Decentralized Storage: The Future of Data Storage?

A person using cloud storage sitting on a cloud

Disruption is coming for the data storage industry, with decentralized blockchain-based cloud storage technology offering a compelling alternative to decade-old centralized storage solutions.

Data storage is indispensable to every active business, big or small. From financial reports to customer information, business data is crucial and sensitive. This data feeds decision-making processes across verticals for businesses across the globe. But it goes without saying that businesses need to store their data in a secure and reliable space.

As businesses grow, they see an increase in the amount of data generated or processed internally and accessed externally. Higher volumes of data involve greater complexity in storing, processing, analyzing, and retrieving it. Businesses have been increasingly relying on centralized storage solutions like the cloud to simplify their operations. However, bearing in mind the downsides of the cloud and the remarkably dynamic nature of technology, we very much doubt that the centralized storage system is here to stay.

Before we analyze the potential solution provided by decentralized storage technology, let’s take a look at the current industry dynamics and the problems associated with them.

How do businesses currently store data?

We have already come a long way from the traditional and bulky paper-file storage system to today’s digital alternatives, which are more flexible and reliable. In the past decade, cloud-based centralized storage technology has outgunned local physical storage devices like hard disks or servers. Almost 94% of all businesses today use centralized cloud solutions for data storage.

Centralized storage solutions allow users to store data over the internet and access it remotely from anywhere, anytime. The data gets stored in a single, central location such as the cloud. Thus, it offers easy access, mobility, and quick deployment across all devices, as well as backups, and unlimited storage facilities – all at affordable prices. These days, large companies like Google, Microsoft, Amazon, Samsung, Alibaba, and Apple are supplying cloud storage solutions through Infrastructure-as-a-service (IaaS).

Since the COVID-19 crisis made remote-working the new normal, we have seen a lot of activity in these fields. But despite this upward trajectory, 75% of enterprises have security-related concerns about their confidential data stored on the cloud.

Concerns about centralized storage systems

In a cloud storage system, data is stored centrally by large corporations. Such data becomes vulnerable to cyberattacks and other security risks. The clearest examples are Facebook’s data leak and breach scandals of 2018 and 2021 respectively. These incidents brought to light the weaknesses of the centralized storage systems.

Enterprises also face the following challenges while implementing and handling a centralized cloud storage system.

Lack of ownership and control

With a centralized storage system, an enterprise’s data gets stored on the central server of the host. The hosts can monitor, censor or even disclose any data to third parties. Naturally, the enterprise loses the ability to control and customize its data storage setup. This lack of control and customization poses an inconvenience to larger businesses with more complex data needs.

Increasing storage costs

Centralized storage systems eliminate the need for enterprises to invest in servers and expensive infrastructure for data storage. However, cloud service providers charge exorbitant prices for bandwidth transmission as well as for data security. Also, it becomes expensive for businesses to employ experts or to migrate from one cloud vendor to another. A number of business owners complain that 30% of their total cloud budget goes to waste.

Data breaches and security risks

The Verizon Data Breach Investigation Report (DBIR) recorded 32,002 security incidents and 3,950 data breaches in 2020, with 58% of breaches involving personal information. In the past few years, almost all major industry players have reported data breaches. Centralized cloud servers are invariably located in one area. In the event of a power failure, the entire network may get paralyzed, leading to the loss of chunks of unsaved data.

Low transmission speed

Centralized servers are located in remote areas, far away from the user’s enterprise. The distance constraint slows the transmission speed.

Due to these difficulties, enterprises worldwide are looking for quicker, more secure, and low-cost alternatives to store their ever-increasing volumes of data. Blockchain technology offers a solution, in the form of decentralized storage.

Blockchain in cloud storage

A person and a shield securing cloud storage

Blockchain technology has entirely transformed the internet. Initially used for Bitcoin, the applications of blockchain technology have now extended to video/audio streaming, smart contracts, social media, and much more. Enterprises can use this flexible and secure technology for cloud storage as well. Before we look at how it works, let’s first examine what blockchain does.

