decentralized storage and the most promising developments in the Filecoin ecosystem. Filecoin is still commonly viewed as a mere storage network. While that was its main focus for the first two years, recent developments position it as a potential successor to AWS: * **Storage:** The leading decentralized storage network has seen a 10x growth in deals stored over the last 12 months, with the potential for a 100x expansion; * **Retrieval:** The first decentralized CDN, launched less than a year ago, has rapidly become the world’s third most distributed CDN, boasting 2.500 points of presence and operating at 10% of Cloudflare’s capacity; * **Compute:** This year several teams started developing unique types of computation layers optimized for specific use cases, from training to inference. Computation can now be performed without the need for expensive and time-consuming data transfers; * **Programmability:** The Filecoin Virtual Machine (FVM) already hosts more than 2.500 unique smart contracts deployed across storage, retrieval, and compute, attracting over half a million users to its blockchain; * **Consensus:** A new consensus mechanism is in the works to be launched in 2024 and many of these developments are enhancing the utility of the deflationary FIL token. Individually, each of these verticals has the potential to lead its category and become a multi-billion dollar business. Collectively, they position Filecoin as one of the most unique blockchains in the world, poised to host the next generation of applications. Welcome to our thesis.

## Data nowadays The volume of data being produced nowadays is growing at an exponential rate. In 2010, the world produced and consumed 2 Zettabytes (ZiB), the equivalent of 2 billion terabytes (TiB), according to Statista. This figure skyrocketed to approximately 47 ZiB in 2020, and projections suggest it could surpass 2000 ZiB by 2035. Looking at these numbers reveals an expected growth of more than 10x over the next decade. ![](https://lightshift-website.s3.amazonaws.com/1702329667384_Blog_Illustrations_2.007.jpeg) *Source: Statista Digital Economy Compass 2019* It is no secret the area of driving insights from data through artificial intelligence, or AI, has experienced tremendous growth in recent years. One can even say it became "the darling" of 2023. This surge in AI-driven initiatives has led to a massive increase in computing demand. Companies providing services in the intersection of storage and compute were the ones benefiting the most, notably Microsoft (with Microsoft Azure), Google (with Google Cloud), and Amazon (with Amazon Web Services, or “AWS”). AWS, in particular, became a giant, nearly doubling its revenue in two years, surpassing $80 billion. With a comprehensive offering that includes storage, computing, networking, and software as a service, it is known that a significant share of its revenue comes from storage and compute, with an anticipated shift towards computing contributing to 50% of revenues in the next few years. EC2 computing service, which enables customers to rent virtual slices of physical computer servers in Amazon data centers, significantly influences this revenue growth. ![](https://lightshift-website.s3.amazonaws.com/1702329950627_Blog_Illustrations_2.006.jpeg) *Source: Annual revenue of Amazon Web Services (AWS) from 2013 to 2022, Source: statista, in million USDollar* AWS accomplishments are not limited to what it generates but also to its ability to take. The storage service (S3) is estimated to have a gross margin of around 50%. What initially started as a side venture at Amazon has now evolved into its primary business. In 2021, AWS contributed to a remarkable 74% of Amazon’s operating profit, a company valued at more than $1.5 trillion. However, despite the tremendous growth, opportunities, and lucrative margins, the current market faces substantial challenges starting with its concentration. In 2021, merely four players owned 70% of the market, with two of them holding more than half of it. ![](https://lightshift-website.s3.amazonaws.com/1702329975646_Blog_Illustrations_2.008.jpeg) *Source: Synergy Research Group via Statista* This concentration itself is not only a catalyst but also reinforces deeper issues. The stated large margins, of more than 50% in several of its products, come mostly from the elevated prices that these players can apply. Once the data is stored, there is a vendor lock-in effect, limiting users’ ability to search for alternatives. While initially moving data into Amazon S3 is cost-free, transferring one TiB out of it costs three times more than the monthly storage fee. Moreover, centralized cloud storage as it is offered today faces several issues that must be addressed. Noteworthy examples from the list include: i) the vulnerability associated with a single point of failure that comes with centralization, leading to potential data breaches and outages; ii) the loss of control and susceptibility to censorship in many jurisdictions, requiring clients to trust their storage provider; iii) the difficulty in verifying data quality; and iv) the need to comply with all regulatory requirements, including aspects like encryption standards, geographical location, or data permanence. Each