Blockchain startup on to crack China’s cloud market handling issue of illegal content

For foreign cloud providers, entering China’s market is often more trouble than it’s worth. Not only are overseas firms required to form joint ventures with local companies, but they’re also prohibited from owning or operating certain types of cloud tech and hardware.

That’s why AWS sold off US$300 million worth of cloud assets to its Chinese partner earlier this week. Factor in China’s new data localization laws, and it’s no wonder that domestic firms captured more than 80 percent of revenue in China’s cloud industry this year.

Storj Labs, a US blockchain startup, thinks a decentralized model could soften some of those pain points. Instead of operating and running its own data centers, the startup runs a peer-to-peer Dropbox-like service that lets users (called ‘farmers’ in Storj parlance) rent out excess storage space on their hard drive. Farmers are paid in STORJ, the startup’s eponymous token. The details of each file transfer, such as payment, are recorded on the company’s blockchain.

It’s an asset-light cloud storage model that Storj Labs claims mitigates traditional data failures and cuts costs. Users who want to store their data with Storj can pay US$0.015 per gigabyte per month. AWS’s equivalent service goes for US$0.023.

“I think it’s probably early to say that we’re going to disrupt AWS, Microsoft, and Google, but we do think that there is the potential to take a huge unused resource […] and bring that to market,” John Quinn, co-founder of Storj Labs, tells Tech in Asia, referring to excess storage capacity.

In China, the startup is working with Genaro, a Shanghai-based blockchain startup that is developing its own decentralized cloud storage system. The partnership, announced today, will see Storj Labs’ more mature technology integrated with Genaro’s in exchange for expansion into China.

Due to latency issues associated with the Great Firewall, the catchall term for China’s online censorship system, Storj Labs needs in-country farmers. According to Genaro founder Larry Liu, the company plans to work with large cryptocurrency mining farms in China, who will add storage units to their mining rigs. That will help the Chinese firm launch its network with thousands of terabytes of available space, he says.

To date, Storj Labs has more than 40,000 users storing data on its network across 50,000 devices in 70 different countries. Genaro’s network is still in beta testing.

Data loss

Genaro will also be responsible for compliance within China, which includes handling the all-too-familiar issue of illegal content stored on the cloud, such as porn and pirated movies. Last year, a crackdown on banned content in China forced many cloud storage providers to shut down.

In that sense, Storj Lab’s system may have an advantage. Stored files are encrypted, splintered into different pieces, and then distributed across the company’s network. Copies of file shards are also stored to help prevent data loss, which can happen if a farmer shuts down their hard drive.

“In other words, no one hard drive will have an entire readable file that might be pointed to by regulators as illegal content which could get the node’s owner in trouble,” explains Jason Inch, chief strategy officer of Storj Labs.

The company also can’t decrypt or know the contents of files on its network, as it doesn’t hold the encryption keys. If illegal content is discovered on Storj or Genaro’s network by the authorities, the company “will comply with any lawful requests regarding the illegal content owners,” says Quinn.

After all, the Chinese government could simply shut down Genaro if illegal file storage got out of hand. That would take down Storj’s entire network in China.

Founded in 2014, the US startup is one of the earlier players in the peer-to-peer cloud storage space. Other companies in the industry include blockchain startups MaidSafe and Sia. So far, the Atlanta-based company has raised a total of US$33 million, which includes a US$30 million token crowdsale or initial coin offering (ICO).

To be sure, it’s still early days for Storj Labs and its Chinese counterpart – and decentralized cloud storage overall. On the topic of data loss, Quinn admits that his company has dropped files before.

“I think running a large distributed network is complex,” he says. “Amazon loses files. Microsoft, Google, loses files. We have definitely also lost files.” But at scale, he defends, decentralized models will prevail.