Report: Identifying the winners in crypto storage

The cloud computing market is worth $371 billion. Amazon Web Services (AWS) has 31% of a market growing by 18% per annum. Ripe for disruption you may think. But by who, surely Amazon are the disrupters?

The answer is blockchain file storage services or decentralized file storage as it is technically known.

When the idea was first pitched by blockchain advocates, who suggested that blockchain could improve pretty much anything from file storage to social media, from transportation to insurance, excitement was in the air. One of the areas that held the most potential was data storage. There seemed a real opportunity to disrupt the disruptors.

Let’s look at why this was possible and the unique opportunity this represents.

How Amazon Web Services (AWS) works

AWS is a secure cloud services platform offering computing power, database storage, and content delivery to help businesses scale and grow. In basic terms, it allows you to do the following:

• Run web and application servers in the cloud to host dynamic websites
• Securely store all your files on the cloud so you can access them from anywhere

How much does it cost to store data?

The average cost of storing a single TB of file data is $3,351 a year. That cost potentially skyrockets because of supporting technologies. File sharing services we rely on for on-the-go access are costing companies an average of $450 per user. However, the commentators still consider this a substantial saving compared to the previous alternative (i.e.the cost of purchasing and maintaining your own servers, IT manager and staff, etc).

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What are the advantages and disadvantages of using services like AWS?

Advantages

• Easy to use
• No capacity limits
• It’s reliable with 99.9% uptime
• Provides speed and agility
• Secure and reliable
• No upfront cost of purchasing a server and other related equipment

Disadvantages

AWS charges for immediate support, and you can opt for any package among three, starting at $29 per month (developer) up to greater of $15,000 or between 3–10% of the usage costs.

The cost of storage can become expensive as your storage requirements increase.

Whilst security is cited as an advantage by AWS, in fact, the default setting is not to encrypt data ‘at rest’, i.e., when it is stored. AWS has been hacked, or data accidentally leaked, so have similar services.

The cloud computing blockchain solution

The beauty of the blockchain is that it allows a decentralized method of storage. What this means in practice is that there is no requirement for a middleman such as AWS. Once the system has been developed, then its day-to-day operation runs independently of a central party. It isn’t all decentralized though, the system still requires a central body of developers to modify and update the code and the system.

This is how file storage works in theory using blockchain

Blockchain creates a decentralized and distributed storage marketplace. To do this hosts (or nodes or miners) sell their surplus storage capacity and renters purchase this surplus capacity and upload files. Payments occur over the blockchain where files are broken into fragments after being encrypted and then ‘intelligently distributed across dozens of nodes in dozens of countries.’

Advantages of using blockchain as opposed to centralized cloud computing

With blockchain, your data is fully decentralized because it is stored on multiple nodes across the globe. This helps to give you more protection in case of an error in storing or transmission.

It helps users have more privacy because the data and the user files aren’t fully controlled by a single third party. Instead, encrypted fragments are spread across multiple nodes controlled by keys that the users hold. This means any nodes that hold your data are unable to look at them. Even if the node found a way into the file, it is only a partial file, so the data is not compromised.

Decentralized platforms don’t require large infrastructure investment, enabling both the company and the end-user to save money.

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The decentralized storage players

According to Coin Market Cap, there are 36 cryptocurrencies in the decentralized storage space. By far, the largest and best-known player is Filecoin. Filecoin receives a disproportionate amount of news coverage, however, there are a number of players who could easily usurp Filecoin as the leader in this space, including Siacoin, Storj, and Opacity. There are also a few projects which have yet to launch, including MaidSafeCoin and 0chain, both of which appear to offer appetizing solutions and whose entrance is eagerly anticipated.

Of course, there are many players we haven’t mentioned, all of whom could quite easily take this young market by storm. The reality is there will be two or three leading operators who will carve a significant market share, although it is too early to say who. That is precisely why this space is so exciting.

What can be said right now is that many of the platforms are not fit for purpose and couldn’t be described as user-friendly. This will change. It always does. But currently, the number of customers using decentralized storage whilst growing fast is still small beer despite the price of storage being significantly cheaper than big tech.

As investors, we must focus less on the technology and more on adoption. That information is something most operators are reluctant to share. For example, Filecoin is happy to announce to the world its massive storage capacity but tells us nothing about how many customers it has. What use is capacity with no customers? Some like Storj have been more forthcoming.

Below is a list of the players we believe are in the best place to take a commanding lead in this market. It has to be remembered that most of the players in this market have seen massive growth in their token prices since September 2020. However, whilst it is hard not to feel you may have missed the boat, there is definitely value to be had if you look carefully enough and especially with the recent softening of token prices. We must remember this is a huge market, and the winners will reap massive rewards. So with that said, let’s look at the contenders.