one of the above-mentioned cases carries more significance than may initially appear. Combined, they merge into a flawed product. The biggest evidence lies in the incapacity of the largest players to fully “trust” these solutions. When we analyze the technology stack of any major financial institution, such as JP Morgan, we notice that a significant portion of their data, and especially the most sensitive part, cannot be stored on the cloud. This stance is even enforced by the regulators! Consequently, these institutions are compelled to invest in dedicated hardware and software, assemble their own specialized teams, pay millions in consulting fees, establish large on-premise solutions, and constantly maintain this infrastructure solely to store their data. The inefficiencies with on-premise and centralized storage solutions lead to numerous issues for the end user as well. A case in point is JP Morgan’s permanent deletion of over 47 million emails “by mistake”. This situation opens the door for some of the world’s largest, most powerful and centralized institutions to protect themselves, control information or change the narrative. However, the repercussions extend beyond first-order effects. For these entities, the ability to operate without leaving a trace and the challenges associated with data verification might even be seen as features rather than bugs. The second-order effects are where things get critical. Whether as clients of JPMorgan, citizens under a government, or users of any other centralized party, we are subject to the ripple effects of hidden, deleted, or manipulated data. And this is what blockchain is here to change. Far beyond money applications, blockchain is positioned to safeguard our data sovereignty, identity, or any other type of ownership. Blockchain offers a foundation that doesn't demand blind trust but can be subjected to verification.

## Decentralized Storage The goal is to establish a fully decentralized web powered by open services. A decentralized storage service leverages cryptographic proofs and encryption to ensure data verifiability, as well as economic incentives to align the participation of multiple actors. This allows scaling the supply side with contributions from anyone while imposing penalties in case of service failure. Altogether, this results in a free market that significantly enhances efficiency and reduces prices to the end user. There are several advantages to decentralized storage that are quickly making it a go-to solution. The table below provides a comparison between the three types of alternatives in the market: ![](https://lightshift-website.s3.amazonaws.com/1702330108930_Blog_Illustrations_2.005.jpeg)

### Filecoin as the Main Decentralized Storage Network The Filecoin network, launched in October 2020, introduced an incentive layer on top of the InterPlanetary File System (IPFS). The IPFS protocol establishes permanent data references, allowing the decoupling of data from a particular location and facilitating retrieval from multiple sources at once in a peer-to-peer manner. As described in its whitepaper, “IPFS is a peer-to-peer distributed file system that seeks to connect all computing devices with the same system of files.” In other words, IPFS allows us to reimagine how to build applications, emphasizing reliance on data rather than specific service providers such as AWS. **Consequently, it is possible to reduce dependence on particular machines, cloud providers or storage networks, minimize data siloing, and ultimately create references to data.** Today, Filecoin stands as the largest decentralized storage provider, maintaining a primary focus on storage during its initial two years since network inception. And this is how we believe Filecoin is still perceived - a simple data storage alternative. Despite that, the protocol has now shifted its focus to supporting services that allow not only storage but also data transfer, computation, and application development. It is this transformative aspect that particularly excites us the most and where, in our opinion, substantial untapped potential lies. We can observe on Filecoin the following: * **Storage** - Ranking as the world’s largest decentralized storage network, boasting over 3.500 storage providers and around 10 EiBs of capacity; * **Retrieval** - Post-storage, retrieval markets allow accessibility, usage and transfer of stored data for applications; * **Compute** - Just like we observe at AWS, compute experiences massive demand, and there are several teams building decentralized compute capabilities on top of the data stored on Filecoin; * **FVM** - The Filecoin Virtual Machine was just recently launched and empowers the creation of programmable applications across the above-mentioned domains, unlocking unlimited new use cases. You can learn more about the Filecoin Master Plan [here](https://www.youtube.com/watch?v=sHvdBRj3kxE&t=123s). ![](https://lightshift-website.s3.amazonaws.com/1702330255065_Blog_Illustrations_2.004.jpeg) In the upcoming sections, we analyze each of these verticals, exploring their potential as substantial opportunities, and how, collectively, they converge to establish one of the most impactful and relevant decentralized services.

