A version of this presentation was first presented at the Filecoin Singapore Summit on 26 September 2022. You can watch a replay of the presentation on YouTube here.
As we fully embrace the digital age, our ability to store and maintain historical data on hard drivers and servers all across the globe continues to evolve, becoming even more compact and efficient each year. Yet, the amount of data annually generated is increasing at a staggering rate. As of 2021, the world's citizens created over 79 zetabytes of data, equivalent to over 79 million terabytes. However, only 0.015% of that data is expected to be found on the centralized servers of internet powerhouses such as Google, Amazon, and Facebook.
By comparison, a smaller fraction of that data is kept on decentralized storage solutions such as Filecoin, Storj, and BitTorrent, which claim to offer permanent storage capable of lasting more than a few hundred years. As these storage networks continuously expand their capacity, they become even more viable as alternative storage solutions for individual users and corporations, with added data security and resilience.
In recent years, the ecosystems of decentralized storage networks have grown rapidly, each with its own suite of applications. For some DeFi and NFT projects, they have become the go-to option for hosting permanent and permissionless data, championing the core ethos of censorship resistance within the crypto space. To see how much they have grown, we dove into the current state of decentralized storage. Here are some key takeaways.
1. Decentralized storage capacity has increased exponentially in the past 2 years.
Compared to their centralized counterparts, decentralized storage was practically non-existent and did not really receive much attention prior to 2021. However, the NFT boom last year, coupled with the release of the Filecoin mainnet, brought in a massive surge of interest and demand for decentralized storage, as projects were looking for a more permanent and censorship-resistant method of storing their images and audio.
By the end of 2021, total storage capacity had breached 16.7M TB, increasing by more than 4x from 2020. Filecoin currently has the largest capacity compared to other decentralized storage solutions, with a network storage power of over 21M TB. That’s more than 40x the capacity of BitTorrent’s BTFS network, the 2nd largest decentralized storage provider.
However, most of this storage remains unused. As of Q3 2022, only 1% of Filecoin’s total capacity is actively used, indicating that perhaps, the actual amount of activity on the network is much smaller than it seems. In contrast, Arweave is an exceptional case, as the capacity of its blockweave expands in proportion to its usage. In other words, the total storage size of the network is always fully utilized and grows as more data is uploaded. Be that as it may, Filecoin still stores much more data than the total amount stored on all other decentralized solutions combined.
2. Decentralized trumps centralized in terms of cost.
While centralized providers can offer extremely attractive prices for their data storage solutions due to their ability to operate on a massive scale, decentralized providers are putting up a fight. In terms of pricing, decentralized storage offers a much cheaper alternative for storing your data.
At the moment, Filecoin offers by far the cheapest storage, with monthly costs of less than a cent. Their recent incentive program, Filecoin Plus, increases rewards to storage providers for legitimate and verified deals. These deals are often subsidized by Filecoin as they aim to grow the network. As such, storage providers are willing to offer near-zero or zero fees solely to compete for block rewards, ultimately benefitting the network’s users. The caveat here, though is that this doesn’t really reflect what users are willing to pay to store data on Filecoin.
While decentralized storage may seem like a really good deal at first glance, these costs are not as clear-cut as it seems. Some decentralized storage networks may charge different fees for uploading (ingress) and retrieving (egress) data. For example, Storj charges a fixed price of $7 / TB to upload or download, while Sia costs $0.41 / TB to upload and $2 / TB to download. On the other hand, Filecoin relies on the market prices quoted by its storage miners, which can be volatile based on the supply and demand for storage on the network. Not to mention, if the network’s subsidized incentives start to become unattractive to storage miners, they may charge higher fees just to maintain their profits.
3. Filecoin is far ahead of its peers in revenue but is still a long way behind centralized services.
While decentralized storage networks get most of their revenue the same way as centralized storage providers - by people paying to store and retrieve their data - the storage fees are actually the lesser part of these protocols’ revenue. Most of the revenue actually comes from users paying the network’s transaction fees, and it is no surprise then that the fluctuations in revenue are directly caused by the price volatility of the network’s native token.
Take, for example, Filecoin. The revenue generated by the network has taken quite a beating as the network’s token, FIL, plunged by over 85% in 2022. However, compared to the likes of Arweave and SiaCoin, Filecoin is still by far the most profitable decentralized storage solution, raking in over $14M in the second quarter of 2022 alone.
Yet, that figure is merely a drop in the ocean when you’re up against Amazon’s Web Services, barely scraping 0.1% of the $20 billion they generated in the same period. On the plus side, this merely demonstrates the future potential of decentralized storage networks as their ecosystems continue to grow. As these networks continue to see more utility, they would be able to generate even more transaction fees as well as create additional revenue streams via their own suite of decentralized applications.
4. What’s being built on Storage L1s?
Speaking of dApps, there is now a pretty sizeable ecosystem of tools that are built on top of these storage networks, allowing for ease of access and to fulfill more specific requests by users. As it stands, decentralized storage is mainly used by NFT projects to permanently store metadata, as well as Web3 projects to ensure their UIs are permanently hosted and to potentially bypass censorship laws.
However, more developers and users are starting to appreciate the benefits of decentralized storage, leading to a Cambrian explosion of applications for various use cases, including content distribution networks, decentralized IDs, and payment systems, just to name a few. Unsurprisingly, most of these apps that are targeted at general users aim to emulate the familiar experience of traditional services; For example Arweave’s ArDrive is just a Web3 permanent version of Google Drive.
Arweave currently boasts over 100 permanent applications, which make use of their SmartWeave protocol to execute transactions on the user’s device rather than the network’s nodes. While Filecoin does not have as many dApps, we could see more native applications built on the network in the future as the Filecoin Virtual Machine continues to be further developed in the coming months.
5. Decentralized storage is part of the value chain of online computing.
While it is easy to dismiss data storage as an entirely independent industry, it is merely a piece of the puzzle in the broader ecosystem of cloud computing. Centralized providers such as Amazon already have a suite of products and enterprise software to complement their storage offerings, attracting users by being a one-stop shop for all their cloud computing needs. In any case, decentralized storage networks are continuing to build out their own list of applications to match, with lower costs and the promise of permanent data for decades to come.
However, the main hurdle here is the same as most other projects within the crypto space - regulation. For large corporations or even individuals, the realm of data compliance and data management is a tricky bridge to cross as the current legal state of decentralized storage is uncertain. In other words, is it worth the risk to abandon a more convenient and established method of storing data purely for the ability to freely control how you are able to store and access your data? Well, for some, it may very well be.
For a more in-depth look, you can check out the complete presentation slides below.
If you have an account on CoinGecko, you can also browse and download all our previous reports here! Not yet a CoinGecko user? Create an account now.
Like what you see? Sign up for our newsletter for daily crypto updates!
If you use these insights, we would appreciate a link credit to this report on CoinGecko. A link credit allows us to keep supplying you with future data-led content that you may find useful.
Win Win is an avid gamer, interested in navigating the vast world of NFTs and the cryptoverse. Follow the author on Twitter @0x5uff3r