Data-backed research into how new P2P storage marketplaces are disrupting traditional cloud-based storage providers like Dropbox and Box. Written for the layperson in plain English, backed by our proprietary algorithms and data.
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This is the on-demand Webinar on decentralized file storage and sharing on the blockchain presented by Covalent. Over the next 20 minutes, we’re going to deep dive into why the decentralized file sharing and storage space matters. We’re then going to define what makes up the sector, what the end-users and markets care about, how is decentralization addressing these market needs, what is disruptive about the decentralization thesis, market sizing and sector ranking, and an analysis of the top players on the Blockchain. Finally, in conclusion, the strengths, weaknesses, opportunities, and threats that face the sector over the coming years.
Hi, I’m Ganesh Swami and I’m the CEO and Co-founder of Covalent. At Covalent, we use data to cut the noise and bring transparency to the crypto market. Crypto today is in a very interesting juncture. Without data, it’s difficult to know what to pay attention to and what to ignore. With our data-backed research, we bring a strategic vantage point to you that has never been done before. This understanding and transparency is critical for mass market adoption of crypto. Our research methodology is based on the AUDIT method, an acronym that stands for Actionable, Understandable, Data-driven, In-depth, Timely information. To learn more about the AUDIT method, take a look at the accompanying material.
Some of the featured platforms on this Webinar are Filecoin, Siacoin, Maidsafe, Storj and Bluzelle. We’re only focused on post-ICO companies, and therefore, these companies and tokens are actively trading and being used on the Blockchain.
The first question you must ask is, “Why pay attention to the decentralized file storage and sharing space?”
Cloud file storage platforms are transformative because instead of using a local computer storage to store files and photos which at times could take up gigabytes of space, you use third-party sellers from Dropbox, Box, Google Drive and Microsoft One Drive. The Cloud Storage Market is estimated to grow to $74 billion by 2021 and it’s a massive space.
What defines the decentralized file storage and sharing space? We define the space with two key attributes. First is the peer-to-peer nature of the service. The fact that you can rent your unused storage on a decentralized platform to offset your costs is groundbreaking. Peer-to-peer is one of the major pillars for the decentralized space. This attribute allows for increased download and upload speeds, because every file being downloaded is from a number of hosts across the network. Peer-to-peer has this interesting attribute where the storage costs decrease as the number of peers in the network increases.
The second key attribute is the use of data encryption. Centralized platforms offer limited data encryption which can often lead to security breaches. The key point here is that your private key used to encrypt your data is held with the decentralized storage provider. Encryption plays a huge role in the excellent security and privacy that decentralized platforms have.
Data files are fully encrypted and broken into shards before storing across different hosts on the network. Only the user who is uploading the data has access to it using their private encryption key. This is unparalleled data security that centralized platforms can never match.
The next topic, we’re going to explore is what end-users and the market care about. At Covalent, we have assessed the storage platforms according to the five critical capabilities. Decentralized storage platforms are in the nascent stage and are often not targeting enterprise use cases yet. The first need is data security. End-users care that no one except themselves have access to their files.
The second need is system speed. The service needs to offer fast upload and download speeds. The third is consumers are very conscious about pricing. As more and more data is being stored, end-users care deeply about costs. The fourth key requirement is data privacy.
It’s important to make the distinction between data security and data privacy.
Imagine a window. There are two scenarios. First you could have metal bars that prevent objects from entering the window. That’s security, people can still look through the window and offers no privacy. Secondly, you can drape the blinds across the window that offers privacy, but no security because you can always throw something in. Therefore the combination of drapes plus metal bars offers the best privacy and security. End-users definitely care about privacy.
The final point is integration. End-users care that their storage provider integrates with your existing platforms like Slack and Autodesk.
The next topic we’re going to look at is, what is the decentralization thesis. Oftentimes, end-users don’t really care about decentralization per se, what they care more about is how the platforms are fulfilling their needs. Specifically with the storage space, we match the solution provided by decentralization storage platforms with the market needs. Decentralization platforms offer excellent security, there’s no single point of failure in these truly peer-to-peer decentralized systems.