Blockchain is based on a peer-to-peer networking system. This eliminates central administrative authorities. Ordinary people, called miners, are responsible for operating this system. They lend their computing power to the network to solve complex algorithms and, in turn, get rewarded for their contribution.

In essence, blockchain distributes and stores data in blocks, validated by miners or peers and encrypted using public-private keys and hash codes. Every block created gets validated, and this makes the ledger almost impossible to alter or cheat. If an intruder attempts to manipulate the data, the block becomes invalidated. In this way, blockchain stays secure and managed.

Blockchain is simply a digital ledger of transactions that is duplicated and distributed across its entire network of computer systems. Blockchain in cloud storage borrows some of these features of the blockchain and blends them with the traditional centralized storage system to form a reliable, decentralized data storage mechanism.

Blockchain cloud storage breaks down the user’s data into smaller chunks, encrypts it using hash codes and public-private keys, makes copies of it, and stores these copies in multiple locations across a network of connected devices.

Blockchain cloud storage is shaping up into a new business model in its own right. It allows various small entities to become a part of the cloud storage network by providing their computing power and space to store data. So all the entities involved get paid for their contributions, and the overall costs of cloud storage come down.

What is decentralized storage?

The decentralized storage system allows users to store their files without relying on large, centralized silos of data like the cloud. The idea of decentralization in data storage has gained impetus since it became apparent that the centralized storage systems were undermining basic yet important values like privacy and security.

Decentralized storage systems draw on a peer-to-peer network of user-operators, each holding small, encrypted portions of the overall data. The result is a robust system for data storage and sharing. It may use a blockchain-based system or any other peer-to-peer-based network.

The distributed nature of blockchain-based cloud storage offers several advantages to users over traditional centralized storage.

How does decentralized cloud storage work?

The blockchain-based decentralized cloud storage system splits users’ files into numerous small chunks of data, referred to as “blocks”. It then encrypts each block with a unique hash or with public-private keys and distributes the blocks across multiple computers or “nodes”. This process of distributing data across the network of nodes is called “sharding”.

We need to stress that the blockchain-based storage system does not store data in the blockchain. Instead, the system encourages user groups to join, store, and host servers. Several small entities join the network by providing computing power and space to store data. This system of incentivizing small entities lowers the overall cost of storage for businesses and other end users.

Likewise, all data gets distributed and stored at decentralized locations. If interlopers attempt to hack into these locations, they arrive at encrypted blocks of data. What’s more, they will only be able to obtain a chunk of data, not the entire file. This, in sum, is how blockchain-based decentralized storage systems ensure data security.

The data in these setups do not include any personal information about the user. In any case, miners only receive small chunks of the whole file. This is how decentralized storage systems ensure the privacy of sensitive information.

When users try to retrieve their files, all chunks of data are first validated. If something has been altered, the miner gets removed from the network. The system fetches and presents the altered part from a redundant copy of the original file stored across other locations, easing any worries on the part of users.

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The decentralized system implements load balancing and data redundancy to secure and speed up data storage and retrieval. As it stores multiple copies of the original data across several locations if one machine shuts down the user does not suffer any data losses. The system of load balancing optimizes the entire network by preventing traffic from concentrating at a single location.

Decentralized blockchain-based cloud storage offers opportunities for anybody possessing unused hard drive space and a steady network connection to earn passive income by becoming a storage node. Various platforms like Filecoin, Sia, MaidSafe, and Storj enable users to participate in the decentralized storage network.

Benefits of decentralized storage

Servers connected to the cloud technologies

The decentralized peer-to-peer storage system is emerging as a potential disruptor, at the expense of the centralized storage system. Here are some benefits of the decentralized storage system.

High reliability

The data gets distributed and stored on multiple hosts in the decentralized network. The system saves copies of the original data (creating a deliberate data redundancy). In case of any loss or hardware failure, the system will present the backup copy. Additionally, chunks of all sharded data are separately encrypted using a unique hash. This extra security layer protects data from intruders.

