Filecoin (FIL) Crypto Trading Guide: What Is Filecoin?

With interest in cryptocurrencies and related CFDs having been on an uptrend over the course of recent years, you may wish to get more information on particular subsects of the crypto sector. Below, we’ll take a deep dive into Filecoin (FILUSD), its history and trading dynamics, and how you can incorporate its CFDs into your personal portfolio.

Main Points

• Filecoin incentivizes a global network of miners to provide decentralised file storage and sharing services, enhancing data security and privacy.


• Filecoin operates with the Interplanetary File System (IPFS), combining open-access data storage with economic incentives for miners through Filecoin tokens.


• Users pay storage providers (SPs) in FIL tokens for storing and retrieving data, with FIL encouraging network participation and maintaining integrity.


• Filecoin offers alternatives to centralised cloud storage, supports Content Distribution Networks (CDNs), and ensures secure, decentralised storage for blockchain applications and dApps.


• Filecoin CFDs allow speculation on price movements without owning the asset, offering leverage for larger positions which increases risk and requires careful risk management.

What Is Filecoin?

Filecoin, a cryptocurrency, was designed with the aim of creating an incentive for a global network of computer operators to provide decentralised file storage and sharing services. Unlike traditional cloud storage solutions that rely on centralised servers, Filecoin leverages a decentralised network of miners who contribute their computing resources to store and retrieve data. These miners are compensated with Filecoin tokens for providing storage space and processing power.

The underlying principle of Filecoin is to create a marketplace where users can efficiently store and access data at competitive prices without depending on a single centralised authority. This decentralised approach not only aims to enhance data security and privacy but also prevents censorship of stored information by any singular entity, including governments or other intermediaries.

Filecoin operates in conjunction with the Interplanetary File System (IPFS), another decentralised protocol for file storage and sharing. While IPFS allows users to store and retrieve data freely, Filecoin introduces an economic incentive model where users pay miners in Filecoin tokens for storage, retrieval, or distribution services. This dual-layered system combines the benefits of IPFS's open-access architecture with Filecoin's economic incentives for miners, creating a robust ecosystem for decentralised data handling.

History of Filecoin

The beginnings of Filecoin’s story lie in the 2014 founding of Protocol Labs, a firm focused in research & development, by Juan Benet. Three years later, the company launched Filecoin. In addition to its role as a decentralised storage network, it also functions as the incentive layer for InterPlanetary File System, a peer-to-peer (P2P) protocol also developed by the same firm.

In the competitive landscape of decentralised storage solutions, Filecoin tends to stand out due to its substantial initial funding and ambitious goals. It raised $205.8 million in its 2017 initial coin offering (ICO), one of the largest in the industry at the time. While similar protocols like Storj and Siacoin also offer decentralised storage solutions, Filecoin's extensive funding and development efforts have positioned it as a leading contender in revolutionising how data is stored and shared globally.

How Does Filecoin Work?

Filecoin functions as a decentralised storage network where "miners" provide storage space in exchange for Filecoin tokens, of which there are more than half-a-billion in circulation as of June 2024. Prices for storage are influenced by factors such as the amount of available storage and the urgency of data retrieval.

Users with extra storage capacity can become storage providers on the Filecoin network. These providers, known as SPs, offer their unused disk space for storing and retrieving data. Clients in need of storage pay SPs in FIL to store their data on the network. Additionally, there are retrieval providers (RPs) who focus on providing quick access to data rather than long-term storage. While storage providers often also handle data retrieval, standalone RPs are becoming more common.

Clients use FIL to pay for storage and retrieval services, and providers earn FIL by contributing storage space. The economic incentives created by FIL encourage participation and help maintain the network's integrity.

