Edit: The way I see filecoin working is anyone can post a reward for a file and once the file is provided, the reward is paid. In other words, it's bit like a brokerage that connects downloaders with uploaders. The difficultly is that this brokerage needs to be distributed and resilient.
If that is true, it means that a node can only be profitable if you are freeloading. And if you are freeloading, any price you get will be good which means that it tends to go even further down, perhaps even below the commodity cost. I may be missing something, but I really don't see this going beyond techies with spare disks playing around and definitely no way to run a Filecoin node on a VPS profitably.
Right now if I wanted to compete with Amazon, I could buy 2 or 3 petabytes of storage space and some bandwidth. But nobody would trust me not to lose their data. This is the differentiation that makes cloud storage less of a commodity than it could be. The goal with filecoin is to make it so you don't have to trust me, just some general guarantees about the filecoin network. If amazon for some reason was selling storage on this network, I could compete with them on equal footing (and whoever sold it more cheaply would win).
Many commodities are in close-to-perfect competition. For instance, I don't care if grain comes from England or France, just that it's cheap. While it is very hard to make an economic profit selling grain, many people do farm grain and make enough money to support themselves (The money you pay your workers to survive is one of the costs of producing grain. That's true even if the only worker is you)
If you could make a profit by running a filecoin node on a VPS, everyone would do that. By competing with each other you'd all bring the price down and down until it was no longer more profitable than selling any other commodity (and maybe even lower). So you're right to not expect to be able to do that.
> which is the ideal state for a commodity, there is no economic profit.
No. A commodity is simply any kind of good that is considered equivalent no matter who made it. Oil is a commodity, there is plenty of competition and there is still plenty of profit to be made (current crisis excluded)
> While it is very hard to make an economic profit selling grain, many people do farm grain and many enough money.
The analogy here would be to get people to (a) "farm" disks (and electricity/internet) and (b) with some profit to justify their work. (a) is impossible (except for freeloaders) and you agree with me that (b) seems to be unlikely.
So the question is: who would be interested in taking the supply side of the filecoin network, when there is no profit to be made?
You could hardly say a market dominated by a giant state-sanctioned cartel was a good example of a commodity market in the state of perfect competition.
> So the question is: who would be interested in taking the supply side of the filecoin network, when there is no profit to be made?
There would likely be some short term economic profits at the beginning, which would attract market entrants. The economic profit would tend to zero over time, but keep in mind economic profit as a concept incorporates the notion of the entrepreneur paying themselves a competitive wage for their time.
Point still stands. All else being equal, oil from Saudi Arabia is the same as the oil from Canada or Denmark. If you don't want to use oil as an example, use coffee, milk, chicken meat, soy, cotton, oranges, electricity, potable water...
> There would likely be some short term economic profits at the beginning, which would attract market entrants.
The first market entrants are the ones selling extra capacity they have. For those that already have sunk costs of the disks, sure, they can make a profit on this. My point is that once that capacity is gone and there is more demand for data, people will have to actually go and buy disks and let them run 24/7, and this would cost more per GB stored than they will be able to sell.
The mentioned missing trust could be alleviated by IPFS becoming a widely trusted, distributed, unstoppable service.
My point is exactly that if Filecoin does get to be a place that gets "perfect competition" as you say, then there is no profit to be made. If there is no profit to be made, what is the economic incentive to spend on disks/internet/computers and be a storage seller?
Before you say "there is a market for those with excess capacity", answer me this: if the market is focused on those with excess capacity, what mechanisms are in place this "perfect competition" to remove all chance of profit and get the price of excess capacity to reach basically zero?
I get IPFS, I think. I do believe that it technically it makes sense. What I don't get is Filecoin.
> > which is the ideal state for a commodity, there is no economic profit.
> No. A commodity is simply any kind of good that is considered equivalent no matter who made it. Oil is a commodity, there is plenty of competition and there is still plenty of profit to be made (current crisis excluded)
You cut off the first half of my sentence. The full sentence was:
> In perfect competition, which is the ideal state for a commodity, there is no economic profit.
Oil is not in perfect competition because of OPEC, a gigantic state-sanctioned cartel. Since there's imperfect competition, there can be economic profit.
> who would be interested in taking the supply side of the filecoin network, when there is no profit to be made?
If we assume the filecoin network is technically able to do what it's supposed to, there will likely be profit to be made. Just not economic profit. Economic profit is different from accounting profit because economic profit takes into account opportunity cost.
In the real world many people, such as grain farmers, do seem to be interested in taking the supply side of a transaction even when their economic profit is 0 (or negative). I don't see why filecoin would be any different.
Also, with farming at least there is the notion of resource constraints. To be a farmer one needs to have access to land and dedicate some time to actually work on it.
With storage, unless the hard disk manufacturers start holding their production and use it to offer storage directly, what is the resource that other people can't have?
What would stop anyone to see that Filecoin network bids of (say) $1/TB-month and think "oh, I can buy some disks and offer $0.95/TB-month, and I will get my money back in 3 months", only to be outbid by someone who thinks they can offer $0.90/TB-month and recoup costs in six-months", until we get to the point where the time to break-even gets longer than the lifetime of the disks...
You're not going to be running a node on your spare capacity that brings in more than your costs, in fact unless you're a datacentre operator, you're going to be making a loss.
In the end it favours big centralised services, and IPFS (if it ever takes off) just becomes a rival API to S3.
