What are Storage Tokens?

Written by Ivan on Tech

July 28, 2021

Decentralized storage platforms have become increasingly popular as another option to centralized data storage providers. Often run by large corporations, centralized entities lack transparency, are liable to misusing or selling data, and are vulnerable to a single-point-of-failure. Thanks to blockchain technology, various decentralized data storage platforms have emerged. Further, and crucial to each network, are the storage tokens or storage coins. Also, users can often make money with decentralized storage coins by being active in the networks. But, what is the difference between storage coins and storage tokens? If you’re unsure how decentralized storage solutions work or want to know how to make a passive income with decentralized storage tokens, read on! 

In this article, we’ll discover how decentralized storage works by looking into different storage solutions. We will also look at the similarities and differences between storage coins and storage tokens. Plus, we’ll cover different ways to make money with decentralized storage or earn a passive income with decentralized storage tokens. 

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What are Decentralized Storage Tokens?

Businesses and individuals store large amounts of data with centralized entities frequently. Large corporations, such as Amazon, One Drive, and DropBox offer data storage services as an alternative to data storage on local hardware or servers. Although these services are often useful, there are several disadvantages to using them. 

Blog Storage Tokens Decentralized Storage

Data stored on a centralized database presents a single-point-of-failure. If one entity were to come under a cyber-attack or experience downtime due to technical reasons, it could affect thousands, if not millions of users. In turn, a large number of people may fail to gain access to their data or services when needed. Moreover, giant cloud storage companies often use or sell data unbeknown to the owner. When users give their data to centralized data storage services, they usually give up their rights and permissions regarding how companies can use said data. 

Because blockchain technology can ease the issues around centralized data storage providers, decentralized file storage solutions are becoming more accessible. Decentralized storage platforms increase transparency, eliminate the threat of data theft, and offer users a secure way to store their data. Furthermore, some decentralized storage networks provide users the opportunity to earn a passive income with crypto. This process involves the native storage tokens and storage coins that secure the decentralized data storage platforms.

How Decentralized Storage Works & Storage Coins

Decentralized storage solutions exist without centralized storage hosts. Rather than a single entity controlling and monitoring siloed information, decentralized storage platforms distribute data across multiple hosts in different locations. Furthermore, servers operate using a network of independent nodes. Often, these nodes use spare storage space on computers, which can be a great way to earn a passive income!

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Many decentralized data storage platforms rely on blockchains to maintain an immutable ledger of data transactions. These include the use of both public and private blockchains. When using a blockchain for a decentralized data storage network, participants have an incentive to earn the native storage coin or storage token of a particular network. Some decentralized storage tokens and coins act like bonds, meaning users can stake them or lock them up as collateral to secure a network. In turn, node operators that attempt to act maliciously can lose their stake. This encourages nodes to behave honestly.

Furthermore, because decentralized cloud storage can be spread across large networks, altering or censoring data is far more complex than when it resides in a single centralized server. Also, blockchain-based decentralized storage networks use private key encryption to ensure the security of data.

Moreover, the efficiency of immutable decentralized file storage solutions helps to increase download speeds, avoid bottlenecks, and reduce costs. Plus, when files are broken down into several pieces and distributed across several nodes, no single node can read an entire file without permission. Resultantly, decentralized storage solutions provide higher levels of security and privacy than centralized solutions.

Additionally, users of decentralized storage platforms pay for transactions using decentralized storage coins and tokens. Moreover, these decentralized storage tokens and storage coins serve as rewards for node operators for providing data storage services.

Storage Tokens vs. Storage Coins 

Cryptocurrencies fall into many categories, with a lot of terms being thrown around loosely in the industry. Tokens and coins are among the most common. Although similar, there is a distinction between the two. 

Firstly, storage coins are cryptocurrencies that launch directly from a native blockchain. For example, the decentralized storage platform hosted by the Sia blockchain has its own coin, Siacoin (SC). On the other hand, tokens are cryptocurrencies that launch through applications built on top of a blockchain. For example, Streamr’s DATA token is a storage token. The DATA token operates through the Streamr application, built on the Ethereum blockchain. 

There is no underlying difference between storage coins and storage tokens other than their deployment origin. Both types of cryptocurrency are adjustable through individual tokenomics and governance parameters to suit a specific decentralized storage network. 

Decentralized Storage Systems & Storage Tokens

There are many types of decentralized storage systems. Below, we discuss a few of the big players in the decentralized storage industry. 

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IPFS

The InterPlanetary File System (IPFS) is a peer-to-peer “decentralized cloud and file system for the blockchain environment”. Although the protocol doesn’t use blockchain technology directly, IPFS can host, manage, and share data suitable for storing on a blockchain. 

Blog Storage Coins IPFS HTTP Client Library Image

InterPlanetary File System (IPFS) uses a process known as “content-based addressing”. This is instead of the most common, “location-based addressing” model. In short, location-based addressing is where users tell computers the desired content location by entering an IP address or domain name. The computer then receives the called content by following the address. 

On the other hand, content-based addressing is where users request the content directly from the InterPlanetary File System (IPFS). Content loads from a network of peers instead of a single centralized server, requested by location. A unique hash represents each file, using cryptography and computer science for security across a decentralized network. Moreover, IPFS creates only one file, even when multiple users publish the same content to the IPFS. This is to avoid duplicates and increase efficiency and speed within the protocol. 

The InterPlanetary File System (IPFS) uses a Distributed Hash Table (DHT) in conjunction with the content-based addressing system. Users can request content via the DHT to see which node in the network has the desired file. The network is transparent (meaning it’s public, and anyone can view it), secure, and decentralized. 