## Storage Filecoin started this journey by building a network of storage providers entrusted with safeguarding users' data. In just two years, this network experienced significant expansion and demand, presently serving nearly 1800 clients with an impressive 1.7 exabytes (EiB) of data. This extremely decentralized network with over 3500 nodes serves more than 54 million storage deals (for more real-time statistics check [here)](https://storage.filecoin.io/). Not only that, the network currently operates at a mere 12% of its total capacity, demonstrating its scalability and adaptability to fluctuating supply and demand. As a comparison, it is estimated that in its first 18 months alone, Filecoin outpaced the cumulative storage of Amazon, Google and Microsoft by 2012 (businesses that started their storage services in 2006, 2008, and 2010, respectively). Among its clientele are some of the largest institutions such as the CERN, the Internet Archive, and Wikipedia, several leading universities from UC Berkeley to the University of Utah, as well as prominent blockchain projects like Solana, Near, and OpenSea. ![](https://lightshift-website.s3.amazonaws.com/1702334082803_Asset%206%400.5x.png) Filecoin is fueling the most diverse use cases. As an example, the Shoah Foundation is actively working on the Starling project, utilizing Filecoin as a consensus mechanism to provide context to images and videos, ultimately contributing to the preservation of human rights. This initiative involves archiving social media content from platforms like Telegram, TikTok, and various websites, meticulously documenting events, including war crimes, in regions such as Ukraine or Syria. We are excited about all the conditions that have been created to support Storage Providers (SPs), while making participating in the network more appealing. First, it is important to notice that SPs have recently encountered challenges due to Filecoin’s price fluctuations, with many of these SP businesses being established when Filecoin was valued at around $40/$50. Similar to the Bitcoin network, most of the costs are denominated in dollars, while rewards are received in tokens, and therefore leading SPs to suffer significant exposure to market value fluctuations. *Revenue = $feeschargedtoendusers + ($FILprice #blockrewards) Costs = $hardware + $sales&marketing + $laborpower + $expenses(suchaselectricity) + $floorspaces + ( $FILprice #tokenstolockascollateral)* We are happy to witness several initiatives that not only promise to boost margins for SPs but also alleviate the need to liquidate Filecoin rewards to cover costs: * [ESPA](https://www.web3espa.io/) has developed a comprehensive bootcamp designed facilitate the onboarding process for SPs; * [Supranational](https://www.supranational.net/about) is significantly reducing sealing server costs by up to 90% and total decentralized storage costs by up to 40%; * Projects such as [Haven](https://www.havendp.com) (institutional) and [Glif](https://www.glif.io/en) (retail) are sourcing tokens for SPs to lock as collateral, offering token holders a yield on their assets. The current demand for Filecoin exceeds availability due to SPs capital constrains; * [Banyan](https://www.banyan.computer/) is actively contributing by bringing several new deals to the network further expanding demand and simplifying the onboarding process for SPs, handling several aspects from sealing to compliance and branding; * An increasing number of storage deals will be paid in USDC by clients to storage providers, since nowadays a considerable number of deals are currently being subsidized by the network; * The growth of compute will create a new revenue stream, providing additional incentives to participate in the network and further reducing the exposure to Fil+ rewards on storage deals; * Last but not least, all these developments hold the potential to increase the price of Filecoin tokens, which obviously and consequently alleviates the pressure to sell the same number of tokens. After establishing and improving the supply side, the focus now is to stimulate demand. As of January 1, 2022, the network was storing 24 PiB of data, and this figure increased to 461 PiB by January 1 of the following year. During the same period, the number of deals escalated from 1M to nearly 17M, while the number of organizations building on the network almost doubled, reaching a total of 600. In the last quarter alone, active deals grew 45% QoQ and are almost 10x more than one year