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Filecoin (FIL)

Status: Mainnet

Price: $134.86

Target price: $100

Market Cap: $9.2 billion, fully diluted $266 billion

Action: Sell

In 2017 Filecoin broke ICO records raising $257m from accredited investors. In October 2020, 4 years after their ICO, they finally went live. Filecoin is led by a respected team and has an A-list of VCs backing it. It has by far the largest storage capacity of other projects at 2.5 million GB. Its fully diluted market cap means there is little upside and no room for error in the execution of its plan to be the number one player in file storage. Whilst we believe this is entirely possible and think Filecoin will be one of the leading players, we consider this potential is already in the price.

Siacoin (SC)

Status: Mainnet

Price: $0.03

Price target: $0.02

Market Cap: $1.5 billion

Action: Hold

Siacoin is the second-largest player in the file storage space by market cap. It has a fraction of the storage capacity of Filecoin, although that isn’t as crucial as paying customers, something we all seem to neglect at our peril. It has 502 storage providers with 21% of its capacity utilized. Although it is only a blip on Amazon’s radar, it is one of a handful of projects with the potential to be a market leader. This alone warrants its current valuation. In order to justify its valuation, it now needs to demonstrate it can sign up customers in significant numbers.

Arweave (AR)

Status: Mainnet

Price: $24.66

Price target: $40

Market Cap: $1.1 billion, fully diluted $1.6 billion

Action: Buy

Arweave’s mainnet launched as far back as June 2018. It is backed by leading VC 16z, among others. Arweaves’ key selling point is its permanent storage proposition as opposed to contract storage. A one-off fee secures the permanent storage of files, something that could be very attractive to many potential users. Their service has attracted two sectors so far, blockchain (Solana — $12 billion market cap — are integrating with Arweave) and Internet archiving (Internet Archive have announced they will leverage Arweave). Permanent storage is a unique proposition in the storage space, and we believe Arweave has massive long-term potential.

Storj (STORJ)

Status: Mainnet

Price: $1.78

Target price: $6.00

Market Cap: $256 million, fully diluted $758 million

Action: Buy

Storj launched its platform in March 2020 and has since grown to over 11,000 customers. It follows a similar business model to Filecoin. With its popular platform and being one of the leading players in the decentralized storage space, we believe Storj is undervalued compared to many of its competitors. It has 45 million GB of storage capacity, far more than Siacoin, and has a growing customer base. We believe Storj’s progress and potential justify a market cap of $2.5 billion (fully diluted) and a price of $6.00.

The outsiders

Opacity (OPCT)

Status: Mainnet

Price: $0.17

Target Price: $1.10

Market Cap: $20 million, fully diluted $21 million

Action: Buy

Opacity has an experienced team led by Jason Coppola, who has previously worked at Microsoft, Paypal, and Salesforce. We believe Opacity is a well-thought-out project that has the potential to carve a significant share of this market. Based on the valuations of both MaidSafeCoin and 0chain, which command market caps of $400 million and $450 million respectively (fully diluted) and are yet to launch, we believe Opacity is significantly undervalued. We have set a price target of $1.10 in the short term, which more closely reflects its potential.

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Internxt (INXT)

Status: Mainnet

Price: $11.56

Price Target: $65

Market Cap: $7.3 million, fully diluted $13 million

Action: Buy

Similar to Opacity, Internxt has a fully functioning product. Although there are a number of complaints about the speed of the product and its functionality, there is also much praise. The key factor is that they are in the game and signing up customers. We believe INXT could be the dark horse in this race, and with a fully diluted market cap of only $13 million, we believe it is grossly undervalued. We have set a price target of $65.

Others

We believe that MaidSafeCoin and 0chain are worth consideration, although they are fully valued based on the fact that their platforms are not live. In addition, Ankr, a DeFi and crypto exchange storage solution, is also worth closer attention, although its fully diluted market cap of $1.4 billion leaves little room for growth, in our opinion.

Where do we go from here?

Decentralized cloud storage is definitely an area that has the potential to disrupt the established players in the centralized market. Currently, however, blockchain projects are their own worst enemies, involving poor execution and appalling marketing. This will change. As an investor, you have the job of trying to assess which projects have the greatest chance of success, remembering there could be an outsider we haven’t even mentioned. With the current market turbulence, now is a perfect time to search for value in this exciting space.

No Financial Advice

This article does not constitute financial advice or a recommendation to buy in any way. Always do your own research and never invest more than you can afford to lose. Investing in cryptocurrencies is high risk, and you could lose 100% of your investment. The article should be treated as supplementary information to add to your existing knowledge.