What Makes Decentralized Storage the Future of Online Storage Market

The emergence of services like Amazon S3 has revolutionized the world of digital storage, which has led to the fact that users began to practice "going to the clouds" – transferring data from local storage devices to global online storage.

Despite the impressive expansion of the sector, there has been no major revolution since the advent of cloud storage. These services are offered by several large corporations with data centers around the world and countless small and medium IT companies.

But it looks like the next turnover could happen in peer-to-peer (P2P) cooperative storage – aka decentralized storage networks.

Decentralized storage came into being a long time. In the early 2010s, computer scientists began to create the foundation of decentralized storage networks. In particular, Juan Benet founded the development company Protocol Labs in 2014, and in 2017 he raised about $205 million in one of the largest ICOs of that time – Filecoin.

IPFS/Filecoin and other decentralized storage protocols such as Sia, Storj, Arweave, and DeNet have emerged as part of the decentralization movement and the elimination of intermediaries.

Just as Bitcoin replaces traditional banking systems, decentralized storage protocols replace traditional cloud ones by operating a storage network with P2P software and cryptographic protection instead of intermediaries (for example, AWS).

Huge Market

Also like Bitcoin, the total addressable market (TAM) of decentralized storage is huge. The study by Lueth, Wegner, and Hasan suggests that TAM reaches $2 trillion for public cloud computing, with an optimistic scenario reaching dizzying heights of $10 trillion, and a conservative one – about $0.6 trillion.

These estimates take into account the market size of $157 billion in 2021, while experts consider workloads in the public cloud at the level of 15-25%, predicting an increase to 50-75% in the future.

Implementing the concept of storing the planet's most important data in decentralized storage networks is not only a mission for the public good but also an opportunity to participate in hundreds of billions of dollars market.

Web3 applications have huge opportunities to gain significant benefits through the use of a decentralized storage network. It is important for people to understand the transformation of computing that happens behind the scenes when we move from Web2 storage to Web3 storage.

The rest of this article explains why Web3 storages are the future.

State of the Market

Blockchain-enabled decentralized storage has generated explosive interest and rapid spread since the beginning of 2021, which coincided with the growth of the mainstream NFT market and increased interest in Web3. Developers are quickly learning about a new way of storing and processing data that does not depend on centralized services such as AWS.

The new generation of blockchain-enabled cooperative storage clouds not only conforms to the decentralization spirit of Web3 but also offers potential technological advantages over centralized counterparts. It's still early, but some of these protocols have a promising start.

Filecoin is the most prominent project in this emerging market in terms of usage and storage capacity. It has been described as a “P2P version of AWS”, which is perhaps correct since it has eight times more usable space than its main competitor Storj.

In addition, it significantly outperforms its competitors in terms of market capitalization, as shown in the chart below.

Filecoin is just one example of a growing market. Its closest competitors are Sia and Storj as well as Arweave, the leading alternative protocol that meets the needs for permanent storage.

The technologies powering these decentralized storage protocols serve to achieve the two ultimate goals of any data storage service:

• Data availability – means that stored data can be accessed and used quickly and reliably.
• Data integrity – means that the accuracy and consistency of data are maintained throughout their entire lifetime.

At the same time, decentralization provides other several advantages.

How Decentralized Storage Works

The defining feature of decentralized storage in the Web3 technological framework is the use of a permissionless network of nodes, which means that anyone can add storage capacity to these networks and earn rewards.

One of the advantages of a permissionless decentralized storage network is that it creates an open market for storage providers. Some protocols, such as Filecoin, Sia, and Storj, use this open-market feature more explicitly by actively encouraging redundancy.

Others like Arweave use it implicitly by assuming that open-market competition will lead to storage redundancy.

At the heart of all these protocols is the Web3 spirit of transparency and decentralization, which provides several properties that cloud consumers are interested in varying degrees depending on their use case:

1. Resistance to censorship – No single entity can take down content, the open-market approach implies an architecture where data is not locked to a single provider.
2. Resilience – Data integrity is guaranteed by storage redundancy provided by the open-market approach. Redundancy is important for data protection, given the more adverse conditions than a traditional cloud storage environment.
3. Cost – Ideally, the cost will be lower than comparable centralized cloud services due to the pricing efficiency caused by open-market competition.

