The decentralized file storage sector is part of the Rad 30 Crypto Composite, which tracks 30 crypto assets across 10 different sectors similar to how the S&P 500 and the NASDAQ Composite track stocks. These 10 sectors, we argue, are particularly prone to decentralization.
https://medium.com/crypto-oracle/why-decentralizing-file-storage-matters-dc77f5a6a3ccCloud file storage (file storage) has been the talk of the town in recent years — and it’s not just because Dropbox is “unleash[ing] the world’s creative energy.”
File storage is a large market, reaching $31b in 2017 and expected to grow at a 24% CAGR through 2022, reaching $89b. Dropbox (Ticker: DBX) raised a total of $1.7b in venture financing and then an additional $756m through its IPO. Box (Ticker: BOX) raised $559m in venture financing and $175m through its IPO. These market sizes and dollars should have any heads turning.
Unsurprisingly, the decentralized file equivalents has attracted a substantial amount of capital. We’ve identified 13 decentralized file storage platforms that have raised a total of $325m. The 6 traded platforms have an aggregate market cap of $1.5b (as of yesterday May
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Decentralized file storage is crucial for decentralized applications (dApps). Decentralized file storage adds to the infrastructural backbone for dApps. These services enable dApps to store files outside of a blockchain but also in a decentralized manner. If dApps were to use centralized file storage services, then they subject themselves to the same censorship and central-point-of-failures issues that most centralized services have.
Moreover, decentralized file storage services have the potential to offer a cheaper and more secure option than centralized services, potentially posing a threat to legacy infrastructure platforms like Amazon’s S3 or Dropbox.
The rise of decentralized networks has enticed entrepreneurs to build the next wave of file storage platforms. One that can’t be hacked, one that is uncensorable, and one that will have continuous uptime. But, can these platforms work out? We explore below…
“Cloud services cut both ways in terms of security: you get off-site backup and disaster recovery, but you entrust your secrets to somebody else’s hands. Doing the latter increases your exposure to government surveillance and the potential for deliberate or inadvertent breaches of your confidential files.” — Barton Gellman, Former Time Journalist
To even begin to understand the benefits of decentralization, one most first understand issues of centralized file storage providers.
- Central Points of Failure: All it takes is one centralized platform to fail, to witness the detrimental effects. In 2014, a bug in the iCloud software enabled hackers to get access to immensely private and intimate videos and pictures of celebrities. In 2017, a typo led to Amazon’s S3 file storage system to go down for close to five hours. This outage impacted many businesses that relied on S3 to host their files and data. Subsequently, users were unable to access Slack, GitHub, Expedia, and a slew of other platform. Using centralized platforms means that users have to trust them to be reliable and protect their assets. Those that live by the platform will ultimately die by the platform.
- Censorship: Centralized platforms have the ability to both onboard and offload users to and from its services. This ability enables platforms to censor users, as seen in the case of Amazon and the Chinese government. In 2017, bowing to the pressure from the Chinese government, Amazon told its local Chinese customers that those using software that circumvents the country’s system of internet blocks will have their websites shut down and access to AWS revoked. This prevention effectively censored customers from accessing important services necessary for running their businesses.
- Oligopolistic: The file storage market, while currently competitive (in terms of pricing), has shown oligopolistic features. In the fourth quarter of 2017, just three companies (Amazon, Google, and Microsoft) controlled 94% of the cloud service market share.
How does decentralization help?
“When decentralized blockchain protocols start displacing the centralized web services that dominate the current Internet, we’ll start to see real internet-based sovereignty. The future Internet will be decentralized.” — Olaf Carlson-Wee, Crypto Fund Manager
With the problems facing centralized file storage providers, how do decentralized services solve them?
- Central Points of Failure → Distributed Networks: Instead of having a small number of server farms storing data and files, decentralized file storage platforms have no single points of failure. Files uploaded onto Storj are digitally shredded into smaller pieces and stored across a network of servers contributed by multiple independent parties. Even if one of these parties is attacked and shut down, the file uploader will still have access to their files as it is distributed across multiple servers.
- Censorship → Uncensorable: Open decentralized platforms are by their very nature uncensorable. Users and the content they upload cannot be censored on these platforms. No single entity can prevent a user from uploading files they disagree with or are “illegal”. Moreover, because no single entity can dictate platform access, decentralized platforms cannot be pressured by government actors or corporations from censoring individuals.
- Oligopolistic → Competitive Marketplace: Instead of having a few businesses controlling file storage services, decentralized platforms, in theory, will have multiple service providers. In fact, Sia has close to 900 providers that are storing files for users. This prevents price collusion and encourages fair and competitive pricing. Compared to Amazon S3 which charges between $20-$30/TB/month for file storage, Sia’s prices its storage service at ~$2/TB/month.
Why do we care about decentralizing file storage?
When we first started the Rad 30 Crypto Composite (RAD 30), we examined numerous different industries that were ripe for decentralization. File storage is a sector that shows clear signals that decentralization is approaching.
Since the start of Q2 2018, the file storage sector is up 86.4% and the RAD 30 is up 86.8%. Over the same period BTC and ETH are up 32.4% and 89.9% respectively. The RAD 30 is a gauge for the overall crypto market and helps any informed member of the economy understand which sectors have the greatest potential of decentralization.