ago. ![](https://lightshift-website.s3.amazonaws.com/1702334332393_Blog_Illustrations_2.003.jpeg) *Source: Total Active Deals in PiB, Starboard* Even with these impressive metrics, there is considerable room for growth. It is hard to precisely estimate AWS’ storage capacity, however the company disclosed that they had managed 100 trillion objects this year. Assuming an average object size of 1-2MB, we come to a total of at least 100 to 200 EiB of data. Adding redundancy, we could be talking about 160 EiB to 600EiB. According to IDC, the world is projected to store over 2000 ZiBs of data by 2035, which translates into between 3.000 to 12.000 AWS-scale storage capacities! Given this perspective, Filecoin could still grow another 10x to reach just 10% of Amazon’s scale, and an additional 10x in terms of TAM over the next decade, indicating an overall 100x potential. Let’s not forget to mention that the network’s characteristics enable it to offer much better pricing conditions to clients, potentially accelerating its market share growth. Currently, we can conservatively assume that across SPs, Filecoin is at least 5 times cheaper than centralized providers - you can check a comparison at file.app [here](https://file.app/). These conditions, foster an environment where Filecoin with its decentralized architecture can more easily fulfill exponential demand, without an upfront capital commitment and the risk of a low utilization ratio faced by centralized companies. To achieve this growth, Filecoin is also expanding the range of products and clientele it can serve. Storage usually works in sets of 32 GB and 64GB, with “aggregators” and “wholesalers” handling smaller data amounts, like photos or videos from several clients, which are then packaged into 32GB packages to be allocated to SPs. Simultaneously, institutional services like Filecoin Web Services are being developed to facilitate the onboarding and management of larger sets of data. As a testament to that, large database clients (those with over 1000 TiB) grew 25% this quarter, with more than 400 clients onboarding large datasets. ![](https://lightshift-website.s3.amazonaws.com/1702334377726_Blog_Illustrations_2.002.jpeg) *Source: Large dataset clients (>1000 TiB), Starboard - observableHQ*

## Retrieval Once the data is stored, clients need efficient access, whether for opening a website or streaming a movie on Netflix. Presently, this service is mostly provided through CDNs or Content Delivery Networks such as Cloudflare, Akamai, and Fastfly. Similarly to what we observed in data storage, on top of centralized services, the CDN market is extremely concentrated, with seven providers catering to over 80% of the demand. This concentration poses several problems, from outages, as observed with CloudFlare in 2022, to latency and difficulty in accessing data, especially in locations distant from data centers. Hence, we are excited to observe [The Filecoin Retrieval Market Initiative](https://retrieval.market/) building decentralized CDNs for the Filecoin Network. One notable launch is [Saturn](https://saturn.tech/), introduced in December 2022 as a Web3 CDN. Similarly to the storage network, any node operator can participate and earn Filecoin, serving websites seeking rapid content delivery at a low cost. Through its decentralized nature, we can make sure that all the content going through the network is immutable and that all the responses are verifiable. Today, Saturn is already one of the most distributed CDNs, with 2500 points of presence across 59 countries, a remarkable feat considering it had only 662 nodes one year ago. Akamai, with 35% market share, offers 4000 nodes, followed by Alibaba with 2.8k nodes. This holds considerable relevance given that users want to load content extremely fast and the proximity to the nearest CDN plays a pivotal role in achieving this. [Titan Network](https://www.titannet.io/) another decentralized CDN, already counts with more than 80 nodes. Decentralized CDNs are already retrieving 160 million requests with 80 TB of bandwidth on a daily basis. While there is still significant room for improvement, as its 80 ms median time to first byte (TTFB) can be further reduced as the network densifies, it already is at around 10% of Cloudflare’s capacity, The CDN market itself has significant growth potential. In 2022, it was estimated at $20 billion and is projected to surpass $100 billion by 2032. From another perspective, the demand for accessing content surpasses that of storing the data to be retrieved, indicating a significantly larger market.

