Storj, the file-sharing blockchain

My interest in blockchain began during the early months of the pandemic. I delved into its infrastructure, realizing how it could revolutionize financial institutions by reducing their operational costs. Although I could expound on this indefinitely, the aim of this article is to chronicle my learnings post the initial phase of discovering blockchain, particularly when I invested in a decentralized storage solution called Storj.

This article narrates my collaboration with a fellow IT professional to test a business hypothesis. Over two years, we invested thousands of pounds, resulting in a wealth of knowledge which I share here. While financial success eluded us, I provide a detailed account of our endeavours for future blockchain entrepreneurs.

The Beginning

"Where can I invest my money to build a substantial retirement fund in 20 years?"

This question set me on a journey involving friendship, marketing studies, technology enablement, startup certification, and investment planning. It was a rich experience, one I wish to share.

This question guided me through the blockchain labyrinth, helping me identify a niche market with significant growth potential, though the timing and manner of its fruition remain uncertain. Previously, I had expanded my financial knowledge successfully, but nothing compared to this blend of financial markets, technology, and dedicated effort. Blockchain's transformative nature makes any investment both risky and promising. To navigate blockchain, one must understand the distinctions between cryptocurrency and blockchain, tokens, Web3, and the intersection of technology and finance.

For a discerning individual, acquiring this knowledge could take months (it took me years!). It’s impossible to explore blockchain deeply without emerging with the conviction that it will eventually pervade various aspects of our lives, though the specifics remain uncertain.

Here’s a summary of my approach: By acquiring computer hard drives and connecting them to a blockchain, these drives become available storage space for blockchain clients, earning me cryptocurrency.

Expanding on this, a blockchain is a decentralized network of computers performing various functions. For instance, Bitcoin registers financial transactions between wallets. With Ethereum, blockchain's applications have diversified, encompassing anything stored in a database.

If I have spare storage on my personal computer, I can download blockchain software that connects this storage to an open network, allowing global users to store their files. They pay me in cryptocurrency for the used space, monetizing otherwise unused hard drive space. It’s akin to real estate for hard drives.

To implement this idea, three main steps were necessary:

1. Acquiring hard drives: understanding types, durability, and cost.
2. Connecting to blockchains: navigating various distributed networks, each with unique requirements for new nodes.
3. Crypto payments: selecting a widely accepted token for receiving payments, exchangeable for pounds or dollars.

Understanding blockchain networks is crucial; each cryptocurrency operates on a blockchain network, offering different services. Bitcoin, for instance, operates on a network of miners recording every BTC transaction. Filecoin, on the other hand, uses a distributed network where nodes provide storage space instead of processing power, earning FIL tokens in return.

This article targets those curious about blockchain’s trajectory, options, and potential return on investment, rather than traders.

The Business Plan

Every business and investment begins with a plan. In technology ventures, prototyping is an additional crucial step. A validated prototype can transform a business plan into a lucrative opportunity. Entrepreneurs often revise their plans post-prototype to reflect accurate data and models.

Tech startups generally follow these phases:

1. Idea (business plan version 1)
2. Prototype (business plan v2)
3. MVP (Minimum Viable Product - business plan v3)
4. Startup Creation (seed funding round)
5. Profitability (A, B, C... funding rounds)
6. Exit (e.g., stock exchange listing, acquisition)

Our startup failed at phase 4. Here’s the model we created:

1. Infrastructure: including hard drives, location, and electricity costs.
2. Blockchain: networks to collaborate with, necessary effort, and personnel.
3. Cryptocurrencies: managing wallets, transfer costs, and other financial elements.

Before we start I would like you to see the one pager we had created for the Seed investment round, see what you think:

Phase 1: Idea

In the realm of crypto and blockchain, I could have invested in mining or bought crypto stocks. However, I explored file-sharing networks, which I believed could revolutionize services like Dropbox by making file storage and sharing cheaper and safer. Depending on the chosen blockchain, infrastructure requirements vary. Initially, we aimed to test the simplest blockchains to keep investment under control.

Blockchain Options With Proprietary Crypto

Filecoin: Setting up a Filecoin node requires a significant investment, designed for large enterprises.

FIL, Filecoin’s cryptocurrency, has limited production, potentially increasing its value over time as demand grows.

SIA: Setting up a node is simpler, suitable for residential settings, but requires an upfront investment to avoid fines for downtime. It caters to mid-level markets, offering substantial storage capacity.

Storj: The simplest network technically, with no fines for downtime but deferred payments to ensure high availability. It’s ideal for retail users and smaller companies.

Arweave: Provides perpetual, immutable storage, suitable for the public sector, with a moderate initial investment required to become a node.

After careful consideration, I decided to prototype with SIA and Storj due to their lower initial investment requirements.

Phase 2: Prototyping

Investment Options

Having chosen the networks, I needed equipment: a cheap mini computer and an external hard drive. I created a prototype and ran it as long as possible.

SIA proved complicated, with fines for downtime and little financial return. Storj, on the other hand, was simpler with no fines, offering consistent monthly returns and excellent technical support.

The Result

Maintaining a continuously running computer at home proved challenging. Personal computers fail after a few months of continuous operation, and internet disruptions can impact the business. Thus, I required a data centre for reliability.

The Prototype

I found a local data centre with a reliable server for ï¿¡75 per month, including storage. This setup could potentially turn a profit over a few years. The prototype is now live and operational.

The Business Plan

Having chosen Storj and established infrastructure, I built a business plan to scale the model. I hired a business coach and completed a course at the University of Cambridge on the startup funding lifecycle. This preparation enabled me to secure a small business loan at a favourable interest rate.

Here is a sample of the business structure and model that we worked on:

We have hired a marketing agency to build our corporate deck, please see what you think:

End of the Prototype

However, as soon as I secured additional funds, my server failed. I consulted an Azure architect, who suggested moving to the cloud. He joined the team, setting up a reliable, scalable infrastructure.

Phase 3: MVP

Cloud Options

Setting up Azure infrastructure offers numerous options, though pricing is neither clear nor transparent. We chose a region near Chicago, knowing from the prototype that demand was highest there. Despite the professional setup, our project eventually failed.

Here is our Earnings report from February 2023:

The Turning Point

We built a website, business plan, MVP, and business model, and started earning money. However, Azure's costs skyrocketed as storage demands increased, and Storj faced market challenges, reducing payments to node owners.

Consequently, expenses outpaced income, leading to our project's downfall.

Final Remarks

If considering an investment in file-sharing blockchain networks, study all options thoroughly. Co-location, self-hosting, and cloud solutions each have pros and cons. Creating solutions for clients to use these networks might be more viable than becoming a storage provider. Managed Service Providers seeking cheaper storage could benefit from integrating networks like Storj with ERP or CRM applications.