For instance, files uploaded onto storage 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.
With regards to system speed, the decentralized platforms provide average to good speeds. All of the issues with system speeds come down due to lack of adoption. We see tremendous potential because the speed offered by the network would grow up with the increase in the number of hosts.
More tokens are given for faster access speeds and larger storage capacity, incentivizing an arms race to keep the network growing. People subscribing to decentralized storage platforms enjoy the benefits of extremely low fees. This can be attributed to the business model of having multiple service providers or data hosts. In fact, Sia which is a decentralized platform has close to 700 providers that are storing files for users. This prevents price collusion, encourages fair and competitive pricing. Further, these platforms hope to get cheaper as the network and adoption picks up.
When it comes to data privacy, these decentralized storage platforms offer excellent privacy. Decentralized platforms by their very nature cannot be censored, files are encrypted before being stored on the network to ensure user privacy. For example, Sia uses file contracts to ensure file hosts stay on the network because no single entity can dictate who has platform access, decentralized platforms cannot be pressured by government actors or corporations from censoring individuals.
This brings up the possibility of illegal content on these platforms and strategies like “shard greylisting” have come up to ensure that these platforms are functioning within society’s legal and ethical norms. The decentralized platforms today offer very poor integration with different platforms. This feature at the moment is not highlighted in any of the white papers or in any future plans by these decentralized platforms, but you can expect more maturity along these feature sets as these platforms gain more adoption. The next topic we’re going to explore is what is disruptive about these decentralized platforms. The first point we explore is if there’s a business model disruption. In the fourth quarter of 2017, just three companies: Amazon, Google, and Microsoft controlled about 90% of the cloud service market share. Because of this consolidation, companies are able to charge 10X to 100X their core costs. Decentralized platforms enjoy decreased costs, as they don’t store identities on the network.
The second point is transparency or data provenance. Data provenance can be defined as the process of tracing and recording the origins of data, and its movement between databases. This point is highly relevant for the decentralized space because data on the blockchain is immutable.
The third point is a single point of failure. In 2017, a typo led to Amazon’s S3 file storage system to go down for close to five hours, which greatly impacted the operation of many businesses. Because client side encryption is non-standard, the traditional cloud is vulnerable to a variety of security threats. Decentralized file storage platforms eliminate single points of failure by breaking down files and storing fragments across the network. This is achieved by techniques like sharding, which greatly enhances security, privacy and performance. The data owner continues to retain complete control over the encryption key and thus, access to the data. The final point is censorship, centralized platforms have the ability to both on-board as well as offload users from its services. In 2017, bowing to the pressure for the Chinese government, Amazon told its local Chinese customers that those using software blocked by the government will lead to their AWS access being revoked.
This prevention effectively censored customers from accessing important services necessary for running their businesses. On the other hand, decentralized platforms by the very nature cannot be censored. No single entity can dictate platform access or prevent a user from uploading files they disagree with.
We finally conclude with strengths, weaknesses threats and opportunities. The strengths: these decentralized file storage and sharing platforms offer excellent security, privacy and really low fees. They offer continuous uptime and no single point of failure, there’s no option of censorship on these platforms. One of the weaknesses of these decentralized platforms is, data encryption can allow the possibility of illegal content. There’s a lot of innovation in this space with the implementation of reputation systems. This is a big innovation point and can lead to a lot of adoption.
Secondly, incumbent storage platforms can leverage these decentralized platforms adding more peers to the network further reducing their costs and increasing security. The biggest threat to these decentralized storage platforms is system speed and security is dependent on the number of users, and the number of users in the system can grow or shrink depending on supply and demand. Regulations like HIPAA and GDPR could hinder adoption. It remains to be seen how the GDPR interacts with blockchain technologies.
Thank you for watching Covalent webinar. We have data backed research reports on a variety of different sectors like decentralized cloud computing, cloud storage, sports betting and gambling, currency exchanges, ecommerce, privacy and security and decentralized social media. Feel free to reach out if you have any questions. Hope to see you around.