Potential Uses of Filecoin

Filecoin's decentralised storage network offers several potential applications. It provides a robust alternative to centralised cloud storage services like AWS and Google Cloud by decentralising storage, which can lower costs and increase redundancy. Organisations can use Filecoin to store backups and archives securely and affordably, with the added benefit of decentralised data retrieval. Filecoin can support Content Distribution Networks (CDNs) by distributing content across multiple nodes, ensuring faster and more reliable access to data. Its decentralised nature makes it ideal for preserving data that needs to be protected from censorship and tampering. Moreover, Filecoin can provide the storage layer for blockchain applications and decentralised applications (dApps), ensuring decentralised storage for data and digital assets.

Filecoin's tokenomics are designed to align incentives across the network. In its 2017 Initial Coin Offering (ICO), Filecoin raised significant funds for development, distributing FIL tokens to early investors when the network launched. FIL tokens are distributed among miners, Protocol Labs teams, the Filecoin Foundation, and investors. Mining rewards are subject to a vesting schedule to ensure long-term network stability. For example, one quarter of rewards can be harvested immediately, while the remainder are vested over a period of six months. The total supply of FIL tokens is capped, established during the ICO and subsequent sales.

Using a Proof of Replication (PoRep) consensus mechanism, miners are rewarded with newly minted FIL for providing storage and maintaining the network. Clients pay for storage with FIL, and storage providers earn FIL by renting out their space. Market dynamics influence storage pricing. Filecoin's economic model creates incentives for storage providers, clients, and miners to participate and maintain the network. Additionally, Filecoin undergoes periodic upgrades to enhance performance, security, and functionality, which can impact tokenomics and involve stakeholder participation. The tokenomics and governance structures of Filecoin evolve over time, adapting to the network's growth and technological advancements.

Where Can I Trade Filecoin CFDs?

With regard to the CFD trading arena, there are many different CFD providers, each of which offering their own potential advantages and drawbacks for the customer. One of these platforms is Plus500, and we will explain below how you can begin trading Filecoin CFDs on Plus500’s intuitive CFD trading platform:

How to Trade Filecoin CFDs with Plus500

In just a few steps, you can jump into Filecoin CFD trading with Plus500:

1. Open and verify your Plus500 trading account.


2. Log in to the Plus500 trading platform.


3. Locate Filecoin CFDs in the crypto category section or use the search bar.


4. Assess the current market conditions for Filecoin to adapt your chosen trading strategy accordingly.


5. Consider the potential use of available risk management tools as needed.


6. Click "Buy" or "Sell" to execute your trade and monitor its progress.

What Influences the Price of Filecoin?

The price of Filecoin is influenced by multiple factors. Key among these are the general mechanics of supply and demand for decentralised storage solutions and the adoption rate of the Filecoin network. Additionally, the performance of the broader cryptocurrency market plays a significant role.

Regulatory changes implemented in various jurisdictions can also impact investor sentiment and price movements. Technological developments, including upgrades and innovations within the Filecoin network, can also drive price fluctuations. Market speculation and investor behaviour, based on these elements, further contribute to the price dynamics of Filecoin.

Filecoin Trading Hours

While cryptocurrency markets themselves operate around the clock, when trading Filecoin CFDs with Plus500, from 12:00 to 13:00 GMT on Sunday, trading is unavailable.

Filecoin Trading Strategies

As with other cryptocurrency CFDs, there are a few popular trading strategies often used by traders taking part in the market. Let’s take a closer at three of them:

• Day Trading: This strategy involves buying and selling within the same day to capitalise on short-term market movements. Traders closely monitor news and trends, such as a major tech company investing in a cryptocurrency, which might cause a price surge. For example, buying Filecoin in the morning and selling it by afternoon after a price increase can yield quick profits, although it also comes with the potential for significant financial losses as with all sectors of CFD trading.


• Buy-and-Hold: This long-term strategy entails purchasing a cryptocurrency and holding onto it despite market fluctuations. It requires patience and belief in the cryptocurrency’s future potential. For instance, buying Filecoin and holding it for several years could result in substantial profits if its value increases significantly over time, although the opposite is the case if market sentiment toward Filecoin changes for the worse.


