Web3 storage is the next evolution of the storage system – distributed blockchain storage. The evolution of the storage systems started with the development of computers enabled with remote data storage, which later evolved into instant centralized cloud storage. We are currently in times where the next version of the storage systems are being developed which are decentralized, distributed, and powered by blockchain. 

This movement from decentralized storage to centralized storage and again to decentralized is a constant search for greater efficiencies. Earlier, with computers, remote data storage was how all data was stored and was very less connected. But today, all data is stored in huge centralized data centers and is archived, retrieved, and used as needed over the internet via cloud technologies. This led to the centralisation of all data recorded on the internet managed by the Big Tech firms – Amazon, Microsoft & Google.

The next generation of the internet, Web3, is built over blockchain technology and promises a decentralized, democratized & scalable future for everyone. However, this new version of the internet requires a new storage system. A storage system that is not centralized and dependent on Big Tech for its functioning is inevitable for Web3 to go big. Web3 storage is critical and will be the backbone on which the entire Web3 ecosystem will flourish. Hence, understanding Web3 storage becomes important for all players within the ecosystem to make the best of the potential it offers. 

In this month’s newsletter, we will look at Web3 storage covering its multiple facets to get a deeper understanding. 

Types of Web3 storage

There are multiple ways Web3 storage can be differentiated and explained. One way is on the basis of how the Web3 storage functions and stores data. Another is to divide the Web3 storage on the basis of the layer the storage solution is built on. Another way is to divide the Web3 storage systems on the kind of offerings & clients they are developed for. In our case, we will look at the types of Web3 storage systems based on how the underlying storage functions. Web3 storage solutions we will be focusing on are different types of L1 storage solutions that have scaled well. 

There are majorly 3 types of Web3 storage – 

1. Network basis 
   Network basis implements Web3 storage via providing instant storage on a group network of nodes relying on interoperability bridges to interact with other chains for a fixed fee.
   Example: Arweave

2. P2P network 
   P2P network provides a cheap & pay-as-you-go service providing storage service over a peer-to-peer network.
   Example: Filecoin

3. Coordination platforms
   Coordination platform is not exactly a storage provider, but a marketplace aggregation of various storage solutions – Web2 & Web3 to provide the cheapest plan and act as a middleman in the Web3 storage market.
   Example: Stratos

A brief outline & examples for the type of Web3 storage is described in the infographic below,

Needs and Benefits of Web3 storage

Web3 storage is a new decentralized storage system that is being built as an alternative to centralized cloud storage options that are available currently. If a great storage solution already exists like the Cloud, why do we really need a new storage system again? We will dig deep into the various drivers that are in force to build this new storage system called Web3 storage. 

There are majorly 3 reasons why decentralized storage is important and why it’ll be huge in the next decade of Web3 development.

1. Cloud firms dominate & control Web2. In a world, where data is oil, storage facilities are oil fields. And, control over these storage spaces ensures control over the Web2 internet. According to a16z report, on average major SaaS companies contractually committed cloud spending represented 50% of their total cost of revenue. This means that in a world where software thrives, cloud firms have the biggest tax rates. Hence, if at all we hope to build the next version of the internet – it can’t be built on top of 3 Big Tech firms’ existing storage infrastructure. This will negate the core thesis of Web3 being decentralized, democratic and equitable. 
2. The amount of data we generate today is humongous. In 2021, an overall estimate of the amount of data generated in the world is 79 zettabytes i.e, 79000000000000 GB. That’s 79 billion hard disks of 1TB storage every year, that is generated. Of this, more than 90% of it is just duplicated storage and we only manage to store about 0.015% of what is generated. The trend of data generation is only going to explode. By 2030, 9 out of 10 people in the world will be digitally active. 5G will make data transmission almost instantaneous. There will be 75 million IoT devices online that will be talking with each other constantly. The boom of Gaming, AR/VR & Metaverse technologies. All of this makes our current centralized storage solutions unfeasible to scale.
3. For Web3 Dapps – decentralized apps to be truly decentralized, they shouldn’t be built over a centralized cloud platform for storage like AWS. Also, the current solutions for on-chain storage are definitely not scalable. For example, on Ethereum as of today, it costs more than $30mn to store 1GB of data on-chain. The forthcoming Ethereum purge – EIP4444 mandates that clients must stop serving historical older than one-year data on the p2p layer. This has resulted in L1 chains & Dapps exploring other options to offload this on-chain historic data cheaply. Also, current NFTs minted are too large & costly to be stored on the chain. 

