What Is Decentralized Storage? Ultimate Guide

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Decentralized storage is a system of storing data on multiple decentralized clouds and servers instead of a single centralized location. Unlike centralized models, where data storage is concentrated in the hands of a few tech giants, decentralized storage is a peer-to-peer (P2P) cloud storage solution where ordinary users manage the system. Users rent out free disk space on their drives and are incentivized with tokens in return for their contribution.

For as long as one can remember, centralized cloud storage providers (CSPs) like Google, Microsoft, Apple, and Amazon have been enterprises’ preferred choice for storing data. While these CSPs provide numerous benefits, they have been accused of monopolizing the market and pigeonholing customers into rigid storage plans. Additionally, they are susceptible to cyberattacks that can cripple systems and cause disastrous financial loss.

“As we saw in the Equifax and Experian breaches and the recent TransUnion problem with a criminal gaining access to the data, these centralized data stores are treasure troves for criminals and attract attacks accordingly,” says Uri Arad, co-founder and VP of product and research at Identiq. “That, in turn, is disastrous for consumer privacy and makes effective cybersecurity and fraud protection far more difficult.”

Given the flaws in centralized solutions, it may be time to explore alternative data storage options like decentralized data storage.    

How decentralized storage works

CSPs store data in servers spread across multiple geographic locations they own and manage. As a result, they also wield enormous power over user data. In contrast, decentralized storage has a highly democratic approach to data management. Here anyone can join in and earn bitcoins by renting out their disk space.

Decentralized storage breaks the data into small pieces through a process called sharding and then stores them in multiple computers called nodes owned by people like you and me. Once split, each file/data is provided a unique identifying number, encrypted with a private key, and distributed to independent nodes worldwide.

To maintain redundancy, several copies of the data are created so that even if one node fails, the data can still be retrieved from other nodes. As there’s no single server, there’s no question of data being damaged or unavailable. In the case of decentralized systems, the data is stored in hundreds and possibly thousands of nodes worldwide, so you are always guaranteed high data availability.

Since the data is encrypted, nodes cannot see or change your files; for safety reasons, only users with the same set of encryption keys are able to access the data. This makes it highly secure. Likewise, since all files are distributed, even if attackers try to hack into nodes, they get only encrypted chunks of data, not the entire data, which ultimately serves them no purpose. It is precisely this feature of decentralized storage that makes it highly secure.  

The benefits of decentralized storage 

Decentralized storage comes with a variety of benefits, including lowering costs while raising security, reliability, scalability, and data privacy.

Lower costs

A decentralized storage model doesn’t require significant investment in data centers, making it less expensive than centralized storage solutions. Further, there is a robust market of users willing to rent their unused disk space, which lowers the costs even more. 

Greater security

In decentralized storage, files are broken down and spread across several nodes. This ensures that, even if one node is hacked, the rest are not affected. Having trustless architecture, granular access controls, and no single point of failure are additional features that enhance security.

Higher reliability

Decentralized clouds have less downtime because data is distributed across unrelated nodes. So even if a particular server goes down, you can retrieve your data from other nodes.

Highly scalable

Decentralized nodes can be scaled up at will, making them highly scalable compared to CSPs.

Better privacy

Since the data is encrypted, your personal information is always safe.

The drawbacks of decentralized storage 

While the concept of decentralized storage is indeed promising, it does have certain drawbacks that cannot be overlooked. 


By far, one of the most significant drawbacks of decentralized cloud storage is its trustworthiness. Unfortunately, not everybody can build trust in anonymous individuals storing their data. Even if the data is encrypted or secured, it still rests with one or many unaffiliated contractors. This can be worrisome to some enterprises, who may prefer the accountability of an established organization. 

Quite complex

It’s not so easy to build a decentralized cloud storage system. Had it been so, everybody would have been building it! Relying on a dependable, centralized partner to secure and manage your data instead can save a lot of time and effort for you and your IT department.

Decentralized vs. centralized storage at a glance

Here is a quick look at some of the principal differences between centralized and decentralized storage, including their controller, encryption, location, security, and cost.

