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Investors Poured Millions into a Storage Network that Doesn’t Exist Yet

A Brand New Internet Infrastructure

A blockchain-based cloud storage technology called Filecoin has already raised $52 million from investors. The company is poised to raise millions more on Thursday when it begins selling units of its bitcoin-like cryptocurrency to a larger set of wealthy investors.

Filecoin aims to disrupt conventional cloud-based storage platforms from Amazon and others. If it succeeds, the technology could be worth billions of dollars. But the company will need to overcome some significant hurdles first.

First and foremost, Filecoin’s technology doesn’t actually exist yet. The Filecoin team has done extensive research and planning, producing a series of white papers describing the technology it’s building. But an actual, working Filecoin network is still months away. When it launches, Filecoin will compete with rival blockchain storage networks, including Sia, which has been available to the public for two years.

Storage System

“Filecoin currently is just a white paper,” Sia co-founder David Vorick told us earlier this week.

Filecoin is a Safe way to Store your Information

The broader challenge for Filecoin and its more established competitors will be convincing customers that it’s safe to entrust their data to a decentralized, blockchain-based storage network at all. In theory, blockchain-based storage could offer significant advantages, including lower costs and higher reliability. The technology is likely to be most appealing for people looking for low-cost, long-term data storage

But the technology is going to need at least a few years to mature to the point where it’s ready for mainstream use. The Sia network has relatively limited capacity, and, right now, using the technology involves significant hassles—including acquiring the Siacoin cryptocurrency on a digital currency exchange and configuring and running complex Sia client software.

Blockchain storage networks aim to enable trustless markets for online storage, allowing customers to buy storage from relatively unknown vendors without having to worry about losing data.

The basic strategy is for a service provider to sign a contract promising to store the data and post collateral backing up the promise. If a service provider fails to keep its end of the bargain, it forfeits the collateral. The idea is reasonable in theory, but it’s not really practical with conventional payment networks backed up by the conventional legal system. The system would easily get bogged down in costly disputes between service providers and their disgruntled customers.