Web3 Tokens: Siacoin (SC) and Sia Explained

Over the past few years, we have witnessed the inception and rapid development of the sharing economy.

With an app for everything, people can now share their rides, homes, parking spots, and even their designer clothes.

But what about cloud storage, an industry that has so far been dominated by centralized services of tech giants like Amazon, Google, Alibaba, and Microsoft?

Fortunately, with the development of Web3, the internet’s next-generation, decentralized storage has become a reality, allowing such solutions to enter the sharing economy.

In this article, we will explore Sia and Siacoin, a blockchain-based decentralized cloud storage platform and its native token that lets you rent out the free space on your hard drive to other users.

What Is Sia and How Does it Work?

Sia is a decentralized cloud storage platform and marketplace where renters can purchase storage from other users to host their files.

Sia features its own blockchain that closely resembles Bitcoin’s but with the major difference that the prior was designed to allow a specific transaction type called file contracts (also called storage contracts).

File contracts are a type of smart contract – pieces of computer code that automatically execute digital agreements between two or more parties – between renters and hosts within the Sia ecosystem.

Usually lasting 90 days, file contracts are automatically enforced by the blockchain network while determining the price as well as the amount of data to be stored and for how long.

What makes Sia different from centralized cloud storage providers is that the project’s marketplace completely lacks third parties or other intermediaries. As a result, hosts can provide a more efficient, robust service at a cheaper price to renters.

Furthermore, to provide a solution to centralized cloud services’ privacy issues, Sia divides files into 30 segments and encrypts each using the open-source Threefish algorithm before uploading them. After that, the project’s software distributes each file to a different host in the network.

For splitting the files, Sia uses the same Reed-Solomon erasure coding as CDs and DVDs, which allows the software to divide files redundantly.

Since the technology requires any 10 of the 30 segments to fully recover a file, Sia users can download their data even if 20 out of the 30 servers hosting their files go offline.

However, to avoid such a scenario, Sia uses a process called file repair in which the network automatically moves the renter’s data to a new host when a server goes offline.

Via the use of Merkle trees, Sia requires hosts to upload storage proofs on the blockchain within a certain timeframe (specified in the file contracts) to prove that he is storing the renter’s data. The host gets paid if he manages to complete the task in time. Otherwise, the network penalizes him.

What Is Siacoin (SC) and How Is it Different From Siafunds (SF)?

Sia features two tokens on its platform: Siacoin (SC) and Siafunds (SF).

The project utilizes Siacoin as the utility token that provides users access to Sia’s decentralized blockchain network.

As the native platform token, Siacoin is used by renters to purchase cloud storage, while hosts earn an income in SC for leveraging their hard drive space to store the renters’ data.

The project uses the same Proof-of-Work (PoW) consensus mechanism as Bitcoin, where miners contribute their computing power (via GPUs or ASICs) to the network. In exchange for maintaining the Sia ecosystem, miners get rewarded in Siacoin.

The Sia team believes that their utility tokens have to be easily accessible for everyone, even far into the future. For that reason and to keep the asset’s liquidity at high levels, Siacoin’s total supply is unlimited without any intentions to use SC to raise funds for the project.

While the coin’s supply has no maximum cap, Siacoin features deflationary mechanisms, such as requiring hosts to burn a portion of their revenue to prove that their intentions are good. Apart from security features, SC’s burning mechanism helps the cryptocurrency to (better) preserve its value in the long run.

With that said, Siacoin features an all-time ROI of 6,331% since August 2015 and a Year-to-Date (YTD) surge of nearly 133% in 2020.

Unlike Siacoin, Siafunds are tokenized securities designed for sharing revenue on the decentralized cloud storage platform.

With a maximum supply of 10,000 SF, Siafunds allow holders to receive their share from the 3.9% fee the platform deducts from each contract between hosts and renters in the Sia network.

Interestingly, while Nebulous, the organization that employs the project’s core team, owns less than 1% of the Siacoin supply, the company has an 87.5% stake in Siafunds.

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