  Centralized Storage Decentralized Storage
Controller Single organization P2P network
Encryption No Yes
Location Central location Multiple nodes
Security Greater risk of security breaches Security incidents less likely
Cost Can be costly at high volumes Relatively inexpensive

Leading decentralized storage platforms

Given the growing interest in this space, several decentralized cloud storage providers have emerged on the scene. A few of the best are Storj, Sia, and Filecoin.


Storj is a decentralized storage system where users rent redundant drive space and earn tokens. It has three major components:

  • Storage Node: Stores the data. Each node is independently operated.
  • Uplink: The software that communicates with the storage nodes and satellites.  
  • Satellite: Acts as a mediator between Uplink and Storage Node and decides what files the nodes will store.

When a user uploads a file to the Storj network, it encrypts files using AES-256-GCM symmetric encryption and then breaks them down into 80 pieces. This data is then spread across diverse geographies and ISPs. Doing so ensures no unauthorized user gets access to your data.

Storj clients pay for storage in STORJ cryptocurrency. The STORJ token is an ERC-20 token that participants use to buy or sell on the platform.


Sia is an open-source cloud storage company that runs on blockchain technology. It works on the proof-of-storage (PoS) method for creating data blocks on the Sia platform. Whoever has extra space can rent it out (as lessor) in the Sia marketplace to users (lessees) seeking storage space.

Sia has a unique two-coin system that incentivizes the investors of the Sia network to stay invested in the platform.

  • Siacoins: Sia miners can monetize their extra unused storage space and earn rewards in the form of siacoin (SC)—the native utility token of the Sia platform. The supply of Siacoins is not fixed and can be minted indefinitely. Currently, there are over 40 billion Siacoins in the world, and their number will only keep growing.
  • Siafunds: Siafunds make up the other component of the token system in Sia. Siafunds are used for revenue-sharing purposes. However, note that Siafunds are extremely rare, as there are only 10,000 Siafunds in existence, out of which the parent company already owns 8,600 Siafunds. 


Created by Protocol Labs, Filecoin is an open-source P2P network that allows users to rent unused space from those who do not require it. Filecoin also comes equipped with cryptographic PoS and proof-of-spacetime mechanisms that enable clients to check at any point if a storage provider is actually storing the data they have committed to storing.   

Filecoin has two types of miners:

  • Storage miners: Storage miners are encouraged to rent as much storage space as possible. They receive rewards proportionate to the space they rent out.
  • Retrieval miners: Retrieval miners are miners who are tasked with retrieving data when they receive a “get” request. 

Miners are paid in FIL, Filecoin’s native token, which is used to rent hard disk space. 

Who should use decentralized storage?

The best use cases for decentralized storage are individuals and organizations in highly regulated industries or using highly sensitive data, such as government and healthcare, as well as those with limited budgets who require an inexpensive yet secure storage solution.

Who shouldn’t use it?

Decentralized storage may be a poor choice for large, complex organizations with a high volume of data. These organizations may want the convenience and dependability of a single partner with a direct support team who they can work with to organize and manage their information.

Bottom line: Using decentralized storage

Currently, a few players are doing some fantastic work in decentralized storage, but the technology is still in its infancy. Although these storage systems offer several benefits over CSPs, like greater security and increased privacy, it still has yet to go fully mainstream, and many organizations still prefer the assurance of a large, unified company. Gradually, as Web 3 becomes a reality, we expect to see more users—both individuals and organizations—transitioning towards decentralized platforms in the future.

We also analyzed the best options for network-attached storage (NAS) for your on-premises storage needs.

Susnigdha Tripathy
Susnigdha Tripathy
Susnigdha Tripathy is a full-time writer and editor based in Singapore, and a regular contributor to Enterprise Networking Planet. She has over 10 years of experience writing, editing, and delivering exceptional content for a variety of international technology brands such as Virtasant, a cloud technology company, and Krista Software, a provider of intelligent automation solutions. She has also appeared in ServerWatch and other industry publications.

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