What are decentralized storage cryptocurrencies and how do they work?


It’s easy to assume that cryptocurrencies all have similar origins. But while all cryptos exist on blockchains. do not all come from the same types of networks. This is the case with storage tokens or storage coins. But what exactly are cryptocurrency storage tokens, where do they come from and what do they offer?

What is decentralized storage?

digital graphic of a web network

Before discussing storage tokens, it is important to understand their origins: decentralized storage platforms. We all have images, videos, songs, or other files that need to be stored somewhere digitally. And, while most of us use our devices alone for storage, sometimes that just isn’t enough. This is where blockchain-based cloud storage can provide individuals with additional storage space.

Cloud storage is much easier to recover if lost and can be downloaded regardless of location if one has internet access. However, centralized storage platforms such as Microsoft OneDrive and IBM Cloud Storage are vulnerable to data theft or loss because they have a weakness known as a single point of failure.

Related: What is Crypto Cloud Mining?

Decentralized storage platforms can overcome this obstacle by dividing user data into smaller chunks and distributing it across nodes (or devices) within a decentralized network. Data is also automatically encrypted when uploaded over the network. Encryption does not damage or affect your data, but keeps it safe and inaccessible to malicious parties. It also means that devices with your data cannot decrypt it, because each device will only have a small part of your data, and the encryption will make it undecryptable.


Since a single entity or server can hold all the information within a centralized network, the chances of a total network shutdown or hacking are much higher. Additionally, centralized platforms have been exposed in the past to sell private user data without permission.

In short, centralized storage platforms simply don’t offer the same levels of security and transparency as decentralized storage platforms. Therefore, your data can be accessed much more easily without your consent, and even the cloud provider may have ulterior motives. So where do storage cryptos come in here?

What are storage tokens?

filecoin in front of crypto coins in hand

Decentralized storage platforms often have their own coins or tokens because they exist on a blockchain, just like regular cryptocurrencies. Storage coins are launched directly from a native blockchain, while storage tokens are used in apps or projects built on the blockchain (like Ethereum).

While you would pay in dollars, pounds, or any other traditional currency when using centralized storage platforms, decentralized storage platforms allow customers to use the platform’s native token as method of payment to use some of their available storage space. Users can also make a profit by becoming nodes on a storage blockchain, offering their spare storage space to other users.

Related: How does Tether (USDT) work and why is it so controversial?

Like cryptocurrencies in general, the price of these storage coins can differ significantly. Some are worth less than a dollar, while others are worth much more. However, throughout 2021, storage tokens and coins have seen a decline in value. Filecoin, for example, went from $191 to $28 in ten months. As is the case with many cryptos, storage coins and tokens were once seen as the next big thing in the industry, but a decrease in excitement usually leads to a decrease in value.

However, coins and storage tokens are still quite relevant, with decentralized storage platforms becoming an increasingly popular alternative to centralized storage platforms. So what are some of the best decentralized storage platforms and major currencies currently available?

screenshot of filecoin homepage

If you’ve been interested in crypto for a while, you might have heard of Filecoin. Filecoin made a name for itself as one of the biggest ICOs (or initial coin offerings) of all time when it raised over $250 million in 2017. Developed by Protocol Labs on the IPFS storage protocol (or InterPlanetary File System), this open source decentralized storage allows users to securely store large amounts of data and earn passive income using their device’s internal storage. It exists on the Ethereum blockchain, which has become incredibly popular for DeFi projects.

Filecoin uses two consensus mechanisms within its network: Proof of Spacetime (PoST) and Proof of Replication (PoRep). Related to proof of storage, the PoST mechanism essentially requires miners to prove that they are storing a specific piece of data for a decentralized network. The process involves randomly selecting miners, who then verify their data storage. This type of mechanism is a step up from the proof-of-work (PoW) mechanism, as it is considerably more environmentally friendly.

Related: Proof of what? Common Cryptographic Mechanisms Explained

The proof-of-replication mechanism used by Filecoin is somewhat similar to space-time proof, although miners must publicly prove that they are storing a unique copy of a piece of data. In short, both mechanisms ensure that data is kept properly and securely on the network.

Although Filecoin offers an excellent decentralized storage option, its native currency, which bears the same name, has seen a significant decline in value throughout 2021, with its transaction volume currently on the rise.

2. sia (and Siacoin)

screenshot of sia website homepage

Sia is another big player in the decentralized storage game and was one of the first to be developed. This platform offers decentralized cloud storage to users by dividing their data into smaller chunks which are then distributed across network nodes.

As Sia’s own developers have said, the network offers “Underutilized Hard Drive Capacity” to users, which is secured using blockchain technology. Additionally, data transactions are protected by smart contracts, allowing for a more affordable cloud storage option. Sia users keep their private keys, which means that their stored data cannot be viewed or modified by others.

Customers can pay for their rented cloud storage using Sia’s native currency, Siacoin. This coin currently has a fairly low value compared to Filecoin, but is still a strong competitor in the market in terms of storage coins.

screenshot of storj website homepage

Storj is one of the most popular decentralized cloud storage platforms in the world, with tens of thousands of users. Founded in 2014 and launched in 2018, this network allows you to store your data in a private and encrypted format (including using AES-256-GCM symmetric encryption).

Related: What is DeFi? The short guide to decentralized finance

Like Filecoin and Sia, Storj splits your data into smaller pieces, increasing its durability and security. Storj splits each file into exactly eighty chunks each time, and each chunk is sent to a separate node. You can rent storage space from other users of the Storj network, although this is chargeable.

Like the other two storage platforms here, Storj has its own digital currency of the same name. Storj pays its users using their local currency to rent their storage space. When you do this, you become an SNO (or Storage Node Operator). Many choose to make money using Storj instead of renting cloud storage space for their data.

Can you generate passive income from decentralized storage?

With increased security, transparency, and user control, decentralized storage platforms could truly turn out to be the next industry giant in cloud storage. With their native tokens and coins, these platforms contribute healthily to the crypto market, giving people the opportunity to store their data securely and earn passive income by renting out idle storage. Time will tell whether or not we will all end up using such platforms in the near future.

image of bitcoin tether function
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