What is Decentralized Cloud Storage and How does it Work?




Feb 21, 2024

What is Decentralized Cloud Storage and How does it Work?

Decentralized storage, simply put, is an application of blockchain technology to bolster privacy and data security in the realm of cloud storage. For a long time now, centralized cloud storage providers such as Amazon and Microsoft have been the go-to choice for storing reams of data online. While such centralized storage solutions offer easy accessibility and vast storage options, they come with a slew of downsides, including the risk of monopolised pricing, censorship, policy changes, cyber attacks, loss of data, and a number of privacy concerns, among others. As blockchain technology started gaining prominence, something known as “decentralized cloud storage” emerged as a viable alternative to centralized cloud storage.

Read on as we demystify “decentralized cloud storage” and tell you all there is to know about it.

What is Decentralization cloud storage?

Before we dive into the nitty gritty of decentralized cloud storage, it would be helpful to understand the philosophy behind it.

Decentralization can be defined as a philosophy that advocates for a liberal system of governance where there is no single authority that holds supreme control over everything. Of late, decentralization is one of the most widely discussed aspects of Crypto and blockchain.

To put things in perspective, consider “centralized storage” solutions such as AWS or Microsoft Azure. At the end of the day, all the data stored on the cloud controlled by the said companies, will be subjected to their internal policies and rules. Decentralized storage solutions, on the other hand, do not place the entire control and responsibility of storing and maintaining the privacy of data in one centralized authority’s hand.

Decentralization, apart from paving the way to a more liberal and privacy-centric tech ecosystem, also addresses a number of concerns being faced by the tech industry today.

How does decentralized storage systems work?

Unlike centralized storage where data is saved on multiple servers that are hosted in a centralized database, decentralized storage involves storing data across multiple computers, which are also known as nodes. All these nodes are connected together on a decentralized peer-to-peer (P2P) network. Earliest examples of such peer-to-peer networks include Napster and BitTorrent.

In a decentralized storage system, you can upload and download files from the network whenever needed, much like any centralized storage. Downloading a file from a decentralized storage, for instance, will entail downloading various fragments of the file from a P2P network until the full file is downloaded. This is also similar to BitTorrent works. That said, nodes in a decentralized network cannot view or alter your files; this is because all the data that you upload to a decentralized storage network will be encrypted by default. You, therefore, have rock solid protection and privacy, ensuring that your data is in safe hands.

While centralized storage saves data in a centralized location that is geographically nearest to you, decentralized systems saves data in a wide P2P network regardless of the location. As a result, the transfer speeds of data are generally higher in decentralized storage as the entire process is handled by nearby peers but not the servers hosted in a physical location.

Decentralised storage platforms are backed by a blockchain that offers transparency and verifiable proofs for data storage, consumption, and reliability through cryptography. This eliminates the need to rely on and trust a centralised provider.

Advantages of decentralized storage using blockchain

Decentralized storage, as we previously mentioned, has evolved to address the challenges and limitations of centralized storage. Here are a few ways in which it is superior to centralized storage, making it a sound alternative to traditional cloud storage options.


Unlike centralized storage systems where a finite few data centers host your data, decentralized storage networks comprise millions of nodes willing to host your data in a secure manner. This not only provides a vast amount of storage bandwidth but also brings down the cost of storage, making it an economical option.

2.Fair Pricing

In any decentralized storage network, there is a constant competition among storage nodes as only the fittest ones tend to be incentivized. Due to such a competition, the possibilities of anti-competitive practices, monopolies, and unfair prices are close to zero. You can, therefore, expect to enjoy fair pricing when subscribing to this network.

3.Minimal File Loss

In any decentralized storage system, millions of nodes tend to participate and store your data. This helps create multiple copies and ensure that there is no data loss in the wake of any unforeseen circumstances such as a region going down, for instance.

4.Secure & Private

There are two solid factors that contribute to the high standards of privacy and security that decentralized storage offer. The first factor is the fact that all the data is encrypted. The second factor is that the data, on top of being encrypted, is then split among millions of storage nodes. This makes it impossible for any node to access or understand what is being stored on a decentralized network.


It is commonplace to encounter network bottlenecks with centralized storage system as the network traffic may sometimes overwhelm the servers. In a decentralized network, though, multiple copies of data are stored across various nodes. This eliminates the probability of network bottlenecks as you can access your data from a huge number of nodes, in a fast and secure manner.

6.Data Privacy

Decentralized storage provides increased data privacy as the data is typically encrypted before being distributed across the network. Since the data is fragmented and stored on multiple nodes, it becomes much harder for unauthorized entities to access or manipulate the data without the proper decryption keys.

7.Community and Collaboration

Decentralized storage networks often foster a community-driven ecosystem where participants contribute their resources and collaborate to maintain and improve the network. This community involvement can lead to innovation, transparency, and shared decision-making, benefiting all participants.

What to Consider When Choosing a Decentralized network Provider?

Here are four things to consider when considering decentralized data storage options: Persistence mechanism, data retention enforcement, decetrality, and consensus.

1.Persistence Mechanism

A persistence mechanism or an incentive structure is fundamental to ensure that data is saved safely and securely on a decentralized network. Ethereum, for instance, follows a persistence mechanism known as “blockchain based persistence.” As Ethereum’s persistence mechanism is not sustainable for storing large amounts of data efficiently, each decentralized storage provider has an incentive structure and persistence mechanism of their own.

