In late March, cloud storage giant Dropbox raised more than $750 million in its long-anticipated IPO. Much of the media attention focused on the company’s long history of resisting the efforts of deep-pocketed competitors including Apple, Amazon, Microsoft and Google to acquire or kill it.
But the biggest threat to the growing cloud storage market, estimated to top $92 billion by 2022 compared to over $25 billion in 2017, according to one report, may be none of these companies. Instead, it could be new decentralized competitors leveraging the blockchain.
“What people misunderstand about the cryptocurrency space is that it’s not just a store of value… but it also allows you to secure the Internet,” says Steves.
FileCoin, Sia and Storj are among the best-known examples of a growing number of companies offering cloud-based storage that is not on centralized servers like Dropbox or Amazon’s S3, but scattered throughout the world on users’ computers and servers. Much as Airbnb has become the world’s biggest hotel chain without owning a single building, these companies see a future in which traditional providers are bested by a vast network of individual users governed by blockchain contracts.
“We can beat them out on every single metric: price, throughput, latency and access speed,” Sia co-Founder David Vorick said during a presentation last year.
The Dapp Disruption
Distributed storage represents just one of a growing number of distributed applications, often grouped together as “Dapps” or “Web 3.0,” that take advantage of the decentralized nature of the blockchain.
RBC Capital Markets analyst Mitch Steves, who drew considerable attention in January for a research note calling the cryptocurrency and blockchain space a $10 trillion market, believes most of that value is in the ability of the blockchain to power a vast distributed network.
“The vast majority is in the ecosystem,” Steves told CNBC the day after he published his note. “What people misunderstand about the cryptocurrency space is that it’s not just a store of value… but it also allows you to secure the Internet.” Doing so, Steves added, can “not only get rid of the middleman in the center, but also monetize it via the coin network… We’ve created a secure layer for everybody to get value out of.”
‘Rent Your Drive’
The short teaser “Rent Your Drive” at the top of Storj’s website gets at the basics of the distributed storage model. Instead of storing customers’ files on a centralized server, these companies break up files into smaller pieces, encrypt them and then distribute the chunks to organizations and individuals willing to give up storage space on their computers or servers across the entire blockchain. In return, they are reimbursed with coins or tokens over time. Extensive redundancy protects against data loss or malicious actors holding data hostage.
Backers argue the distributed model addresses security issues (such as Dropbox’ own hack in 2012), avoids choke points (such as Amazon S3’s 2017 downtime that ground numerous web services to a halt) and could even prevent a nation’s economy from collapsing in the event of a cyber war.
“It’s dangerous in a systemic way to put a ton of infrastructure on one point of failure,” Vorick says.
Disruption in Progress
If Dropbox’ IPO reinforced the value of established cloud storage providers, several ICOs among Dapp providers suggest the distributed nature of the blockchain has the potential to disrupt the cloud storage industry.
In September, FileCoin’s ICO raised $257 million, while Storj pointed to its $30 million ICO as a rare example of a token sale “backed by a working product.”
Steves told CNBC the traditional cloud storage providers are “going to see significant competitive pressure now.”
“Essentially, people are going to [ask themselves], ‘Do I want my storage to be centralized or do I want it to be decentralized?’” he said. “I think this is going to be a very big topic over the next several years because now it seems like people are starting to understand [that] the protocols … are not the same thing as the currency aspect. I think Wall Street is waking up to that and so companies with centralized computing and storage are going to have to adapt.”
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