Crypto Mining – What are the differences between Bitcoin and Filecoin? And what are the opportunities for data centers/MSP’s?

I have been asked many times over the past few months to explain the differences between Bitcoin and Filecoin mining from the data center perspective. Many data center operators are very reluctant to lease space to “miners'' and often conflate any cryptocurrency mining with Bitcoin mining. Many operators have had poor experiences with Bitcoin miners in the past for issues such as excessive power consumption and suddenly exiting the business and terminating contracts.?

What do Bitcoin and Filecoin have in common?? Both are cryptocurrencies that operate on distributed ledgers (“blockchains”). And, like all cryptocurrencies, they operate on algorithms where control and decision making are managed through a decentralized network of participants. This is where the similarities end.?

The Bitcoin token principally functions as an electronic store of value – think a form of digital gold. It can easily transfer value globally yet is much easier to manage, store, and divide than gold. Filecoin is, instead, a utility token whereby actual utility is derived from use of the cryptocurrency. Filecoin is focused on decentralized storage.?

Filecoin “miners” are called Storage Providers within the Filecoin ecosystem. The ultimate goal of any Filecoin Storage Provider is to support Enterprise end users on the Filecoin IPFS (InterPlanetary File System) protocol developed by Protocol Labs. PiKNiK, for example, is a large storage provider on the Filecoin network in North America. We operate in world class data centers, support end users on long term contracts and charge for our services in US dollars. Filecoin Storage Providers provide customers with data characteristics that other cloud storage providers cannot such as immutability, audit, portability and material cost savings.??

Proof of Work vs Proof of Stake - Both Bitcoin and Filecoin operate on a token-based system whereby participants are rewarded for their activity within the decentralized network.? Bitcoin is well known as operating on a Proof of Work basis. The cryptographic puzzles that are solved by miners for verifying transactions on the network are extremely compute intensive and require massive amounts of energy to operate. Filecoin providers operate on both a Proof-of-Space and Proof-of-Stake basis, both of which are materially less compute intensive and therefore require a small fraction of the power to operate. Read about the focus that Filecoin has regarding the ESG and accountability of the blockchain to drive towards a carbon negative future: Filecoin Green

Rewards are generated by the network for operators who dedicate storage space to the network. Participants also must stake Filecoin as collateral which guarantees their long-term performance for customers. One can think of “FIL,” the cryptocurrency of the Filecoin network as basically a form of Marketing Development Funds to fuel the incentives to build out the network.?

Scale required to participate –Bitcoin mining is dominated by very large miners that are often publicly traded and operate on a massive scale. There is a limited opportunity for new entrepreneurs to participate in Bitcoin mining today without joining a mining pool whereby participants combine resources to compete with larger providers. Filecoin storage providers can start relatively small and can scale as they grow.??

Ground Floor - Bitcoin has been around for 13 years and over 90% of all Bitcoin to be ever mined has been distributed. Filecoin, on the other hand, has only been active for 15 months and only 8% of tokens to be distributed have been earned to-date. This represents a material opportunity for entrepreneurs, MSP’s, data center and storage providers to enter the market. Filecoin represents a fantastic path for Web2 storage providers to enter the Web3 decentralized world and take advantage of token economics while delivering a new generation service that customers need. Data center operators should embrace Filecoin Storage Providers as they support enterprise customers, sign long term contracts at market prices and consume relatively little power compared to other crypto currency participants.?

Summary – The Filecoin blockchain represents a unique opportunity for providers to enter the Web3 decentralized world for storing the vast amount of data that is generated today and will be generated in the future. Learn how to become a Filecoin Storage Provider by attending our Accelerator program: ESPA (web3espa.io) #datacenter #bitcoin #crypto #blockchain