Siacoin is a cryptocurrency that serves as utility token for the Sia Storage Platform. This fascinating use of blockchain technology decentralizes data storage. In their own words, “Sia is the first decentralized storage platform secured by blockchain technology. The Sia Storage Platform leverages underutilized hard drive capacity around the world to create a data storage marketplace that is more reliable and lower cost than traditional cloud storage providers.” (source: sia.tech)
This is a fascinating idea! If I have a ton of hard drive space on my computer that I’m not using, why not rent it to other people and make a few bucks along the way? As a potential user of the technology, Sia says that data stored on other people’s hard drives is encrypted so that other people cannot peek at it. Further, they say their storage service is about 90% less expensive than Amazon’s Simple Storage Service (S3). All is well!
…or is it?
The technology that Sia is working to build is an impressive one. However — like many companies and platforms in the blockchain space — the technology is in it’s infancy. Nevertheless, the Siacoin (Sia’s utility token) has a “market cap” value of over $940,000,000 according to coinmarketcap.com (at the time of writing). The Sia token is overvalued more than 1000x than is arguably reasonable. Even at a value of $940,000, it would still be valued generously. We can prove it.
How can this claim be validated? Sia discloses enough information on their website to approximate uptake of their platform in storage size, usage, and revenue.
First, what is the total storage on their network and how much is used? The screenshot below from their website gives the answer.
Their is a total storage capacity of 4.3 petabytes (1 petabyte = 1,024 terabytes) on Sia’s network. They report 161 TB of used storage.
Now we know how how much data is stored on the Sia platform. But how do we figure out revenue flowing through actual usage (and not crypto-speculation) of the platform?
To get an idea of how much revenue their platform is generating, we need to know how much it costs to store data on their platform. Once again, Sia’s disclosure is helpful in this matter. Sia’s key value proposition is that it is far cheaper than existing cloud storage services such as Amazon Simple Storage Service (S3). They directly state approximate cost on their website (shown below).
As Sia states, in the image above, their service is about 90% cheaper than Amazon’s S3 — about $2/mo per terabyte of storage.
So how much revenue is flowing through their platform? Now the math is simple!
Sia has 161TB of storage used by clients on the platform and that storage costs about $2/mo. Therefore, the Sia platform only has about $325 of revenue flowing through it (on a monthly basis) from actual usage of the platform.
According to the image below taken from coinmarketcap.com, Siacoin has traded a USD equivalent of $15,847,600 in the last 24 hours!
The platform has $325 of actual revenue going through it a month (and therefore ~$10.83/day in actual revenue), and it has traded $15,847,600 in the last 24 hour period?! Yes; that’s right. This begins to show the heights to which the token is rampantly over valued. The actual use of the token isn’t even a rounding error. With a revenue of ~$10.83 a day, and $15.8MM in trading over the last 24 hours, the break down of Siacoin transactions can be approximated as follows:
Actual use of the platform (revenue from storage; $10.83) = 0.000068%
Speculation = 99.999932%
“But wait … ! What about the potential of this platform?”, the skeptic would say, “It’s nascent, and it has HUGE room to grow.” Okay; let’s say that use of the platform increases 10,000 times. Now, instead of storing 161 TB of data on the platform, there are 1,610,000 TB of data stored on the Sia network. At 1,024 TB/petabyte, this means there are 1,572 petabytes of data on the platform. Since Sia’s entire storage capacity at time of writing is 4.3 PB (see the first image), their infrastructure — assuming 100% of it was used and had no spare capacity — would have to multiply 365 times over.
So we have 10,000 times growth in usage of the Sia platform in this thought experiment, 10,000 times growth in revenue, and a minimum 365 times growth of the full infrastructure.
Further assume, that with their platform experiencing 10,000 times growth in usage/revenue (and those numbers being public on their web page), that no other speculators begin speculating in Siacoin beyond those already speculating today (yeah…right? 10,000 times organic growth, and no one else speculates? Yes; hang on).
In this scenario, the Sia platform would realize about $108,333/day ($10.8333 / day * 10,000) from actual use of the platform. Because there is no additional speculation in the platform, trading volume stays about the same ($15,847,600 in the coinmarketcap screenshot above).
That would yield a break down — in terms of the actual USD equivalent value exchanged in the last 24 hours — in actual use of the platform vs. speculation as:
Actual use of the platform = 0.6835% (i.e., 108,333 / 15,847,600)
Speculation = 99.3165% (i.e., 1 – (108,333 / 15,847,600))
As the scenario illustrates — even with 10,000 times growth in actual usage of the Sia platform — only 2/3 of one percent of the trading in Siacoin would be related to actual use of the platform.
Consider another scenario: trading in Siacoin falls 80%, and yet the platform maintains its 10,000 times growth from where it is today. Even in that scenario, only 3.42% of trading in Siacoin would be related to actual use of the platform.
Sia has a brilliant idea — use spare hard drive space to store data, cut costs for those that are storing large volumes of data, and provide a few extra bucks for those that have the room on their hard drive. It is a fascinating application of blockchain technology. It’s also not Sia’s fault that speculators have bid their utility token far past the bounds of economics. However, Siacoin is tremendously dangerous to speculate in. Economic fundamentals do not support the price or volume of trading taking place in Siacoin. Unless you are one of the several individuals holding Siacoin to pay for a few terabytes of storage space each month, watch out! An 80% drop in trading (read: speculators lose a lot of money) combined with a 10,000 times increase in use of the platform would still leave speculation activity accounting for more than 96% of activity in the cryptocurrency. In the long run, speculation in Sia will collapse, price along with it, and many speculators will get burned. Don’t be one of them.
Disclaimer: The views expressed in this post are solely the views of its author and should not be construed as investment advice. Blockchain Analytics makes no warranties to, nor accepts any liabilities for, the soundness or lack thereof of opinions or assertions expressed in this blog.
Correction: The following text was removed from the blog as it contained inaccurate assertions:
Finally, there isn’t a lot of room for Sia prices to increase other than by speculation. As shown above, Sia’s primary value proposition is based on cost — they are far cheaper than the “big guys” like Amazon that store data in the cloud. A significant increase in price for Sia would gut them of their primary claim to drive growth on their platform. Amazon is trusted. If you are the IT decision maker for your firm tasked with preserving enterprise critical data, do you choose Amazon or Sia? Easy! — Amazon. …Well, maybe Sia, if its 10% the cost of Amazon! Maybe. Significant upward movement in the price of Sia would gut their value proposition. Therefore, the only way for significant price appreciation in Sia is through speculation, not fundamental use and adoption of their platform (i.e., not through supply and demand).