What are storage tokens, and how do they work?

The increasing need for decentralized storage options due to the drawbacks of conventional centralized storage systems, including single points of failure, a lack of transparency, and susceptibility to data breaches in the digital world, has given rise to storage tokens. In response, the development of decentralized storage platforms that allow for safe, decentralized data access has been made possible by blockchain technology.

What are storage tokens

Storage tokens are digital assets that reflect a user’s ownership or access rights to a specific network’s storage space. Like any other cryptocurrency, these tokens can be exchanged, purchased or sold, and the demand for storage space determines their value.

Storage tokens are an essential component of decentralized storage platforms, in which users can rent out empty storage space to other users who require it. Storage tokens function as a type of digital currency, allowing users to access and store data on decentralized storage platforms. Storage tokens can also be utilized in governance, where tokenholders can use their storage tokens to vote on network upgrades or modifications to the storage protocol.

What is decentralized storage, and how does it work

Decentralized storage systems store data on a dispersed network of nodes, which allows for more privacy, security, scalability and resistance to censorship, but it can encounter data availability challenges.

Working with decentralized storage

Decentralized storage networks store data on several nodes, unlike traditional storage systems, which store data on centralized servers managed by a single company.

Blockchain technology is used in decentralized storage networks to maintain data integrity and security. A blockchain functions in the following way: 

  • Data is stored in the form of blocks that are uniform in size. 
  • Each block contains some particular hashed information/hashed code from the previous block to provide cryptographic security.
  • The hashed information refers to the data from the previous block, and the hashes of the previous blocks penetrate down to the first block of the blockchain.
  • This enhanced security feature makes it more difficult for attackers to gain access to or tamper with the data because they would have to penetrate numerous nodes simultaneously.

Pros and cons of decentralized storage

There are several key features of decentralized storage. Users in a decentralized storage platform can rent out unused storage space to other users that require it. This results in a self-sustaining ecosystem where users can store data at a lower cost than traditional storage systems. Node operators can earn money by offering storage space.

The InterPlanetary File System (IPFS) is a popular decentralized storage platform that enables users to store and retrieve files without relying on centralized servers, improving data availability and lowering the risk of data loss.

Filecoin is a decentralized storage network built on the IPFS protocol. It enables users to securely store, retrieve and trade data in a decentralized network. By renting unused hard disk space and sharing resources, users earn Filecoin (FIL) in return.

One of the advantages of decentralized storage is its resistance to censorship and outages. A single point of failure is unlikely to bring the entire network down because the data is stored on a distributed network of nodes. Even if some nodes fail, the data can be retrieved from other nodes on the network.

Scalability is another advantage of decentralized storage. As data storage requirements grow, traditional storage systems can become costly and difficult to scale. A decentralized storage platform allows users to add more network nodes to enhance storage capacity.

Decentralized storage platforms also provide more privacy and security than traditional storage systems. Because data is encrypted and distributed across numerous nodes, attackers have more difficulty accessing or tampering with it. Users can also stay anonymous on the network, increasing their privacy.

Despite these advantages, decentralized storage platforms face several difficulties. Data availability is one of the issues of decentralized storage platforms. Because data is kept on a dispersed network of nodes, some nodes may go offline or drop out of the network, rendering the data unavailable. 

It can be challenging to ensure data availability when specific nodes go offline or drop out of the network. Decentralized storage networks use redundancy and data replication to ensure that data is always available, even if some nodes collapse.

Centralized data storage vs. decentralized storage

A storage system in which data is held on a single server or a set of servers maintained by a central authority is called centralized data storage. Users typically access their data in a centralized data storage system via a client application that communicates with the central server.

Organizations frequently prefer centralized data storage systems because they provide high data control and allow for centralized management and maintenance. However, centralized storage solutions are prone to security breaches and data loss because all data is stored in a single area.

Centralized storage systems can be costly due to maintaining and upgrading servers. Furthermore, centralized storage systems are vulnerable to censorship and political interference.

Decentralized storage systems, on the other hand, disseminate data across a network of nodes, lowering the chance of data loss and increasing security and privacy. Decentralized storage systems are also less expensive since users can receive incentives for contributing network storage space, decreasing the need for expensive data centers.

Although centralized storage systems have their benefits, decentralized storage systems are gaining popularity as users search for more secure and cost-effective ways to store their data.

What is the function of cryptocurrencies in decentralized storage networks

Storage tokens, cryptocurrencies and cloud mining enable users to engage in decentralized storage networks and earn rewards for their contributions.

Storage tokens are a type of cryptocurrency intended to facilitate transactions on decentralized storage networks. These currencies can be used to acquire network storage space and for governance purposes. Users can use storage tokens to monetize unused storage space or purchase additional network storage space. 

For instance, the InterPlanetary File System serves as a peer-to-peer file storage network that enables users to store, access and share files in a distributed manner, enhancing security, scalability and privacy.

Decentralized cloud mining is the process by which users contribute computational resources to a decentralized storage network in exchange for rewards. Users can receive incentives for donating computing resources that are utilized to store and process data on the network through cloud mining.

Can you make passive income through decentralized storage tokens

Decentralized storage tokens such as FIL, Storj (STORJ), Siacoin (SC) and MaidSafeCoin (MAID) allow users to earn passive income by lending extra storage space or computing power to a decentralized storage network.

Storage tokens motivate users to contribute their excess storage space to the network, resulting in a safe and cost-effective decentralized storage solution. Several storage crypto projects are now offering storage tokens to incentivize network participation. On the decentralized storage platform, Filecoin, users can earn FIL tokens by supplying network storage space; they can also spend FIL tokens to buy storage space from other users.

Other decentralized storage cryptocurrencies that can produce passive revenue include STORJ and MAID. These coins can be obtained by providing network storage space or by contributing to other network areas, such as computing power for network processing.

When looking for the best storage crypto coins for passive income, it is important to consider variables such as the network’s size and activity, the possibility for price appreciation and the platform’s ease of use. 

Written by Tanuj Surve