Imagine that your personal data is not up there in the clouds, but down here, on our own computers. This fundamental change in storing data is facilitated by blockchain, the technology underpinning Bitcoin. Instead of uploading every file to a central data storage facility, the cloud, it is shredded into infinite pieces and spread throughout the blockchain network, our own computers. Such a decentralized approach offers countless of benefits, which is the main reason why blockchain is gaining so much traction nowadays.
First, decentralized data storage is private. The organizations behind the cloud have access to all our personal files. By allowing blockchain to take care of our data, we regain control. The shredded pieces of the files we upload are distributed to whoever in the network has storage space available. Hacking such a shredded file would mean that one has to go tremendous efforts, just to obtain a single piece of that specific file. Not only is this single piece useless by itself, this piece of data is randomly distributed to another computer (node) on a continuous basis. Your shredded files stay on the network and only you can glue the pieces back together with a unique key.
Secondly, decentralized data storage is cheaper. Not only is the decentralized nature of blockchain more secure, but cheaper as well due to efficiency. Physical data centers are inherently associated with costs and data companies have to make a sizeable profit as well. Blockchain, on the other hand, can compensate computers in the network that offer the available space for a much lower price. As the blockchain organization implements their own currency for transactions, they are not bound to the currencies of the physical world. Granted, instability is high, but so are the benefits. Blockchain storage costs approximately $2 per TB per month, while Amazon’s S3 costs $25 for the same product (Herbert, 2017).
Thirdly, decentralized data storage is redundant. The shredding process does not carry the risk of physical failure. In case all computers in one region beak down, the network simply transfers all the data to another region. This is an automatic process. All the scattered pieces of information are continuously sent to other devices (nodes) within the blockchain.
Prominent altcoins (other cryptocurrencies than Bitcoin) such as MaidSafeCoin, Storj and Siacoin are working towards this ambition. Actual products are already on the market and although these products are still in their initial stages, the aforementioned benefits are clearly visible.
Is the demise of present data storage companies then set in stone? No one can fully predict the future, but incumbents are sure to be disrupted. Their current offerings are in many ways inferior. Even if incumbents were to adopt blockchain technology, they could offer only two of the three aforementioned advantages. A much lower price would cannibalize current revenue, which in turn, is required to finance existing operations. Altcoins (new entrants) do not face this issue (Granados, Kauffman & King, 2008). They have more freedom due to their compact teams and years of blockchain development experience.
An alternative strategy is then to integrate blockchain technology with current operations, as recommended for internet disruptions (Porter, 2001). But how does one profitably exploit data centers that blockchain deems obsolete? One thing is sure, tomorrow’s weather forecast is sunny.
References:
• Granados, N., Kauffman, R.J. and King, B. 2008. How has electronic travel distribution been transformed? A test of the theory of newly vulnerable markets. Journal of Management Information Systems, 25(2): 73-96.
• Herbert, Z. 2017. Why blockchains are the future of cloud storage. Retrieved from https://blog.sia.tech/why-blockchains-are-the-future-of-cloud-storage-91f0b48cfce9.
• MaidSafeCoin. 2017. Retrieved from https://maidsafe.net/.
• Porter, M.E. 2001. Strategy and the Internet. Harvard Business Review, 79: 62-78.
• Siacoin. 2017. Retrieved from http://sia.tech/.
• Storj. 2017. Retrieved from https://storj.io/.
Hello Nico,
Thanks for the thought provoking article as I have a few observations to make.
While I agree that the distributed ledger technology generally lowers transaction costs, the proof of work method, which enables complete strangers to trust the system and each other, is found to be environmentally unsustainable. Hashing (i.e. the process where pending transactions are run through secure algorithms for validation) uses a lot of electricity – according to Nathan Schneider “processing and protecting the more than $3 billion worth of bitcoins in circulation requires more than $100 million in electricity each year, generating a volume of carbon emissions to match.” Furthermore, the more people adopt bitcoin (or any cryptocurrency for that matter), the more energy is consumed in order to (a) run the machines and (b) cool them. Do you think the lower storage costs would eventually compensate for the environment costs we are likely to face?
Another point I would like to highlight is that cloud storage providers (e.g. Amazon S3, Microsoft Azure) usually mirror data, meaning that upon ingestion multiple copies are stored across several data centers around the globe. Therefore, the risk of physical failure, as you have implied concerning data centers, is marginal.
Additionally, a potential issue I would raise is how to keep the miners incentivized, who essentially preserve the distribution of power, as the number of new bitcoins minted halves every four years. (WEF, 2017) Assuming that all bitcoins have been minted, the introduction of transaction fees based on the capacity of a block – as suggested by Satoshi Nakamoto – would likely diminish the cost benefits realized in the current circumstances.