One of the main problems faced by progressive decentralization in Web3 is how to store large amounts of data in a decentralized way. At the same time, it is necessary to take into account the prohibitively high costs of storing data directly in such popular blockchains like Bitcoin and Ethereum, which are not designed to store large files (for example, NFT metadata and hypermedia). For example, storing 1 GB of data on the Ethereum blockchain will cost about $20 million.

Bitcoin and Ethereum intentionally target a block size and a state growth rate to enable thousands of validator nodes. These goals require a level of computing and storage redundancy. It makes them unsuitable for large cloud storage since a fault-tolerant decentralized consensus needs replication, processing, and storage of data on all full nodes.

In contrast, storage networks such as Filecoin separate the consensus aspect of their blockchain from the storage of files. Blockchain and smart contracts serve to coordinate incentives and record storage status in accordance with a general consensus that can be verified by users.

Decentralized Storage Use Cases

NFT and Web3 Storage

One of the main options for using decentralized storage is storing NFT metadata and hypermedia. NFT metadata refers to a JSON document that includes descriptive information about an NFT, such as its name, what it is about, a link to the associated hypermedia, traits, attributes, etc.

NFT hypermedia refers to the graphics, audio, and video representing digital art, profile images, collectibles, music, and so forth that people are paying to own when buying NFTs.

By the beginning of 2021, it became obvious that NFT adoption was reaching the mainstream. Since blockchains are not designed to store large data files such as NFT metadata and hypermedia, many such files were not being stored in a decentralized and secure way as people expected. Therefore, to protect the content and value of NFTs, a decentralized storage network should be used.

Similarly, Web3 applications are in dire need of decentralized and verifiable data storage.

Dev Tools

Another area that is rapidly developing in the decentralized storage ecosystem is developer tools and the communities that are forming around them. From integrative development environments to web hosting and various services to facilitate file and code storage and usage, it is becoming clear that using decentralized storage greatly simplifies:

• creation of a development environment;
• website hosting;
• organization of automated storage;
• creation of code storage and management systems;
• development of file storage, viewing, and sharing services.

New Ways to Use

In theory, decentralized storage should support any use case, while offering some unique advantages such as immutability, permanence, and transaction tracking that could make it a more attractive option depending on the nature of the app's storage features.

Looking at the emerging decentralized storage ecosystems, the possible applications of decentralized and persistent storage are numerous and diverse, including:

• ​​metaverse/games (Gala Games);
• social networks/communication (Matrix);
• content publishing (Koii);
• content delivery networks (Myel);
• permanent storage/Web2 datasets (Lighthouse.Storage);
• audio/video (Audius);
• decentralized identity (ION);
• decentralized computing platforms (Ceramic);
• profit sharing tokens;

And this is not a complete list. Currently, there are already hundreds of projects related to new options for using decentralized storage and an ecosystem based on it (e.g. DeNet and its Open Economy 3.0 concept).

Conclusion

Blockchain- and crypto-enabled decentralized storage is on a promising development, and its rapid implementation in 2021-2022 shows promise for the tech and incentive systems powering decentralized storage networks.

Active communities that support ecosystems of decentralized storage networks are likely to continue to develop new features for them. On the technological front, there are many opportunities to support these systems.

But we must wait for greater adoption to see how sustainable, scalable, and reliable such systems are and whether they will be able to ensure the operation of web applications that use storage intensively in the future.

Technologies powering decentralized storage and their advantages, such as low-latency content addressing, object-oriented key-value databases, as well as zero-knowledge proofs, and economic games for providing trustless service guarantees, allow us to assume that these goals can be achieved.

At the same time, it should be remembered that the success of these protocols depends on the applications built on their basis. At the moment, NFT and the organization of data storage for Web3 applications are the most prominent use cases, but in the future, more and more new applications will appear in various fields, from audio/video to games, computing, etc.

And this will one day lead to the fact that global decentralized storage networks accumulate a large part of the cloud storage market.

Special thanks to Hiroki Kotabe, author of “Decentralized Storage: A Primer” research.

Also published here.