Filecoin 

Powered by the native Filecoin token (FIL), Filecoin is an open-source, decentralized file storage protocol that operates on Ethereum. Following a successful initial coin offering (ICO) in 2017, Filecoin welcomes support from ConSensys and Protocol Labs to facilitate interoperability across the Filecoin network. Filecoin provides users with another option to centralized data storage providers. Plus, Filecoin offers its users a way to earn a passive income with their space computer storage!

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Filecoin is the brainchild of Juan Benet, a renowned computer scientist, and engineer. Benet is also responsible for creating Protocol Labs (an open-source research and development company) and the InterPlanetary File System (IPFS). Filecoin aims to create “an incentive layer” for IPFS, creating the “cooperative storage cloud” of the storage network.

As an open-source protocol, anyone can use Filecoin to store their data or monetize their spare storage. Filecoin operates a unique consensus model referred to as Proof-of-Spacetime (PoSt) using a Proof-of-Replication (PoRep) system to verify files stored on the network. In short, PoRep means storage providers must publicly prove they have possession of a file when requested by the algorithm. The novel Proof-of-Spacetime (PoSt) consensus model allows miners who store data to generate blocks on the network and receive FIL token rewards in return.

Siacoin 

Nebulous, a blockchain software and hardware solutions firm founded in 2014, is responsible for launching the Sia Storage Platform in 2015. As one of the first decentralized blockchain-based storage platforms, the idea for Siacoin was born in 2013. The Sia Storage Platform offers a range of decentralized storage solutions. Moreover, the Sia blockchain is host to the Sia network, SiaStream (a peer-to-peer media streaming platform), and Skynet, Sia’s layer-2 solution and content delivery network (CDN). 

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The Sia network is a decentralized cloud storage network that offers a decentralized marketplace for data storage. Renters can use the native Siacoin (SC) to pay for secure data storage on the hard drive space that decentralized hosts provide. Further, hosts can choose to become nodes of the Sia blockchain by providing unused hard drive storage. 

The result is a more reliable service compared to centralized solutions. Plus, the cost to users and operators is much lower. Also, users hold their own private keys, which means that data is resistant to censorship and manipulation. Sia’s decentralized cloud storage network is also more secure than centralized alternatives. This is because the distribution of data operates in a way that if a hard drive in the network were to fail, no data would be lost or compromised.

Streamr

Streamr is a decentralized peer-to-peer data storage network and data marketplace that assists in processing real-time data streams used for various solutions. Also, the Streamr Marketplace enables users to buy and sell scalable, privacy-preserving datasets known as “Data Unions”. Data Unions are crowdsourced datasets that do not require custom infrastructure.

Blog Streamr Logo

Furthermore, the Streamr ecosystem provides a gateway to the new data economy by promoting the monetization of frictionless data flows. Streamer node operators receive rewards in the native DATA token for honest behavior delivering data to the Streamr network.

Encrypted data provided by Streamr nodes is highly accessible and secure. Plus, it can reach thousands of users in milliseconds without any third-party middlemen. Also, Streamr uses crowdsourcing to incentivize the creation of valuable datasets that would otherwise be difficult to access and compile. Ergo, the Streamr network aids the democratization of the web by offering users the ability to maintain control of their data.

How to Earn a Passive Income with Decentralized Storage Tokens

Another benefit of decentralized storage is the opportunity to earn a passive income and monetize spare storage space. Several decentralized data storage platforms offer different avenues for users to increase their storage token revenue stream. 

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For example, you could become a “host” participating in the heart of the Sia ecosystem by providing hard drive space to the distributed file storage network. This allows “renters” to securely store their files in a decentralized way. Hosts can set their own rates for their hard drive space. Furthermore, hosts receive compensation for their contribution to the network in the native Siacoin (SC). Users can convert SC rewards to alternative cryptocurrency or fiat currencies using a crypto exchange. Also, hosts can use rewards towards purchasing additional storage space on the Sia blockchain.

Another way to make money with decentralized storage is to become a network node of a decentralized file storage platform. Depending on the decentralized data storage network, becoming a node may require some technical background knowledge. Moreover, to become a mining node sometimes requires specific types of hardware. However, network nodes can expedite multiple revenue streams by validating transactions, generating blocks, providing storage space, and being rewarded with transaction fees often in the native storage coin.

As the adoption of blockchain slowly becomes more mainstream, the potential for distributed storage is massive. A user, thousands of miles away, can efficiently rent out spare and unused storage space. Moreover, the transaction process is secured cryptographically within a peer-to-peer network. This will increase the global data storage capacity to a large extent while offering everyday users the chance to monetize their unused hard drive space and make money with distributed storage. 

Exploring Decentralized Storage Solutions & What are Storage Coins Summary

According to ZDNet, there are 295 billion gigabytes of data storage globally. So much of this is untapped potential for sharing, renting, and hosting data through a decentralized storage network. Projects such as the ones mentioned in this article and others such as Storj, Ocean Protocol, and Internet Computer Protocol (ICP) work together to create a decentralized internet.

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Now that you know more about how blockchain-based decentralized storage works, you should have an insight into the various ways of earning a passive income with decentralized storage using storage tokens and storage coins. 

Ivan on Tech Academy is ideal for learning about the many use cases for blockchain technology. With courses suitable for all levels of knowledge and experience, our students have access to the highest quality learning tools available online. For non-programmers interested in blockchain, see our Blockchain Business Masterclass and Blockchain for Enterprise courses to learn how blockchain can optimize business processes. Then, check out our OriginTrail 101 and OriginTrail 102 courses to learn about blockchain in global supply chain management!

Also, don’t forget to follow us on Twitter @Academy_IOT! We’d love to hear your thoughts about this article and your opinions on storage tokens!

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