Contract-based persistence is another incentive structure that a number of decentralized storage providers such as Filecoin and Storj tend to follow. In this model, contract agreements are enforced in order to ensure that data is stored in a set number of nodes for an agreed upon period of time.

2.Data Retention Enforcement

Data retention enforcement is a mechanism that ensures data is retained, with cryptographic challenges being a common mechanism to check if a node still has data. The Proof-of-access mechanism by Arweave is an example of data retention enforcement. Nodes are required to complete a challenge which checks if data is present in both the most recent node and some random node from the past. In cases where nodes fail to complete the challenge, they end up being penalized.


While there’s a one-size-fits-all approach to determine how “decentralized” a storage provider is, it is a good practice to subscribe to services and software tools that show a certain form of KYC to determine their decentrality. .


Consensus, simply put, is a process through which all the nodes in a decentralized network or a blockchain network reach an agreement with regards to the state of the distributed ledger. While each decentralized storage provider may have a consensus mechanism of their own, proof-of-stake (PoS) and proof-of-work (PoW) are the two common mechanisms upon which most other mechanisms are based upon.

Popular Decentralized cloud Storage Projects in 2023:

1.IPFS + Filecoin

The InterPlanetary File System (IPFS) fetches information based on what it is, unlike how the internet works, wherein data is fetched based on its location. FileCoin built a decentralized network utilizing IPFS technology by incentivizing users through FileCoins (FIL) whenever they hosted content on their harddrives.

In the Filecoin network, users pay to store their files on the systems of storage providers. These storage providers can be individuals or organizations who offer their computer resources to store files and can prove that they have correctly saved the files over a specific period. To incentivize these storage providers, Filecoin employs a blockchain technology and its own native cryptocurrency.

It's important to note that while Filecoin and IPFS (InterPlanetary File System) are complementary protocols, they are distinct and can be implemented independently. IPFS facilitates the transfer of data files between peers, allowing for efficient sharing and distribution. On the other hand, Filecoin focuses on providing a persistent and secure system for long-term storage of data.


Sia is a project that was started in 2013 with an aim to leverage underutilized hard disk capacity across the world for creating a data storage marketplace. The idea was to create a marketplace that offered cheap and efficient decentralized storage solutions. The Sia tech project tends to prefer a proof-of-work (PoW) consensus mechanism, along with a proof-of-storage algorithm for protecting as well as validating proofs and file contracts.

Sia foundation utilizes a proof-of-storage algorithm. This algorithm ensures that storage providers in the Sia network fulfill their commitments and properly store users' data. Storage providers are required to prove that they are storing the data they claim to be storing by periodically submitting cryptographic proofs.

The file contracts in project are used to establish agreements between the storage providers and users. These contracts define the terms and conditions of the storage arrangement, including the duration, cost, and availability of the data. The use of file contracts helps ensure transparency and accountability in the storage process.

One of the key advantages of Sia's decentralized storage marketplace is that it enables users to store their data in a secure and private manner. With the decentralized nature of the network, data is distributed across multiple storage providers, reducing the risk of data loss or censorship. Users retain full control over their data, and since it is encrypted and fragmented before being saved, even the storage providers cannot access the data without the user's authorization.


Built on the Ethereum network, Storj offers a number of decentralized applications to let users store data in a decentralized manner. Storj’s technology is based on file sharing, much akin to how torrents process. That said, Storj Labs also offers a for-profit service that provides its network for a fee, which more or less is comparable to a centralized storage solution such as Google Drive or Dropbox.

Storj uses a technology similar to file sharing, like how torrents work. When you upload your data to Storj, it is divided into smaller pieces and distributed across a network of computers called nodes. These nodes are owned by individuals or organizations who participate in the Storj network.

One advantage of this network is that it provides a for-profit service, which means that you can use their network for a fee. This fee is comparable to centralized storage solutions like Google Drive or Dropbox. This option allows users who prefer convenience and simplicity to store their data on Storj without having to worry about the technical details of decentralized storage.

Arcana — A Better Option

Arcana Network is a decentralized storage layer for Ethereum, offering storage for DApps built on EVM compatible chains, such as Ethereum, Binance chain, and Polygon (Matic).

But Arcana doesn’t stop at storage, to realize the privacy and data ownership benefits of decentralized storage, you need a suite of services, which are currently not decentralized. Arcana fixes this with its Privacy Stack.

Arcana’s Privacy stack offers Decentralized Storage that is end-to-end encrypted, Non-custodial Key Management Services (KMS), and Decentralized Identity and Access Management.

Through Arcana’s privacy stack, you can allow users to login and create accounts with email or social authentication to generate keys, store encrypted data, and securely share this data with others by allowing data owners to define access policies for who should get access, and for how long. The system takes care of managing the access and keys of users and their data, without relying on a centralized server or provider.

With Arcana, you can bring privacy and security to NFT marketplaces, games, data marketplaces, social networks, and more. If you are a developer looking to learn more about how Arcana can help you, reach out to us at hello@arcana.network.

Schedule a Demo

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Copyright © Arcana Technologies Ltd. All rights reserved.

Schedule a Demo

The call is completely free and no commitment is required.

Copyright © Arcana Technologies Ltd. All rights reserved.

Schedule a Demo

The call is completely free and no commitment is required.

Schedule a Demo

The call is completely free and no commitment is required.

Schedule a Demo

The call is completely free and

no commitment is required.