Is Storj Stumbling?

I have been testing out Storj (storj.io) for several months to see how this emerging data storage platform may transform the industry. It has had bumps, but the vision has been great and for the most part the tools for volunteers, who rent out excess disk space, has worked nicely. Until recently that is. The platform has run into some challenges and it appears that it may be faltering.

The Good News

The price of Storj coin (SJCX), the cryptocurrency behind the distributed storage service, has steadily climbed. The market valuation since Feb went from $8 million to peak around $37 million. The coin price went from $.15 in March and is now about $.69 as of May 25th. Those who own SJCX have made a decent profit.

Missed Payouts to Miners

Mining Storj is really about volunteers who rent their unused disk space to contribute to the network. These shared drives are called ‘shards’. The Storj platform is an abstraction layer that shares out the collective shards to customers. End-user data is split into chunks and encrypted before being distributed to the network. Volunteers are then paid every month in Storj coin for only the space that is used by customers.

To attract volunteer renters, Storj has been graciously subsidizing the payouts. This will eventually go away and the miners will see a significant reduction in their returns. Some estimate it could drop by 80%.

Payout timing had greatly improved over several months, with March being paid in the first week after the month closed. April however failed the payout entirely, due to what the developers describe as bitcoin payment issues of payouts being stuck in the mempool. After a couple of attempts to rectify the situation, which took most of the month, they have decided the April payouts will be merged with May. To compensate, users will get a 15% bonus on top of Storj.io subsidized payouts, which is nice, but the problem should never have happened.

Limiting Shares and Participation

The latest major update had issues. A new interface was introduced and new restrictions were established. The new UI has much less information and offers less control, in lieu of a more streamlined interface. For those who have the necessary technical chops to be a renter, this is not necessary or desired.

The most significant change from update v5.0 of the platform, is that it crippled storage contributors by limiting how many shares they can maintain. In the previous v4.1.1 version a single system could host an unlimited number of shards, sharing across multiple drives. It made sense especially if a PC had many physical storage devices. But the new update of v5.0 and after, limit the number of shards to basically the number of CPU cores the system has. This puts an artificial limit somewhere in the 2 to 7 range. So even a monster PC with the fastest Core i7 and many sharable drives would be limited to 7 shards.

To make matters worse, when the upgrade occurred the community was not notified of this change. I had several shards just disappear after the update. What a waste. Just gone. I hope the customers didn’t experience any outages if multiple systems with their data were affected.

Personally, I liked sharing several smaller shards versus a few big ones. It gives me much more flexibility and diversification against risk. If one shard is corrupted, everything is not lost. This cap was a bad idea and not communicated until after many had updated, and even required a subsequent mini-patch to get the limits to work correctly. Overall, it seemed rushed, without the benefit of the renter community insights, and not well thought out.

Focus is on Fundraising

The reason for all these missteps might be due to a major distraction. The Storj team is focused on a second token sale, with a goal of raising at least $30 million. This is a great goal and should provide the necessary capital to keep the project moving forward from beta to a gold release. But at the same time, I think it has become a serious distraction that could derail what has been achieved so far.

Customer Demand Crash

Possibly due to the issues stated above, the overall demand for storage space seems to have fully lost momentum and began to contract. I have been tracking my personal shards and have seen a dramatic reversal in the steady upward trend of contracts over the past few weeks.

This chart is just my personal one, for my shares. It shows the growth of end-customers who created contracts to use my shared space. I had far more storage available in these shards, so this was just starting to fill up.

Renters are only paid for the amount of space used. Even if you create a shard of 100TB of free space, it is very difficult to get contracts to fill it. It can take a very long time. I just built a system and opened a new 2TB share (shard). After several days, less than ½ of a GB was being used. Payouts are not based upon how much a contributor shares, but how much users are taking advantage of that storage space. Without much demand and a hard limit on the number of shares a single system can host, this creates severe impediments for volunteers that rent their disk drives.

Recommendations:

I am still a fan of Storj. It is in beta so everyone should expect a few bumps along the road. But I do think the team is at a pivotal point. Thinking strategically, Storj should be moving to strengthen the shard network, provide better marketing and tools to customers and renters, and focus on driving demand of the service to consumers and businesses.

Here are my personal recommendations for the Storj developer team:

Strengthen and empower the renting community. Tie the number of allowed shards per PC to the performance of the system (CPU, network, I/O, uptime, etc.). Who cares how many shards a PC can host if they can properly service the end-customers!
Establish a strong and reliable economic model. Slowly begin ratcheting down the subsidized payouts at a predictable rate (say 20% per month). Perhaps manage it to the customer demand. Give a bonus when more storage space is needed and less/zero when there is way too much. Alternatively, use coin to secure a buffer of space, as a reserve, that can be used in the event of a user-demand spike. Make sure payouts are on time to build confidence and attract new renters.
Drive customer demand. Right now, it is not easy for end-users to sign up and use Storj. It needs to be as easy and integrated as Dropbox, Google Drive, OneDrive or Box for consumers. For enterprises, work on integration and optimization for long-term off-site storage and cloud integration use-cases. This is the life-and-death challenge for all distributed storage networks (Storj, Sia, etc.). Without customers Storj will flounder.
Showcase strengths. Work on tools for both users and shard hosting volunteers. Customers should be able to see network latency, redundancy, and other factors which promote assurance and confidence. Hosting volunteers should be able to see network demand for contracts, network traffic consumption, and optimal shard sizing for new customers. Investors want to see overall metrics on shared data growth, health of the distributed network, etc.

I still believe Storj can be great. I have hope that it will push through these recent problems and come out stronger. But it will take some changes to get back on the right track.

Image credits:

Storj.io https://storj.io/
Cryptocurrency Market Capitalizations https://coinmarketcap.com/