Decentralized Storage Protocols, Filecoin & Arweave

As file storage and web services today are dominated by the likes of Amazon Web Services (AWS), a handful of other large data center operators, and self-hosted web servers, what are the drawbacks and opportunities for improvement? And how are decentralized providers innovating in data storage space?

Besides questions of trust and safety when relying on a single third party who stands to make huge profits, there are large scale impacts to centralized data storage solutions. These numbers present important food for thought:

• Over the span of 20 years, more than 98% of the internet becomes inaccessible to access for future generations
• Approximately 50% of links cited in US Supreme Court Decisions are broken
  
• More than 100 scientific journals have disappeared from the internet so far
  

The need for viable alternatives that offer longevity, along with security, is pressing. A number of Web3 projects are answering this need, and working on protocols and products which can act as these alternatives – while broadening the use cases compared to what the dominant players are offering. Here, we explore what these are, with a focus on 2 prominent blockchain-based file storage platforms that have somewhat different value propositions: Filecoin and Arweave.

Filecoin

Filecoin is a decentralized network, designed by the same team as the “InterPlanetary File System” (IPFS), best described as an “Airbnb for data storage” – where users and server farms rent out surplus storage space. While IPFS acts as the protocol for peer-to-peer storage and sharing of information, Filecoin is designed to act as the incentive layer that ensures participation and remuneration for storage providers. However, there is no obligation to use Filecoin in combination with IPFS.

The renting of surplus storage is done via an algorithmic market. This allows IPFS nodes to get paid for storing and distributing data. But first, successful verification of data storage is a prerequisite, which is ensured by the protocol’s “Proof-of-Storage” consensus algorithm. Payments and incentives are facilitated by the protocols native FIL cryptocurrency, which launched back in 2017 in what has been one of the largest ICOs (“initial coin offerings”) to date, with the team raising more than $200m.

FIL is used in the protocol for multiple actions. Firstly, storage providers need to stake FIL, which can be slashed in case of failure to provide reliable storage. Secondly, users pay for storage and retrieval of data in the native FIL token. Finally, storage providers are further rewarded through inflationary token rewards, which should gradually decrease, but still make up a large part of total remuneration.

Arweave

Arweave, while also focusing on data storage, offers something none of the providers can: permanent, tamper-proof, and decentralized storage of data for a single, fixed upfront fee. The resulting network is called the “Permaweb” – and thanks to the implementation of HTTP, the Permaweb can be accessed through standard web browsers.

For storage, Arweave builds on the BitTorrent protocol (another popular peer-to-peer storage protocol), enriched with mechanisms for nodes to build “Karma” and earn rewards for their services. This is achieved by a “Proof-of-Access” consensus mechanism, which ensures its participants keep data alive over time, and do so with a high degree of redundancy. In part, this is achieved by storing additional copies of the existing dataset on the network’s storage space that would otherwise sit idle. In fact, currently there are approximately 200 replicas of the complete Arweave dataset stored across users and datacenters distributed around the globe.

Like Filecoin, the protocol uses a native token, AR, for payments and incentives of storage providers. To store data, users will pay in AR, which go partly to the miners, and to a large extent into an endowment fund. From there, tokens are gradually released to storage providers, ensuring long-term storage of all data. Paired with the expectation of continued developments in storage solutions and corresponding price decreases, the protocol aims to be able to ensure indefinite storage of its data.

Adoption & Usage

In terms of adoption, Filecoin is the largest Web3 storage protocol. It has roughly 22 Exabytes (i.e., 22 billion Gigabytes) of total available storage capacity, of which approximately 3% is currently being used (around 660 million Gigabytes). In terms of the ecosystem, there are more than 600 projects building on Filecoin and IPFS.

What’s more, Filecoin is earning the trust of reputable businesses which has seen it entering into high-profile partnerships with the likes of Seagate and EY for developing enterprise-grade, decentralized storage solutions. Large clients from all kinds of industries are using the Filecoin network. These include: Opensea, New York City, UC Berkeley, and GenRAIT (a genomics database).

In comparison, the Arweave dataset is significantly smaller. In total, approximatelly 140 Terabytes (i.e., 140k Gigabytes) are stored on Arweave’s Permaweb. The difference with this data is that users have already pre-paid the full fee for permanent storage. And since data is being stored with high redundancy, the theoretical total storage capacity of the network is also significantly higher.

Pricing

When it comes to cost, Filecoin is among the cheapest possible ways to store data, costing around $2.33 for 1TB per year. In comparison, pricing for AWS starts at around $12 for deep archives and goes up to around $250 for normal, high-accessibility storage space. Arweave is much more expensive – but this is also a fee for indefinite storage, as opposed to a yearly fee. Currently, storing 1TB of data on Arweave would cost around $3,500. This difference is mainly due to 1) the different storage duration but also 2) the fact that Filecoin currently subsidizes the network through relatively high token inflation – something Arweave mostly abstains from.

Closing Thoughts

We’ve looked at two of the most well-known decentralized storage protocols – which are only a subset of all protocols in development. Already, Filecoin and Arweave offer innovative, decentralized alternatives to traditional file storage services like AWS and Google Drive.

Filecoin focuses on cost-effective storage with pricing models that are comparable to large cloud providers. Arweave, on the other hand, provides long-term, permanent storage solutions for a single, upfront payment. Both platforms show the potential to reshape the data storage landscape, while addressing centralization concerns and contributing to the development of the decentralized web.

As things stand, mainstream providers like AWS are still the go-to solutions. It remains to be seen how decentralized storage providers can compete. In the case of Filecoin, a major question remains whether it can compete on price in the long run, since it currently subsidizes storage providers through token inflation – and actually around half of its storage capacity is provided by its top 10 miners. This begs the question, whether the protocol can in fact implement different cost structures the way AWS has.

In the case of Arweave, an interesting aspect to monitor is its promise of long-term storage, which relies in part the assumption that storage space prices will fall (i.e., hard drives). What is certain is the amount of interest that both platforms have received – and the number of institutions across different industries already testing them out. As adoption keeps ramping up, so will development of decentralized storage solutions evolve.