Finally, cloud computing and concurrently storage services are still in the process of adaptation, especially in the business field, not to mention the public sector with its legal confines. In my opinion, the disruption of incumbents is currently up in the air, considering blockchain technology (or distributed ledger technology in general) struggles with adapting industry adaptable standards and finding solutions for other significant questions (e.g. governance.)
Sources:
Schneider, N. (2015). After the Bitcoin Gold Rush. [online] New Republic. Available at: https://newrepublic.com/article/121089/how-small-bitcoin-miners-lose-crypto-currency-boom-bust-cycle [Accessed 26 Sep. 2017].
World Economic Forum (2017). Realizing the Potential of Blockchain. Available at: https://www.weforum.org/whitepapers/realizing-the-potential-of-blockchain [Accessed 26 Sep. 2017].
Dear Minh,
Thank you for your valuable input. It is true that the current blockchain networks require immensive amounts of energy. The PoS is indeed wasteful, but there is a better alternative: Proof of Stake (PoS). Instead of computing the solution for a complex problem, PoS simply requires the user to provide proof that he/she is the owner of a certain amount of money. Although this system is not new, it is made possible due to the new cryptocurencies that are often jointly implemented with the blockchain technology.
Scaling of blockchain technology is a widely-shared issue. Nonetheless, current physical data storage facilities consume a tremendous amount of energy as well as other physical resources such as hard drives and buildings. PoS is one of the (partly) solutions. A somewhat more innovative solution could be the SegWit, which is supposed to make the Bitcoin (and maybe later other blockchain networks) faster and scalable.
I agree that none of these solutions are optimal, but Rome was not built in one day either.
Interesting post Niko. I fully agree that blockchain cloud storage is highly interesting and will disrupt the storage industry. Among the different decentralized storage solutions (Storj, Filecoin, Siacoin, etc), do you think there is a certain business model that is more/less likely to succeed in the ‘real’ world?
Dear Shaffy,
It is incredibly tough to distinguish the perfect business model, as blockchain is still in its nascent stages. Maybe they could follow the typical path of new entrants as specified in the literature?
Nonethelss, we do see real products already. One specific interesting note is that Siacoin is developed by University students. Siacoin is, in contrast to the other coins, open. I believe that such an open strategy will be pivotal for blockchain development.
Interesting and well written article Niko! I do have a question about the third advantage you describe. As you state, files are shredded into pieces and spread throughout the blockchain, our own computers. If I understand you right, the shredded pieces are stored on the data storage (hardware) of our computers.
Then how is it that if all computers in a region break down, these pieces are still transferred? If a computer breaks down, it is not able to transfer data, right? I do understand that these pieces get transferred continuously. But what if the electricity drops just before the data is transferred to the next node? Are these pieces of the file lost?
Maybe this question is too theoretical, but I was just wondering.
That is a very good question Rink. As you pointed out, the answer is very theoretical, but requires some technical blockchain knowledge as well. I’ll try my best to explain it as clearly as possible (as I understand it).
The shredded pieces are indeed stored on our computers, but just like storing data, there are also copies of the shredded pieces themselves. You can also consider this mechanism as all our computers contributing to a virtual storage facility. Additionally, blockchain makes use of smart contracts (consider these as regular paper contracts, but virtual with much more transparency). These smart contracts must be true for all participants in the blockchain. The data is then basically exchange/stored on such smart contracts (I pay you to store my file on your computer). In the case your computer breaks down, I can use the same contract to go to the virtual data storage and retrieve my file, because the blockchain validated it when the contract was created.
Again, blockchain technology is quite complex to understand, even for technical persons, but I hope this clears things up a bit.
Hi Niko,
I want to start off by first of all thanking you for your concise and informative blog post. I’m personally not a particular expert on this topic, but it was easy for me to understand your explanation of an otherwise somewhat complex topic.
The benefits of blockchain you list are indeed wonderful, especially when we enjoy widespread use of this technology. You explain in that the demise of present data storage companies is not set in stone, but that they could only offer two of the three mentioned advantages. Do you think it will be possible for these companies to make the necessary transition enabling them to fully exploit blockchain technology? And I’m also curious – given the present-day hype surrounding blockchain and cryptocurrencies – when you believe these technologies will diffuse themselves in large-scale use? Is this 10 years away? 5 years away? What are some of the factors that would slow down the overall adoption? As you mentioned, the advantages are clear and plenty. More than enough reason to warrant widespread utilization.
Thanks for the post!