Storage Wars, Blockchain Style

Start ups Storj and Sia are leveraging blockchain technology, cryptographic hashing methods, and peer to peer markets to decrease cost and increase security in the cloud storage market.

Written on: August 30

Some of the innovative applications for blockchain and bitcoin will only emerge after the technologies have had time to develop, much like it took many years for skype to emerge after the creation of the internet. Others are really obvious, and should disrupt existing business models any day now. Content storage fits into this latter category.

The Content Storage Market Today

In its current form, content storers pay companies a monthly, annual, or storage-size-based fee to stick files, pictures, videos or whatever into massive cloud storage platforms. This is now ridiculously cheap (provided you don't use Apple's iCloud). From a price perspective, Amazon's unlimited cloud storage sets the bar. For $60, you can use as much storage space as you would like - which basically laps the rest of the market. Dropbox offers one terabyte for $100 annually, OneDrive for $84, and Google Drive for $120 (and up to 15 gigs for free!)

So why would a highly competitive market with falling prices need to be disrupted?

Get ready for it: Cloud storage does not Actually Store Content in Clouds

Cloud storage is a very misleading term. It conjures up images of some floating storage apparatus, floating in the air light as a feather, existing nowhere and everywhere. False. Cloud storage companies have massive data centers with enormous servers hosting your data. And this is, of course, why the cloud storage market is dominated by the biggest names in the web: Amazon, Google, Apple, Microsoft (and wee little Drop Box who actually stores your content on Amazon's S3 servers).

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And Amazon will probably end up putting DropBox out of business. Yes, DropBox does offer a more seamless experience between different devices, but we aren't betting against Amazon's ability to deliver this in the near future. On the strictly content storage side, DropBox is just a middleman - why would end users pay dropbox to provide Amazon storage when they can go directly to Amazon for cheaper? And why would Amazon want the narrower margins of a DropBox customer when they can easily handle distribution themselves?

We are short on DropBox unless they take our free advice at the end of the article.

Super, Sounds Cheap.

Eh, not so super. The above process serves to aggregate all our information within the servers of a few mega-companies, which is against the spirit of the internet. As we have written elsewhere, the internet was meant to decentralize information and thus maintain censorship resistance and privacy. The current content storage market is the opposite of that, and this has some negatives. First, assuming that today's mega-corporations will not use our personal information to serve us creepier and creepier targeted advertising (And if you believe that, I've got a bridge to sell you), who is to say tomorrow's management will be similarly ethically constrained? By giving them the information, we effectively outsource our personal privacy settings.

Secondly, who is to say they can adequately secure our information? The massive data centers used to house our information are also massive targets for hackers, and any would-be blackmailers or other baddies should have no problem tracking down, for instance, Jeff Bezos if they are in dire need of accessing information. Sound far-fetched? Well, the US government just lost millions of highly classified documents to Chinese government hackers. Sure hope the Chinese would be above blackmailing US security personnel!

OK, that is Not so Super, but it is Cheaper.

Yes, but for how long? Massive servers and server space cost a lot of money. So does additional storage expenses, depreciation, employees, office space, etc - all factors that contribute towards overhead affecting costs and thus the price. No less important, these companies are answerable to shareholders who like profits to be maximized. So there will be cost pressures from the bottom and profit pressure from the top, both pushing to adjust pricing, and eventually these pressures will come to bear.

So How Can Things be Kept Cheap and Super?

As far as price is concerned, cutting out the overhead and removing profit maximization pressures sure would help. Two very interesting companies, Storj and Sia, are doing just this. They have created content storage markets in which buyers and sellers of content space are connected via a peer to peer platform. The platform manages the actual distribution of content to storage and collects and distributes payment according to smart contract.

The contracts are written into Sia's proprietary blockchain while Storj works on the bitcoin blockchain using the counterparty protocol. Both can be set up for as long or short as required, with settlement managed every hour to insure neither side reneges on the deal. For instance, an annual contract for 1TB of storage is broken down into hourly installments, which are transferred to relevant storage holders. If a storage supplier pulls out of the contract the files will simply be stored elsewhere and the new supplier will begin receiving payment. Such a mechanism is only made possible if micropayments are cost effective - essentially free - which is achievable using cryptocurrencies like bitcoin - or storjcoin or siacoin.

The content itself is encrypted, broken into shards, and distributed across multiple computers. To ensure content redundancy, the same shards will be distributed to multiple computers as well, so that if a specific computer is offline the content can be pulled from a number of backups on the network. The computers in this network, otherwise known as nodes, act as a decentralized method of serving the client. All of this is managed autonomously according to an open source software program, which cannot be altered without majority consent of the network. From a security perspective, this makes the network theoretically impervious to attack. The platform is hosted everywhere and nowhere, and there is no central authority to pressure.

And if Sia or Storj can build up a decent network, and that is a big if, it has the potential to be much, much cheaper. Rather than rent out massive data centers to store huge servers, idle hard drive space has been repurposed through these peer-to-peer networks as cloud storage. This slashes drastically the overhead implicit in central models.

Opportunity for Drop Box

There are obvious synergies here with, for instance, Drop Box. Although their CEO disagrees, in the long run it will be extremely difficult for them to compete on price, and Amazon should be able to replicate the added value services offered. Were Drop Box to leverage Storj/Sia technology, they should be able to lower their prices to get close to Amazon, and without the same security/privacy concerns. That would shift the battlefield.

In any event, it is worthwhile to keep an eye on Storj and Sia, both of which can be purchased on Poloniex. They are interesting in and of their own right, and there are obvious synergies that might interest companies like Drop Box.

Bitcoin Price (USD): 752.07