## Compute Filecoin is now opening the doors to a new era of computing capabilities on top of its network. After data storage and retrieval, we can finally focus on leveraging data for various purposes. Clients will gain access to thousands of machines with substantial computing power, all interconnected on the same global network, and at the cheapest rates. On top of it, **Filecoin holds two unique advantages that set it apart: compute over data, and support for different computing types.** Compute over data presents a game-changing advantage by increasing speed and reducing costs. One of the most significat challenges in the field is the need to move data to the place of computation. To put things in perspective, downloading 175 ZiBs of data at current bandwidth could take around 1.8 billions years. Added to regulatory restrictions, this is pratically unfeasible. Filecoin addresses this by leveraging the existing compute resources of storage providers, such as GPUs and CPUs, to perform these actions where the data already is. Moreover, Filecoin interestingly introduces the flexibility to accommodate different types of compute. In the wake of the AI boom, several ideas have emerged with the need for training or inference of models, or unique types of computation, from zk proofs to FHE (fully homomorphic encryption). Different uses cases need different types of compute in order to optimize for: * Privacy: and data security, essential for most applications * Performance: encompassing speed, latency or efficiency * Verifiability: optimizing for correctness, a crucial aspect for decentralized systems ![](https://lightshift-website.s3.amazonaws.com/1702334546932_Blog_Illustrations_2.001.jpeg) *Source: Juan's Triangle, Decentralized Compute: What It Unlocks and Why It Matters Now, by Filecoin* Therefore, we anticipate the emergence of different types of compute and networks being built atop of the data of Filecoin. Powering not just one type of compute, these networks will be optimized for the most unique functions and use cases. In fact, the possibility of using bridges to compute data from other chains adds an additional layer of versatility. Currently, over 10 teams are actively working on several initiatives. The compute over data ([CoD](https://www.cod.cloud/)) group is already building several use cases. The US Navy just announced its use of Bacalhau to manage predictive maintenance workloads. [Lilypad](https://docs.lilypadnetwork.org/) is also being developed on top of Bacalhau’s open source code. [Io.net](https://io.net/) is starting to target Filecoin SPs for GPU cycles as well. [Fluence](https://fluence.network/) is another company building a decentralized serverless computing platform.

## FVM - Ecosystem Filecoin is bringing the capacity to build applications on top of storage, retrieval and compute. Having developed a Layer 0 infrastructure centered around data storage, it is now building a Layer 1 of its own. Once again, this new layer leverages the capabilities of the storage network, making each one of the SPs in it a validator as well. Launched on March 14, 2023, the [Filecoin Virtual Machine](https://fvm.filecoin.io/) operates as a WebAssembly (WASM) virtual machine supporting the Ethereum VM. Its goal of supporting many other foreign runtimes, such as MoveVM, makes it extremely easy to deploy any smart contract. To date it already counts with: * 100+ teams actively building in the ecosystem, having raised over $500M - check the projects [here](https://ecosystem.filecoin.io/) and explore all hackathons [here](https://hackathons.filecoin.io/); * 2.300+ unique smart contracts deployed; * 570.000+ unique users; You can check these and many other stats on [starboard](https://dashboard.starboard.ventures/dashboard), as well as on the Filecoin explorers [Filutils](https://www.filutils.com/en/) or [Filfox](https://filfox.info/en). Anticipating tremendous growth in the ecosystem in the coming months, foundational elements are being established, including: i) a bridge - Axelar is already fully operational, bridging funds to and from Filecoin; ii) an AMM - Sushiswap is already deployed and Uniswap was approved; iii) a lending protocol, a stablecoin and an oracle - these are currently in development, with ongoing discussions with several of the major providers to deploy on Filecoin. As we lay this foundation, our enthusiasm builds for the multitude of possibilities on the horizon: * **Data Daos**: We believe Filecoin will be a hub for data curation and monetization, fostering communities to effortlessly source, clean, and manipulate data, creating unique datasets with monetization potential, empowering the Web3 ecosystem. We expect to see decentralized weather tools that pool insights together being fairly rewarded, or even map versions similar to Waze; * **Permanent Storage**: Initiatives like [Lighthouse](https://www.lighthouse.storage/) and others are already building permanent storage solutions, similar to Arweave with particular characteristics and twists tailored for unique use cases; * **Data tools and applications:** While the capacity for easy and reliable data storage was the selling point of the last decade, the upcoming era pivots towards the capacity to create applications on top of it. Developers from all over the world will be contributing with tools, applications and new protocols, fostering open and transparent data management, just like they have been doing with DeFi over the past years. This shift holds the key to differentiating Filecoin from centralized providers, establishing robust network effects and paving the way to a trillion-dollar open data economy; * **DeFi:** The potential impact of Filecoin on DeFi is often overlooked. The increased storage capacity for transaction and interaction data, coupled with the ability to process and derive insights, could revolutionize decentralized exchanges (dexes) and on-chain strategies; * **Personal server:** The individual stack is set to grow tremendously and we can expect decentralized storage solutions tailored for “the personal computer” protocols, such as Urbit, allowing individuals to securely host all their data on their end; * **Others:** The FVM has compiled a request for startups list [here](https://rfs.fvm.dev/) in case you are looking for inspiration and opportunities in this landscape.

