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Crypto 101: An Introduction to Sia (SC)

Crypto 101: An Introduction to Sia (SC)

Blockchain technology is disrupting every industry imaginable. Starting a company today without the blockchain, entrepreneurs say, is like starting a company without internet in the early 2000s. Cloud storage is not a sexy term, but an increasing number of people are starting to care about the privacy and security of their data.

Diametrically opposed to the increasing importance of data security, is the growing backlash against tech platforms who have fallen short of expectations too often. Facebook’s Cambridge Analytica scandal is just the most recent example of corporations miss-handling large amounts of data. Google, Microsoft, and Apple have all suffered hacks or data breaches in the past.


Data-focused industries like cloud storage are ripe for disruption. Indeed, its market size is projected to grow from $30.7 billion in 2017 to $88.9 billion in 2022, making it an attractive proposition for tech-savvy entrepreneurs.

Nebulous CEO David Vorick is one of these tech-savvy entrepreneurs and is the man behind Sia (SC). Sia is leading the charge for decentralized, blockchain focused cloud storage solutions against competitors like Google Drive, iCloud, and Amazon.

The problem with traditional cloud storage solutions

Before we dive into a more detailed discussion of Sia, it’s important to get a better understanding of what it aims to replace. Conventional cloud storage providers typically harbor five key problems. Data is:

  1. Often not encrypted
  2. Often kept in one legal jurisdiction
  3. Owned by one company
  4. Stored at inflated prices due to gated ecosystems
  5. Held by companies whose motives may not align with their customers

Looking at these five points, it becomes clear that a decentralized approach has significant advantages.

By decentralizing cloud storage, Sia can:

  1. Give individuals ownership over their data
  2. Eliminate the need for trust
  3. Spread power throughout the network, so no single harmful actor can disturb the network

Now that we understand the potential for disruption in the industry, let’s take a closer look at how Sia tackles those challenges.

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What is Sia?

The Sia project was first conceived at HackMIT 2013, and has been building up steam ever since. Essentially Sia offers a decentralized, encrypted, peer-to-peer storage solution. Crucially, Sia works by chopping up encrypted fragments of data and spreading them around multiple hosts. If you want to access your files, the fragments are recompiled and made accessible as normal.

This approach involves two parties, the renter and the host. The renter is the consumer, ie. the person who wants to have his data stored in the cloud. The host is a member of the Sia network who makes storage space available to the community.

In order for these two parties to work together, they need to participate in a file contract.

What are File Contracts?

File contracts are the life-blood of Sia. They are essentially smart contracts published on the Sia blockchain, which contain the terms of the agreement between the renter and the host. Renters and hosts cannot cooperate without first agreeing to a file contract.

The great advantage of this approach is that it eliminates the need for trust. By setting rules within a smart contract, the terms of the agreement are enforced in an impartial and trustless way.

How is a File Contract set up?

As a first step, the renter needs to allocate the budget of Siacoin he is willing to spend on storage. The amount of Siacoin needs to be enough to cover energy and bandwidth costs for the host throughout the duration of the storage period, as well as network fees.

Once the budget is set, the amount is locked within the file contract. The renters wallet then picks 50 hosts which best fit the renters budget constraints.

When the hosts receive the renters storage request, they in turn lock a number of Siacoin in the File Contract as collateral. This is designed to ensure that only good actors participate as hosts in the Sia network. The host can choose the amount of Siacoin he wishes to lock up, however the likelihood of being accepted diminishes if the collateral is small. The more collateral the host is willing to lock up, the higher his chances of being picked to host.

Once the host and the renter have set up their file contract, the final thing to consider is the fees levied by the Sia protocol. These constitute 3.9% of the renter’s allowance and 3.9% of the host’s collateral. Interestingly, these fees are paid to the holders of Sia’s second cryptocurrency –  Siafund (SF).

Understanding File Contract Termination

One of the main advantages of using Sia is the smart contract functionality inherent in file contracts. These are employed to ensure a trustless network of hosts and renters. It’s trustless because the rules of the file contract are clear, and violation of these terms by either party has a known and predefined consequence.

There are three different reasons why file contracts can be terminated:

  1. The renter uploaded files and the host achieved uptime of at least 97% – This is usually the case and represents the successful use case. The renter pays the fees for both the allowance and the collateral. If they did not use all of their pre-approved budget, the remaining funds are returned to them. The host receives his collateral back as well and does not pay any fee.
  2. The renter failed to upload a file – If the file contract is agreed upon but the renter does not upload a file for storage, they receive their budget back but must pay the fees. Naturally, the host receives their collateral back and does not have to pay fees.
  3. The host did not achieve the required uptime – For each file contract, the host must agree on a minimum time period in which the renter can access the files. By default, hosts are required to have an uptime of 97%, but higher limits can also be agreed upon. If the host does not achieve the required uptime, they do not receive payment from the renter and loses their collateral.

What are Siafunds?

Similarly to Dash and Cardano, Sia aims to fund itself by levying small fees. As mentioned previously, both the renter and the host are expected to pay a 3.9% fee which goes to the Siafunds. These number 10,000 and are all premined.

Nebulous, Sia’s parent company, owns around 8,500 of these, with the remainder having been sold during the ICO in 2014. The income generated by the Siafunds is used primarily to aid the development of Sia without relying on donations.

The great advantage of this approach is that it has scalability baked into its foundations. As more people use Sia’s file contracts, more fees are paid, and the available resources are subsequently increased for the Sia team.

Contrast this with bitcoin for example where only miners receive funds in the form of fees and block rewards – the hope being that this will be enough to safeguard the integrity of the network.

Mining for Sia

That being said, mining also plays an important role for Sia, as it safeguards the integrity of the blockchain. Without miners constantly verifying transactions, fraudulent actors could double-spend Sia, causing trust in the coin to collapse.

In order to compensate miners, coin rewards are paid out for each verified block of transactions. The current reward is 150,000 SC, which is up for grabs every ten minutes. Sadly, ASICs first entered the market in January 2018, making regular GPU mining obsolete in the process. On the plus side, however, Sia has some of the best mining pools available for users to join.

Interestingly, Sia is one of the few altcoins which does not have a maximum supply. As a result, the 31 billion coins in circulation at the beginning of 2018, are predicted to rise to 45 billion by 2020.

Concerns with Sia

The idea, team and technology behind Sia is impressive enough to lead blockchain’s assault on the cloud storage industry. That being said, the technology is not without flaws. Perhaps the most pertinent regards Sia’s pricing.

On the surface, this actually looks pretty good. Prices for renters are roughly $2 per terabyte per month. Importantly however, the price renters and hosts agree upon is fixed in Sia. This means that the volatility of the currency could end up costing either party much more than they bargained for.

A renter who paid for storage on the Sia network in April for example, will have paid roughly double what he would pay today.

The second challenge Sia needs to face regards the legal protection afforded to hosts of the network. At present, it is still relatively unclear how different jurisdictions would handle hosts who may unknowingly store illegal content on their servers.

Although hosts in the US should be safe, the same cannot be said for most other nations.


Sia has spent the last four years building an impressive solution to many of the ills that have befallen data storage in recent times. The key to Sia’s success will be the ability of the network to stay decentralized, and incentivizing hosts to make their disk space available. If Sia is successful we will see:

  1. A significant number of hosts in the network
  2. Encrypted and authenticated data
  3. Data stored in many legal jurisdictions

Judging by Sia’s impressive track record, this seems well within its grasp.


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