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Understanding Decentralized Storage Networks

by | Sep 23, 2021

Disclaimer: Posts on the HyperTrader blog and associated HyperLinq websites are for educational and informational purposes only. These posts should not be taken as financial advice, nor are they meant to be viewed as trading advice. HyperLinq Inc. or the authors take no responsibility for any damages or losses.

As we’ve mentioned multiple times, the world of blockchain is rapidly innovating various branches of the internet as we see. Starting with Bitcoin as the world’s first decentralized cryptocurrency to Ethereum as the world’s first decentralized computing platform to stablecoins, insurance, lending, borrowing, and whatnot. 

Today, we’ll be talking about yet another face of innovation brought to reality thanks to blockchain technology. Yes, as the title suggests, we’ll be talking about decentralized storage networks and how they will change the internet as we know.

What is a Decentralized Storage Network?

To understand the concept of decentralized storage, we first need to understand the current state of storage networks. As of now, almost all of the data is centralized stored on a server operated by a single entity or company. For example, if you’re using an Android phone, all your data is stored on Google’s centralized server. 

Similarly, if you’re using an iPhone, your data is stored on Apple’s cloud storage. There are various other platforms available for cloud storage of your data such as AWS for internet companies, Dropbox for individual users, etc.

Now, what if, instead of storing your data on a centralized located server, it can be stored on a decentralized peer-to-peer network with every participant holding a portion of overall data. Thus creating a resilient network of file storage and sharing that can bypass any censorship and avoid relying on a single entity. That, my friend, is a decentralized storage network.

Now, let’s understand how large amounts of data are stored on a decentralized peer-to-peer network and its incentive mechanism. Majorly, there are two distinct types of persistence mechanisms through which a piece of data is stored on a peer-to-peer network while aligning incentives for network participants to store that piece of data. Let’s have a look at both of these persistence mechanisms.

Types of Persistence Mechanism

There are two types of persistence mechanisms when it comes to decentralized storage networks – blockchain-based and contract-based. Let’s have a look at them.

Blockchain-Based 

This is the first type of persistence. In this mechanism, the data is stored on-chain where a new piece of data is stacked on top of the chain while the chain continuously grows. In that sense, Ethereum can be said to be a decentralized storage network as it stores data for all smart contracts on its network. 

However, Ethereum is not made for a decentralized storage network, as keep the large amount of data on-chain could result in making it practically impossible for all the nodes to download that data and continue to run. 

Talking about the incentive structure of the blockchain-based persistence mechanism, the participating nodes of such networks are incentivized through mining and adding a new piece of data to the chain. 

In order for a piece of data to persist forever, there needs to be some type of persistence mechanism. For example, on Ethereum, the persistence mechanism is that the whole chain needs to be accounted for when running a node. New pieces of data are tacked onto the end of the chain, and it continues to grow.

Contract-Based

On the other hand, rather than storing data on-chain, a few decentralized storage networks have come up with an innovative solution. These platforms, instead of storing all the data on a blockchain, only store the hash of the data’s location. Thus leveraging the blockchain technology without storing all the data on-chain.

The contract-based persistence mechanism came up with a contract agreement model where the data need to be stored only for a given period of time, rather than storing it forever. In this model, multiple nodes of the network sign a digital contract to hold a piece of data for a given period of time and in exchange get rewarded in the network’s utility tokens.

Few examples of contract-based decentralized storage networks are:

Head of Content Marketing @ HyperLinq. His love for Chai and mountains precedes everything. Often wonders about things like, "why $1 earned through leverage feels 100x better than $1 earned selling your time?"

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