## Developments and Tokenomics On top of storage, retrieval, compute, and the application layer, we can find two pivotal developments in Filecoin’s roadmap: IPC and a new consensus mechanism. The first development is the introduction of a new consensus mechanism known as the Interplanetary Consensus, or [IPC](https://ipc.space/#applications). IPC can deploy new subnets, each tailored with unique parameters and characteristics to better serve specific use cases. As the number of applications on top of Filecoin grows, optimization for each use case becomes paramount to prevent congestion, and, in particular, potential impacts on storage providers. Second, Protocol Labs is developing a new consensus on the network that will significantly reduce finality to 10 to 30 seconds. This leap in efficiency will allow many other applications to be created on top of the FVM. The growth that each layer is experiencing, compounding on each other, has the potential to also impact Filecoin’s tokenomics. Therefore, due to all the developments listed in this article, FIL token is expected to witness an increase in utility: * More data stored requires more FIL to be locked as collateral; * Storage, retrieval, and compute require FIL for execution; * The FVM, along with its applications, requires FIL to initiate transactions, attracting more TVL for various purposes; * IPC increases the demand fo FIL, both locked and consumed, across its subnets and customized chains. **It is important to notice that, just like on Ethereum, tokens are not only used as payment but are also burned. The design of the network is similar to the EIP-1559 burning tokens to compensate for the resources used, aligning with the goal of the network to transition toward a deflationary model shortly.**

## Now is the time to build! Web2 like infrastructure will only bring us web2 like applications. In order to build unprecedented applications, we need a paradigm shift to the current web3 infrastructure. So far, there are only a handful of projects embodying this new paradigm, with Filecoin emerging as a potential cornerstone. Positioned as an infrastructure that can handle substantial storage and compute demands to power global-scale applications, Filecoin stands out as a unique chain capable of hosting protocols with unparalleled characteristics. That, we believe, wouldn't be possible anywhere else. It is when we combine all the features above, not just the FVM, but the FVM in contact with storage, retrieval and compute, that we unlock never-seen use cases. Users' priorities are evolving. **The concern is not where their data is stored, be it on AWS, Google or Azure. In fact, this was never a concern. In the near future, users will care if their data is in the Filecoin network and whether they have the capacity to access all the services on top of it. Being with a centralized data provider will be seen almost as “cold storage”, since all the data will be prevented from interacting with a range of applications and opportunities that everyone is using. The difference is in the ecosystem and in the composability that truly decentralized applications unlock.** **This is the true power and benefit of Filecoin - its ability to separate software from hardware. While in the traditional cloud model, clients are constrained to a single provider, in this new model, applications, software and data can be distributed across different hardware sources, ranging from the client’s proprietary infrastructure to smaller outsourced providers or even major platforms like Amazon. Filecoin breaks walled gardens and introduces a composable platform.** AWS, the leader in the market for a long time now, owes its leadership to a forward-thinking approach, evolving from S3 and simple storage to a truly global visualization platform, pioneering microservices, and later the serverless model.However, the next wave of innovations that will catapult the future web companies hinges on decentralization, and that is where Filecoin holds a distinctive advantage. Soon, we will see not only the emergence of the next defi application but also the next EC2, Lambda, and many other developments that today seem obvious. We eagerly look for the most ambitious founders creating the applications of the future around data, compute and artificial intelligence. If you are building, feel free to reach out. For more insights and for updates on Filecoin’s ecosystem, you can follow Lightshift on [Twitter](https://twitter.com/Lightshift_xyz) and and check out [Filecoin TLDR](https://filecointldr.io/). A special thank you to [@jnthnvctr](https://twitter.com/jnthnvctr), [@holdenbrad](https://twitter.com/holdenbrad), [@raulvk](https://twitter.com/raulvk), [@daviddias](https://twitter.com/daviddias), and other extremely smart people from the PL ecosystem; [@dotcuriouscat](https://twitter.com/dotcuriouscat) and [@evanbfish](https://twitter.com/evanbfish) at Portal VC, [@_laudiacay](https://twitter.com/_laudiacay) at Banyan, and many others for their invaluable comments and contributions to this article.

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The future of composable data