Storage Protocols
Note: Data in this section last updated March 13th, 2022
What is Data Storage?
We’ve discussed methods to import and read data, but another important piece of infrastructure is data storage.
Blockchains consume enormous amounts of data – they are ledgers that grow at exponential rates and every node must possess an exact duplicate of the blockchain.
From the graph below we can already see the growing data needs of the Bitcoin network.
Bitcoin Network Size in Gigabytes
This problem is likely to become much worse in the future for two reasons:
The newer breed of high-performance blockchains consume even more data. Despite being a little over 18 months old, Solana has already produced twice the number of blocks as Ethereum Bitcoin, Cosmos, Polkadot and Algorand combined.
It’s all but certain that we will live in a multi-chain world, meaning that there may be dozens of chains sucking up massive amounts of data.
As such, DeFi needs a reliable method of storing data, and to maintain security, that method must be decentralized.
How Does Decentralized Storage Work?
When it comes to decentralized storage, there are two competing approaches:
Subscription-Based: Users pay monthly fees for storage. This model is used by Filecoin, Sia and Storj and mirrors most existing cloud storage offerings on the market today.
Permanent Storage: Users pay a one-time fee to store their data forever. This model was pioneered by Arweave, and is only possible due to the unique properties of cryptoeconomics.
Both methods have their pros and cons, so let’s dive in a bit more below.
Case Study: Arweave
Founded by hacker and PhD dropout Sam Williams and backed by prominent investors such as a16 and, Union Square Ventures, Arweave is a decentralized network that allows permanent, low-cost and censorship-free storage.
Like many decentralized storage solutions such as Filecoin and Storj, Arweave relies on an independent network of miners to provide unused space on their hard drive to customers in need of data storage.
Where the project differs is in its use of a consensus mechanism known as “Proof of Access”. Proof of Access is unique because it requires miners to verify a random piece of data to receive their rewards. The fact that miners don’t know which piece will be chosen encourages them to hold as much data as possible for as long as possible.
Arweave combines its Proof of Access mechanism with a unique endowment program to incentivize miners to hold data forever. This ability to provide permanent storage is groundbreaking, as this is virtually impossible with existing storage methods. While most people think that today’s internet is timeless, it is shockingly transient. Even now, 70% of Harvard academic journals contain dead links and researchers estimate that over 20 years, 98.4% of links will rot and become totally inaccessible to future generations.
Given it’s unique value proposition, Arweave has achieved significant traction to date, and according to research firm Messari has:
Experienced exponential growth, storing 30TB of data
Generated the second highest network-usage revenue of any Web3 protocol in Q3
Increased the number of developers from 247 in 2019 to 627 in 2021
Growth of Arweave Storage
Ultimately, Arweave hopes to become a modern day “Library of Alexandria” – a global, permanent, community-owned internet that anyone can access, contribute to or get paid to maintain.
Case Study: Filecoin
Founded by Stanford Computer Scientist Juan Benet and backed by Sequoia, Union Square Ventures and Digital Currency Group, Filecoin is a decentralized data storage network.
To maintain the system, the protocol relies on an independent network of three different types of miners:
Storage Miners: Are paid in Filecoin’s native token, FIL, to lend their unused hard drive space to store customer data
Retrieval Miners: Earn FIL by retrieving files from the network
Repair Miners: Responsible for the maintenance and health of the network (at the time of writing, Filecoin has yet to implement this program)
The protocol has had a strong year, and according to their website, as of November 2021 they had:
3,362 storage providers
230+ organizations building on the network and 465+ new projects entering the ecosystem
Who’s Winning the Data Storage Wars?
In terms of network capacity, Filecoin is head and shoulders above everyone else with 76% of the market and Arweave is in dead last with <0.1%.
However, it’s extremely important to remember that this represents capacity, and not usage. When it comes to actual usage, we see a very different story with Arweave recently flipping Filecoin in revenue to become the market leader.
The truth is, it’s probably not a competition as both firms offer very different products. Filecoin will likely be the winner for high-volume, ephemeral storage, where Arweave will likely be the preferred choice to secure highly important files that need to last forever. As such, it’s very likely that the two players will exist in harmony.
Who are the Key Players in the Decentralized Data Storage Market?
In addition to Filecoin and Arweave, BitTorrent, Storj and Siacoin also provide decentralized storage options.
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