• High-Frequency Trading: HFT involves executing numerous trades in short intervals. For example, opening a CFD position on Filecoin at its current price and then closing the position a very short time later when its price moves marginally upward, and then repeating this many times, is one way in which Filecoin CFD traders may make use of this strategy.

CFD Filecoin Trading Example

Now let’s look at how Filecoin CFD trading may look in practise for two different traders, whom we’ll call Brenda and Bobby:

Brenda Makes a Profit

Brenda decides to trade Filecoin CFDs on the Plus500 platform. She believes the price of Filecoin will increase in the short term due to positive news about a new partnership. First, Brenda opens a buy position on 100 Filecoin at $30 per FIL, with a total investment of $3,000.

Over the next two days, the price of Filecoin rises to $35 per FIL due to the anticipated partnership. Brenda decides to close her position to lock in profits. With the price of Filecoin having risen by $5 since the time she opened her position, Brenda ends her trading cycle with a $500 profit.

Bobby Absorbs a Loss

Bobby also decides to trade Filecoin CFDs on the Plus500 platform. He expects the price of Filecoin to rise but wants to manage risk with stop-loss orders. When Bobby opens his buy position on 100 FIL, Filecoin is at $30 like it was when Brenda opened hers, but he takes the extra step of setting a stop-loss order at $27 to limit potential losses.

Contrary to Bobby's expectations, the price of Filecoin drops due to unfavourable market news, reaching $27. The stop-loss order he set is triggered, and his position is automatically closed at $27. As is often the case when CFD trading, Bobby must absorb the loss incurred from unexpected market volatility, and he loses $300.

Filecoin CFD Trading vs. Exchange Trading

Filecoin CFDs offer a distinct approach compared to traditional Filecoin trading. With CFDs, you don't actually own Filecoin. Instead, you speculate on its price movement through a contract with a provider. This contrasts with traditional trading, where you buy and own Filecoin through a crypto exchange. In CFD trading, you profit or make a loss from the difference in Filecoin's price between when you open and close the contract. If the price moves as you predicted, you gain; if not, you incur a loss. Traditional trading involves directly buying Filecoin, making you responsible for managing and securing your holdings.

A feature of CFD trading is the leverage, which allows you to control larger positions with a smaller capital investment, which can amplify both gains and losses. However, you don't own the actual asset.

Traditional trading provides access to a broader range of cryptocurrencies and full ownership, enabling long-term holding, staking, and lending. But it sometimes may require a more active and involved approach to trading due to the need to manage transactions and security-related issues more closely. Moreover, both methods involve different fee structures and regulatory considerations, with CFDs subject to varying rules across jurisdictions. Understanding these differences is crucial for choosing the right trading strategy based on your investment goals and risk tolerance.

Conclusion

In conclusion, Filecoin's innovative approach to decentralised storage offers numerous benefits over traditional methods, with its robust network of miners providing secure, affordable, and censorship-resistant data storage. Whether you're trading Filecoin directly on exchanges or through CFDs, understanding the nuances and strategic opportunities of each method can help you make informed decisions. By leveraging the unique advantages and mitigating the risks associated with each approach, investors can better navigate the dynamic landscape of cryptocurrency trading and storage solutions, while also needing to persistently keep in mind the potential risks associated with Filecoin trading in general and Filecoin CFD trading in particular.

FAQs

What is the market cap of Filecoin?

As of late June 2024, Filecoin’s market cap is over $2.4 billion.

What is the current price of Filecoin?

Filecoin’s price movements can be rapid, and you can track them in real time here.

What other assets are similar to Filecoin?

Other crypto coins like Bitcoin (BTCUSD) and Ethereum (ETHUSD), among others, may be considered as being similar to Filecoin.

How many Filecoin are there?

There are over 500 million Filecoin in circulation as of June 2024.