All these reasons combined make a very strong case for the need for Web3 storage solutions today. In Web3, the builders are fundamentally building to open up the walled gardens of the Big Tech incumbents. But by essentially storing on centralized servers, the builders are voluntarily handing over Web3 to the Big Tech incumbents.

Let us further look at the various benefits that are associated with decentralized storage solutions in Web3 which form the crux of what Web3 storage promises to the ecosystem.

The various advantages of Web3 storage are listed below,

1. Fundamentally different from Web2, Web3 storage allows users to own their data, control it, and decide how they would like that data to be retried, shared, and accessed through a decentralized distributed storage system secured by blockchain hash encryptions. This ensures greater privacy and anonymity on the internet for everyone.
2. Web3 storage avoids a single point of failure scenarios for data-related hacks, as user data is not stored at centralized data centers but across a huge network in a decentralized way. However, this does open up different kinds of vulnerabilities as the technology is still evolving.
3. Web3 storage makes entire new industries possible such as decentralized computing and analytics to be built over the storage systems. It will also make us think of an entirely decentralized way of doing everything we do over the internet – storage, app development, app servers, media storage & streaming, social networks, and a truly decentralized world wide web if that’s possible.
4. Web3 storage due to its greater privacy and security, makes it censorship resistant by any government organization. No government will be able to censor or force anyone to provide their data without their permission.

Along with these major advantages, there are also certain challenges associated with Web3 storage. These challenges are, however, built to be overcome in the future. Some challenges associated are proper pricing or business model, interoperability of data storage across different chains, and lack of convenience on Web3 when compared with the seamless experience provided by Web2 incumbents.

Current Web3 storage market landscape

Major Web3 storage market players are but are not limited to Arweave, Filecoin, Storj, Sia, and Stratos. These different solutions have their own challenges and have been a breeding ground for more players focused on solving these limitations. Some of them are Web3Q, web3.storage, Chainsafe, and many more.

Each of these prominent market players takes a different approach to enabling decentralized storage. Arweave & Filecoin currently dominate the Layer 1 web3 storage market with high market caps. 

A comparison of the different Web3 storage players based on various parameters such as Capacity, Market Cap, Pricing, etc is shown below,

Comparing these different Web3 storage providers with established cloud solutions of today is also important. Some key comparisons are as follows, unlike cloud solutions like Google, Azure, etc, Web3 storage providers don’t provide any free tier for cloud storage. But, the overall pricing of Web3 storage is very similar to the cloud solutions with certain exceptions. Though the pricing is very similar, the network or bandwidth cost of providing a similar service is different. The network cost for Web2 cloud solutions is far higher due to the fixed number of data centers spread across the world and the need to transfer data to and fro for access. However, Web3 storage costs are much lower due to the distribution & proximity of storage nodes in the network. 

As of today, each of these Web3 storage solutions supports hundreds of Dapps already.

Web3 storage technical overview

A further deep dive into the technology behind these different web3 storage solutions will involve looking at various parameters like Proof or work used, Replication/sharding strategy, number of nodes, data transfer, and some key differentiators.

Arweave provides permanent storage for a fixed price. It uses SPoRA or Succinct Proofs of Random Access that allows users to access and retrieve data through the miners who randomly with the previous block. Filecoin uses a consensus technology through a combination of proof of replication and proof of space-time on IPFS. The file coin has ensured security via this proof of work and storage providers on the ecosystem have been charged with fault fees, sector penalties, and termination fees. Stratos uses a proof of stake consensus algorithm for ensuring decentralized storage. The chain also supports decentralized databases & decentralized computing using proof of authority and proof of traffic respectively. 

The replication or sharding strategies used by web3 storage to ensure efficient & fast access and retrieval are also different. Arweave doesn’t implement sharding but ensures 16+ replications across the chain. Filecoin allows the users to choose the number of replications they would prefer, this impacts their performance and also gets reflected in their pricing. Stratos is a coordination platform and hence is independent of any replication strategies of its own but depends on the storage provider’s implementation. Others like Storj, and Sia use erasure coding to split a single file into multiple erasure code pieces and a subset of them will be required to retrieve the complete file. This helps ensure faster retrieval. 

The number of nodes is also different among web3 providers. Arweave has about 70 nodes solely dedicated to the network. Filecoin has more than 4071 nodes across the network. Storj has more than 14,700 nodes on the network. 

Ensuring data guarantees are also done differently by different web3 providers. Arweave does spot checks on random samples of the data stored as part of the SPoRA. There are no penalties on a storage provider for dropping or losing data. Filecoin does a sanity check every 24 hours automatically. Stratos depends on the storage providers to ensure this. There’s also a repair miner that will repair and replicate as needed. 

