Decentralized Storage
Note: Data in this section last updated May 28th, 2022
What is Data Storage?
Technically, blockchains are databases. But they aren’t very good databases as they can only hold small amounts of information. For instance, a recent study estimated that it costs $40K to store 1MB on the Ethereum network – that’s roughly 1/3rd of the size of the average photo taken by an iPhone!
As such, the images for most NFTs aren’t actually stored on a blockchain, only a URL that points to these images is. The actual .jpeg (image) file is stored on a third-party database.
To reduce concerns of centralization, we are now seeing the development of decentralized databases, which aim to preserve the integrity of NFTs by using the same underlying technology to split, encrypt and store data across multiple locations. This offers several benefits, including:
No Censorship: There’s no centralized third party that can remove your data or tell you what you can and can’t store
No Single Point of Failure: Because identical copies of your information is scattered and stored across multiple nodes, there is little chance of outages, data loss or distributed denial of service attacks (“DDoS” where malicious actors use bots to overload a site with traffic)
Lower Costs: Decentralized storage may ultimately turn out to be much cheaper and more efficient than our current “cloud” infrastructure
Two of the largest decentralized storage services are IFPS and Arweave.
How Does Decentralized Storage Work?
To understand how decentralized storage works, let’s look at the largest player in the space – Filecoin.
Launched in 2017 by Stanford Computer Scientist Juan Benet and backed by Sequoia, Union Square Ventures and Digital Currency Group, Filecoin is a decentralized data storage network.
The protocol allows users to store data – such as NFTS, audio and video content, metaverse and gaming assets and even Web 2.0 data sets – on its IFPS network. IFPS is a global, peer-to-peer marketplace that relies on an independent network of miners to provide unused space on their hard drive to customers in need of storage.
To maintain the system, the project relies on an independent network of three different types of miners:
Storage Miners: Storage Miners lend their unused hard drive space to store customer data. In return, they are paid in Filecoin’s native token, FIL. To ensure security, the platform breaks down customer data into fragments and stores them across the network
Retrieval Miners: Customers pay Retrieval Miners a fee in FIL to fetch their data for them (to be implemented)
Repair Miners: Repair Miners are responsible for the maintenance and health of the network (to be implemented)
Overview of the Filecoin Ecosystem
In order to ensure that miners upload and continuously store data, Filecoin uses cryptoeconomic incentives. Miners are required to provide collateral in FIL and periodically asked to provide two types of cryptographic proofs:
Proof of Replication: To ensure that storage providers have uploaded the correct data, the network requires miners to provide a zero-knowledge proof that demonstrates that they have received the data and are indeed hosting it on their computers
Proof of Spacetime: To ensure that miners continue to store that data (and not delete it), the network will periodically require miners to verify a random piece of data
If a miner fails to pass either of these tests, they will lose their collateral.
The protocol has had a strong year, and according to their website, experienced significant growth across several key metrics during the period of January 1st, 2021 to January 1st, 2022. In particular:
Storage Miners: Grew from 856 to 3,600+ (321%)
Network Capacity: Expanded from 1.69 EiB to 14+ EiB (8x)
Unique Clients: Increased from 584 to 703 (20%)
Storage Deals: Grew from 699K to 1M+ s (43%)
Total Data Stored: Expanded from 1.578 PiB to 25+ PiB (15x)
Filecoin is trusted by numerous Web3 projects – including OpenSea, Magic Eden, Polygon, Solana, Metaverse AI and Audius – and it generated over $1.3B in revenue in 2021. (Note: Filecoin’s revenue has declined substantially in 2022 due to a decrease in fees)
Who are the Key Players?
In addition to Filecoin, other notable players in the space include Arweave, BitTorrent, Storj and Siacoin.
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