Lower costs

The decentralized data storage system significantly reduces the cost of both hardware and storage. Decentralization reduces the requirements for machine performance, thereby eliminating the need for costly investment in high-performing hardware and software.

Moreover, the decentralized network consists of potentially millions of nodes storing data. This equates to a significant increase in the amount of available storage space. The system continually makes use of all the idle storage space, cutting down wastage and bypassing the need for extra investment. It keeps the overall cost of storage notably lower, compared to the centralized cloud storage system.

Increased speed

Unlike a centralized storage system, decentralized storage systems use peer-to-peer technology. Data transmissions do not happen through the central server, which becomes slow at peak traffic times. Several copies of data get stored at multiple locations, resulting in quicker downloads.

Load balancing

Blockchain-based decentralized storage systems follow the principle of load balancing. Hosts can cache frequently used data locally without repeatedly accessing the server. This reduces the burden on the server and also eases the network traffic. The server can also allocate and optimize the data to eliminate any bottlenecks in the central system resources.

Fair market pricing

With millions of nodes present, the market for decentralized storage systems becomes a perfect competition. No single node can charge a premium price. This ensures fair pricing across the entire market. Such a market also guarantees that only good-quality nodes can compete and survive.

Increased security and privacy

Most importantly of all, decentralized data storage systems provide a high level of security. They shard the data into smaller chunks, make copies of the original data and then encrypt each portion separately using hashes or public-private keys. The whole process secures the data from bad actors. What’s more, none of the owner’s personal information is present in any stored data, unlike with centralized storage systems.

The numerous benefits that decentralized storage systems offer explain why they are undoubtedly well on the road to becoming the next big thing in the storage industry.

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Limitations of decentralized storage systems

Despite their potential, it’s clear that decentralized storage systems have their downsides. Since the technology is in the early stages of development, researchers are trying to solve the challenges that the technology is posing. Some obstacles associated with the deployment and development of decentralized blockchain-based data storage systems are as follows:

Lack of trust

The decentralized data storage system uses peer-to-peer technology, circumventing any centralized regulatory authority. Yet businesses and customers may find it difficult to trust the decentralized network as it lacks accountability for lost data or misplaced transactions.

Given this lack of trust, developers are working towards designing the highest level of security within the decentralized network. It may still take some time for businesses to put their faith in new technology.

Complications in development

A person developing decentralized cloud storage

From the perspective of developing a blockchain-based decentralized storage network, the consensus mechanism gets tricky to execute. The consensus mechanism is fundamental for the Proof-Of-Storage (PoS). PoS helps to verify the integrity of remote files. What this means in simple terms is that every participant node needs to prove that the data submitted by them qualifies them to add new records.

The consensus mechanism helps to increase the reliability of the blockchain network, which users would otherwise suspect of faulty processes. Even so, as developers will tell you, the consensus mechanism is comparatively complex to implement. The process will be much easier if you hire an enterprise blockchain development company with a solid portfolio of completed projects.

Migration-related concerns

The decentralized storage technology is in its nascent stages of development and will remain in this phase for a few more years to come. The detectable performance issues hold businesses and consumers back from immediately migrating to decentralized storage systems.

However, it is the right time for early adopters to jump on this technology before it becomes as mainstream as the cloud. Developers are already trying to tackle all performance-related challenges.

Security concerns

The decentralized storage network, however bulletproof, remains a target of assailants, who will form malicious nodes and execute hub-attacks that distort and endanger the whole network.

Researchers and developers are already working towards preventing these kinds of attacks and making blockchain-based decentralized storage systems safer.

Needs time to go mainstream

The decentralized storage system undeniably offers solutions to all concerns associated with centralized storage. It presents an array of benefits over traditional, mainstream storage systems. If the decentralized system is to be widely implemented, though, it needs to deliver a service superior to the current market offer.

Meanwhile, the technology is still in its infancy. It will remain a niche for some years more before it can become as popular among businesses.

Fortunately, the decentralized storage system looks set to overcome these hiccups, and will soon become fully operational.