It’s important to also highlight that even the smart contract design is different with subtle differences between these Web3 solutions. 

All of the different smart contracts deployed on different web3 providers ensure the programmability of the code within it. Arweave deploys its smart contracts and is stored off-chain, it also relies on the client to verify the validity of the state of the blockchain, and self-execution by a trigger is not supported. However, on Filecoin, the smart contracts are deployed on the Filecoin Virtual Machine (FVM), the verification of blockchain state is also done and self-execution via trigger is also supported. 

One of the major costs of storage that remains as hidden fees is network or bandwidth costs. Even today, the biggest component of Web2 cloud storage bills is network fees which are also known as ‘Egress’. Incumbents like AWS & Google further make it pricer with premium pricing for data transfers as they have a lock-in on clients’ data. This price also varies based on the kind of storage required – hot storage or cold storage by the client. 

Road ahead & potential growth

Web3 storage definitely has benefits over Web2 cloud solutions currently preferred. The main advantage is the ability to read, write & own one’s own data in a decentralized & distributed way at a cheaper price. This is very central to how Web3 storage functions and has the potential for exponential growth in terms of enterprise adoption, capital investments, and more in the coming years. 

Currently, the major use cases of Web3 storage are – offloading on-chain data for L1s, use of IPFS for content addressable storage, permanent storage solutions, cheaper multimedia & NFT storage, and many more. The current adoption for each of these use cases alone is low when compared with other cloud solutions. Even though the Web3 storage solutions face considerable adoption inertia from users & enterprises, it definitely has strong financial & tangible benefits.

There are both technical & customer challenges that are hindering the faster adoption of Web3 storage solutions. Some of the technical challenges include varying service offerings & quality, interoperability of different chains within Web3 and also between web2 & web3, superior & vertically integrated offerings from established cloud players, and inferior compute & querying capabilities of Web3 than cloud solutions. Some of the challenges from the clients & customers of cloud storage are the strong moat created by AWS, high switching costs estimated by clients related to technological changes, lack of trust in emerging web3 technologies due to the high number of hacks, uncertainty over regulation as Web3 is still an emerging technology and many more.

In spite of these many challenges, the growth of Web3 storage providers has been explosive. Arweave’s weekly data usage has already increased 5x within the past year. Arweave now supports a bridge with all major 9 chains, and there are a diverse number of applications that are being built on top of the Arweave L1 chain. Filecoin has also shown similar aggressive growth with regards to the number of applications that are using Filecoin as a storage service. However, the slowing down transaction volume recently due to a lower burn rate is of concern. Stratos is still very early in its development stage but has the potential to become a single protocol for all data-related activities – decentralized storage, computing & processing. 

A major force driving the demand for more Web3 storage is the need for high on-chain from NFTs and Metaverses. Major VCs are also backing and investing a high amount of capital into these solutions which will enable making the metaverses a seamless digital reality. 

The underlying thesis behind the need for Web3 storage in the future is that if all users understand the various benefits of owning everything digitally via NFTs, metaverses, etc, the demand for Web3 storage will explode. 

Conclusion

Web3 storage is an evolving industry that aims to replace the incumbents of the cloud industry like AWS, Azure & Google Cloud. There are majorly 3 types of Web3 storage – network basis, P2P basis, and coordination platforms. The main Web3 storage providers in the market are Arweave, Filecoin, Stratos, Storj, Sia, and many more. Web3 storage solutions strive to provide a better value proposition with multiple benefits financially, decentralization, and superior privacy. Web3 storage adoption has scaled significantly over the past year and is projected to grow exponentially over the coming years. In spite of the strong growth, there are significant technical & market challenges that form a barrier to mass adoption. Mass adoption of Web3 storage is expected to happen with increased demand from greater blockchain-based app adoption across users & enterprises. The key importance to note regarding Web3 storage is that as the blockchain ecosystem grows irrespective of the use cases, Web3 storage infrastructure will definitely benefit as it will form the rails of the next version of the internet. Just as the current internet is built strongly on the cloud infrastructure pioneered by Amazon similarly Web3 storage will form a key component for every blockchain application that will be built going ahead. Web3 storage is here to stay and we are bullish on it, though the type or form of it that will cause mass adoption is hard to predict.

Disclaimer: This article is a summary of the writers opinions and research. Digital assets are a volatile asset class and readers should be aware of the potential risks of investing in blockchain projects. This is not investment advice & we will not accept liability for any loss or damage that may arise directly or indirectly from any such investments.