Ok, now go tell that to the ones that put 257 million USD on the Filecoin ICO and are expecting profits on a growing network!
> undercutting Amazon and friends.
That is so short-sighted. Amazon storage is not priced only due to the cost of storage. If it were, Wasabi would be stealing all of their customers given they charge "only" $6/TB-month, and I could go steal all of their customers because I have a cluster of Minio Servers that cost me $3.50/TB-month.
People are paying Amazon and the other major players a premium is not due to lack of competition or collusion between them or because they are price-sensitive. If they are (like I am), they would figure out how to setup Minio/Ceph and run their own servers.
You are right - there is no reason this would be different. That specialised equipment is storage space here.
Ok. Agreed.
> If all that capacity gets used up, then supply and demand will cause the price to go up until more people add capacity.
Agreed.
> If the price hits the price of cloud hosts, then people will just run tons of Filecoin nodes on cloud hosts.
Not necessarily. I can just buy more disks and run locally, whether for hosting my data or to sell the space on the network, which brings the price back to people-selling-spare-disk-space-for-cheap level.
> Then anyone that can undercut the cloud hosts will be free to run their own Filecoin nodes, and the price will be pushed down as people do this.
Yeah, but that is kind of my point. Everyone will undercut each other until the price hits the bottom. The equilibrium will be at most the commodity price.
If you are using this seemingly free connection capacity, internet access rates should go up, because there is no such thing as a free lunch?
Only if these enthusiasts are willing to take a loss on power.
> If the price hits the price of cloud hosts, then people will just run tons of Filecoin nodes on cloud hosts
Or the cloud hosts themselves will enter the market. The upper bound on the market will be their costs, which will always be lower than the costs of enthusiasts using spare disks at home.
An 8TB HDD doesn't use more power than a 100GB one.
If I only have my data on a disk, I can turn it off anytime. If I am hosting someone else's data and I want to get paid for it, I need to keep the computer running 24/7/365. That costs quite a bit.
But access to it by third parties does, it changes the usage model and increases your electricity costs. This may not be a lot but it doesn't have to be a lot to make your costs more than those of a datacentre operator, not to mention you also need to be online all the time.
The dream of edge-node storage utilisation has never survived in the face of economic analysis.
1) Accounting profit: revenue - expenses. This is colloquially what most people mean when they say "profit". To break even you just need to make enough money to cover your explicit expenses. In your example, you would need to make more in Filecoin income than you spent in disks/electricity/etc.
2) "Normal profit": this is a technical term in microeconomics. Basically this takes into account opportunity cost; the cost of not doing some other profitable thing with your time/money. By these standards, to break even you'd not only have to cover the cost of disks/electricity but also the "opportunity costs" of whatever else you could have been doing with those disks/electricity (like mining Bitcoin), or whatever you could have been doing if you never even purchased those disks to begin with (like investing in the S&P or whatever).
3) "Excess" or "economic" profits. These are extra profits on top of whatever you earn in #2. This is the part that goes to 0 for commodities like milk/gasoline/Filecoin but is non-zero for differentiated products like iphones.
For Filecoin specifically, I would expect that normal profits would probably be above the raw costs of disks and electricity, since it takes some effort to purchase and administer all that hardware, but probably below the cost of renting a VPS, since a VPS is typically used for more profitable things than just sitting around and holding stuff on disk.
> I would expect that normal profits would probably be above the raw costs of disks and electricity, since it takes some effort to purchase and administer all that hardware
No, it doesn't. Most of the people selling the idea of distributed file storage (Filecoin, Storj, Sia) are thinking about getting the excess capacity of everyone's disks and turning into a marketplace. Getting the hardware and administering are sunk costs. Participants are only supposed to download a client, indicate the payout method and ensure that they don't turn off their computers. It's a one-off effort. Even understanding (or pretending to understand) all of the crypto-babble in order to get paid is something that people are supposed to do only once.
This is the part where these different projects are working out their market dynamics and where I get lost about Filecoin:
- With Storj (and Sia, I believe) the price of the data is determined by the governors of the network. Storj last rollout was paying $5/TB-month for every client. There is no bidding war. As long as you could prove you held the data for that period, you would get the money. This makes sense for me - no matter if I am some dude in a basement with a disk on my laptop or if I am a datacenter and I get to charge more than $5/TB-month from my usual customers, my excess capacity can be sold for $5/TB-month and this becomes a simple matter of waiting for the demand to grow.
- With Filecoin the idea is to have a completely open market, where each node says how much they are willing to charge for the data, and what are the constraints (availability, time to retrieval, etc). This leads to possible (inevitable?) bidding wars. No matter the demand curve, there is always someone who will be willing to put the lowest price possible that gets them "something". For excess capacity, this "something" can be effectively zero or whatever is the lowest price possible in the bid. And if it can be zero, the only thing I see helping them would be if the nodes starting cooperating with each other and acting like a cartel.
To be honest, even Storj and Sia are hard sells for me. I wouldn't bet on these projects for a long run and I don't believe that they will actually threaten the current players, but at least I understand the incentive structure. With Filecoin, it can only be profitable when the demand for data storage grows faster than the storage capacity from the network, but no so profitable as to attract people from the demand-side to the supply-side. It's crazy.
How does that work in real life?
Of course, in the shorter term there are many different scenarios where the market is slower to adjust. The STORJ network has been subsidizing their node operators with VC money for example, leading to some excellent unit economics for the early adopters.