Current work on decentralized storage

Various organizations are now working towards transforming cloud computing into “Fog Computing”, a blockchain-based decentralized network of computing power that is globally scalable. Fog computing bridges the gap between the cloud and devices that produce data. It makes storage not only more secure but also more economical.

Here are some projects and organizations that are enabling decentralized storage. Some of these are already running, while others are under development.

Filecoin (IPFS)

Filecoin is an open-source cloud storage network built on the Interplanetary File System (IPFS). IPFS is a new protocol for the decentralized web, aiming to compete with and replace the widely used HTTP protocol.

After a successful ICO in 2017, Filecoin has been live for users since October 2020. Filecoin allows anybody to rent out extra storage space to clients and earn Filecoin (FIL) tokens. It requires miners or storage providers to register within the network and bid for storage requests. It breaks down the user’s data into smaller portions, encrypting and distributing it among multiple storage providers. The miners do not have access to encryption keys.


A person holding icons of major cloud storage platforms and companies

Storj, using the Ethereum cloud network, is exclusively built for storage scenarios and has been around for a number of years. The storage side of Storj is decentralized. However, the settlement and indexing functions are centralized. Developers can test their storage capabilities on its alpha network.

It recently launched an evolved version of itself, called Tardigrade, an S3 compatible Ethereum cloud storage platform for developers using the Storj network. Storj compensates hosts in STORJ tokens for unused storage space and then makes it available for Tardigrade users.


Based on the Ethereum cloud, Swarm is quite similar to Storj. It offers storage as well as communication services through a peer-to-peer network. Swarm incentivizes participants through BZZ tokens, enforced using smart contracts.

In June 2021 Swarm finally launched their system on the mainnet. This system had been under development for four years. Based on the Ethereum web3 stack, it offers various base layer services for web3 that support decentralized storage.


Work began on Siacoin, among the earliest decentralized storage projects, in 2013. It was officially launched in 2015 with the aim of leveraging under-utilized hard drive storage capacity from around the world.

The Siacoin platform places an emphasis on Proof-of-Work (PoW) and has its own ASIC chips for Siacoin mining. It also uses file contracts (like smart contracts) to determine storage requirements, as well as a strong Proof-of-Storage (PoS) algorithm to secure and validate file contracts on the network.


MaidSafe began in 2006 as a small team managing the Safe network. It offers a global network of storage nodes running Vault software. It is an open-source project in which anyone can easily become a storage provider, subject to resource testing. It also allows users to access all public information on the Safe network.

The Safe project offers an API for developers to directly interact with the network. Users pay in Safecoin to store data. Hosts, or farmers, receive Safecoin for storing data. Although developed, it is still a work-in-progress as new features get added at regular intervals.


Burst, the company behind Burstcoin, originally made its name as the developer of the world’s first Proof-of-Capacity coin. It also developed the first blockchain to implement complete smart contracts. It is successfully working towards a cross-platform mobile wallet, called Phoenix. In the long term, Burst plans to launch its PoC3 protocol. It is first trying to tap all the unused hard-drive space and then use that space for storage.

In addition to the above-listed projects, various other groups are working towards different types of storage solutions. These include 0Chain, Archon Cloud, TrustSQL, Lambda, OneThing Cloud, TOP Network, and Internxt, to name a few.

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With increasing volumes of business data, demand for secure and inexpensive storage technology is on the up. Blockchain technology has given impetus to decentralized data storage systems that perfectly balance security, scalability, and affordability.

Since the technology is comparatively new, it may take a while before it is adopted widely and becomes mainstream. As we have seen, developers are still working towards resolving the evident shortcomings. However, the acknowledged benefits of decentralized blockchain-based storage already outweigh those of centralized storage systems – and this technology is only expected to become better in the near future.

If the data-storage infrastructure of your own business needs an upgrade, it would be a good idea to get in touch with our blockchain experts so that they can work out a customized solution to fit your specific needs. Our team will look after all the technicalities, meaning that you don’t need to worry any longer about data storage or security.


Anastasiya Haritonova

Technical Writer

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