Here is why decentralizing file storage matters

The decentralized file storage sector is part of the Rad 30 Crypto Composite, which tracks 30 crypto assets across 10 different sectors similar to how the S&P 500 and the NASDAQ Composite track stocks. These 10 sectors, we argue, are particularly prone to decentralization.

Cloud file storage (file storage) has been the talk of the town in recent years — and it’s not just because Dropbox is “unleash[ing] the world’s creative energy.”

File storage is a large market, reaching $31b in 2017 and expected to grow at a 24% CAGR through 2022, reaching $89b. Dropbox (Ticker: DBX) raised a total of $1.7b in venture financing and then an additional $756m through its IPO. Box (Ticker: BOX) raised $559m in venture financing and $175m through its IPO. These market sizes and dollars should have any heads turning.

Unsurprisingly, the decentralized file equivalents has attracted a substantial amount of capital. We’ve identified 13 decentralized file storage platforms that have raised a total of $325m. The 6 traded platforms have an aggregate market cap of $1.5b (as of yesterday May 8).

Decentralized file storage is crucial for decentralized applications (dApps). Decentralized file storage adds to the infrastructural backbone for dApps. These services enable dApps to store files outside of a blockchain but also in a decentralized manner. If dApps were to use centralized file storage services, then they subject themselves to the same censorship and central-point-of-failures issues that most centralized services have.

Moreover, decentralized file storage services have the potential to offer a cheaper and more secure option than centralized services, potentially posing a threat to legacy infrastructure platforms like Amazon’s S3 or Dropbox.

The rise of decentralized networks has enticed entrepreneurs to build the next wave of file storage platforms. One that can’t be hacked, one that is uncensorable, and one that will have continuous uptime. But, can these platforms work out? We explore below…

Dark clouds
“Cloud services cut both ways in terms of security: you get off-site backup and disaster recovery, but you entrust your secrets to somebody else’s hands. Doing the latter increases your exposure to government surveillance and the potential for deliberate or inadvertent breaches of your confidential files.” — Barton Gellman, Former Time Journalist
To even begin to understand the benefits of decentralization, one most first understand issues of centralized file storage providers.

Central Points of Failure: All it takes is one centralized platform to fail, to witness the detrimental effects. In 2014, a bug in the iCloud software enabled hackers to get access to immensely private and intimate videos and pictures of celebrities. In 2017, a typo led to Amazon’s S3 file storage system to go down for close to five hours. This outage impacted many businesses that relied on S3 to host their files and data. Subsequently, users were unable to access Slack, GitHub, Expedia, and a slew of other platform. Using centralized platforms means that users have to trust them to be reliable and protect their assets. Those that live by the platform will ultimately die by the platform.
Censorship: Centralized platforms have the ability to both onboard and offload users to and from its services. This ability enables platforms to censor users, as seen in the case of Amazon and the Chinese government. In 2017, bowing to the pressure from the Chinese government, Amazon