Lighthouse.Storage: Initial Thoughts Memo (Feb 2023)

7 min readApr 3, 2023

Disclaimer: Not Financial Advice

Overview:

Lighthouse is a permanent file storage solution built on Filecoin. Lighthouse enables its users to pay once for storage in perpetuity. It was founded by Nandit Mehra in 2021 and is based in Singapore according to LinkedIn. They received a grant from the Filecoin Foundation in 2021 and funding in May 2022 from LongHash Ventures, Protocol Labs, Fenbushi Capital, NGC Ventures, Big Brain Holdings, Formless Capital, Mask Network, and angel investor Balaji Srinivasan.

How Lighthouse works:

As shown in the figure below, a user will send payment in their chosen coin to Lighthouse along with the data to be stored. The Lighthouse system will then send the data a to the Filecoin miners and payment for storage. The remaining user payment is sent to the Lighthouse endowment. The Lighthouse endowment pays for the storage of the file in perpetuity. The economics of the model relies on the following: Like Arweave, the cost of data storage should decrease per GB over time. In addition, the endowment can stake and farm its pool of assets to grow the size of the endowment over time. A critical piece of this relies on the ability for the endowment to sustain payments. Like an annuity, the endowment may promise storage payments for 25 years and then fluctuate based on the price of storage and the size of the endowment.

Merits:

Lighthouse is building on a leading storage protocol, which may give it an advantage over competitors. Permanent data storage is nothing new. Arweave, Lighthouse’s primary competition, was founded back in 2017, which is also when Filecoin launched via ICO. Arweave’s goal has been to make permanent, low-cost storage available to users. However, in the ~6 years since its launch, it has only stored 122 Tib, a de minis amount by any account. This is compared to Filecoin which currently stores 457 Pib, over 3000x the amount of data. With more broad exposure to the blockchain ecosystem, customers who want both a traditional “pay as you go” solution and a permanent storage solution are likely to use a Filecoin-based solution because they are likely already using Filecoin. This would make it so they don’t have to incorporate a completely new system with additional complexities. The Filecoin ecosystem is also much larger, boasting >100 active developers vs Arweave’s <10. This sort of support should attract companies to Lighthouse over Arweave over time. In addition, the Lighthouse founder claims their system will be cheaper than Arweave so users will in theory get a better experience for a cheaper price.

The launch of the Filecoin Virtual Machine (“FVM”) could be a boon for Lighthouse and the ecosystem. The launch of the FVM in March 2023 will allow the use of smart contracts on Filecoin, something that has been available on Arweave for some time now. According to the Lighthouse founder, Nandit Mehra, this means that they will have to rely less on centralized actors to build out Lighthouse technology. More broadly, the launch of a VM should only bolster the overall Filecoin ecosystem, which should benefit Lighthouse.

Lighthouse Dapp Beta is a Web3 solution with the mainstream user in mind. Setting up a Lighthouse account is extremely easy, and the user interface is inviting, even if a bit simplistic. Web3 builders have failed the mainstream user far too often, to their own detriment. Lighthouse has created a simple sign-up process. If I’m crypto-native, I can use my wallet, but I can also sign in with Google or my email. While this is small, it shows they are thinking about the bigger picture to capture non-crypto users.

Encryption is available to all users out of the gate, unlike traditional Filecoin. Filecoin does not encrypt files by default, it leaves that to the end user to design an encryption mechanism if needed. Lighthouse allows users to encrypt data and they don’t have to manage the private keys during the process. As a retail user (not interacting with their SDK), I was able to encrypt with the click of a single button.

Lighthouse is compatible across several chains. Lighthouse is widely available across the industry. If permanent data storage is a need, Lighthouse is likely already available (Ethereum, Polygon, Solana, Binance, Fantom, Optimism).

Projects are using Lighthouse already and permanent storage has growing use cases. The Ocean Protocol, which aims to create an open data marketplace for data scientists and AI researchers, are using Lighthouse to bridge the gap between their marketplace and data publishers by storing data on the Filecoin network through Lighthouse. In addition, Okcontract, a web3 company allowing front-developers to create widgets for smart contracts and put them on any website, integrated Lighthouse so users have control over their data and widget information. Outside of these partnerships, the growth of NFTs and blockchain games could lead to an increasing need for permanent storage as more Web3 users need a place to store their fully owned digital assets. Other projects include: Syscoin, Shastra OS, and Strive.

Risks:

Permanent decentralized storage solutions make up a de minimis amount of decentralized storage and a non-existent amount of total cloud storage: The most well known provider of permanent storage solutions, Arweave, only stores 122 TiB of data while Filecoin stores more than 3000x that amount. Arweave has been around for 6 years and has yet to gain substantial traction relative to Filecoin. This could mean the market size for permanent storage is quite small.

Decentralized storage options cannot currently compete for Enterprise clients. 94% of enterprise customers already have a cloud provider. These companies are often the last of the mainstream to pick up new tools unless it becomes existential to their existence. Enterprise companies carry a lot of reputational risks and are very unlikely to switch from industry standards (AWS, Azure, and/or Google Cloud) and risk upsetting shareholders and company developers in addition to adding another layer of complexity to already complex systems.

Decentralized storage will need to survive on Web3 storage revenues for an indefinite period. Outside of a few exceptions on Filecoin, it seems clear that the world outside of the blockchain industry does not view decentralized storage providers as a viable option as it stands. Pricing over time (decentralized storage is significantly cheaper), as well as increasing amounts of monopolistic behavior by the big 3 providers, could push traditional companies to decentralized perpetual storage in the future.

Use cases for permanent storage are plentiful but lack significant real-world adoption. From retail users’ family photos to government documents, financials, research, and legal documents, there is plenty of potential need for traditional industry and retail to use permanent storage. Based on Arweave usage, these use cases are so far, unproven. The timeline for proving these use cases is indefinite.

About the Founder:

Nandit Mehra attended BML Munjal University and graduated with a BTech in Computer in 2019. Nandit started a company called Tredily in 2017 that ultimately fail 1.5 years later. Tredily was an e-commerce store focusing on arts and crafts. According to Nandit, the startup ultimately failed due to an absence of “any proprietary technology and unique products” versus competitors on the market.

Since graduation, Nandit has focused solely on Blockchain companies, spending 6 months at Fleek, which focuses on making it easier for developers to build websites in the open internet. Importantly, Fleek products are using IPFS/Filecoin in their projects, though it hasn’t been confirmed if Nandit was exposed to this in his short stint as a software engineer. It’s probably a safe assumption that he was given he launched Lighthouse immediately after leaving Fleek.

From Fleek, Nandit was a Kernal Block III fellow at Gitcoin in May 2021, which focuses on high-caliber blockchain builders. Alumni from this fellowship include founders of Spectral (raised $29.8mm), Opyn ($9.1mm), Showtime ($7.6mm), Swivel ($4.7mm), Pods ($5.6mm), among others. During this time, Nandit launched Lighthouse in March 2021.

Market Sizing Data:

Sizing the permanent storage market is difficult for reasons already mentioned. However, the use of public cloud storage is a proven, large, and fast-growing market, expecting to grow >15% through 2025, which we can use as proxy. This growth could continue through the next decade assuming data continues to double every 2 years like it has historically. If we conservatively assume a mere 1% of data is better served in permanent storage, this market could currently account for ~$2bn of public cloud revenues today. Though Lighthouse is not a first mover on the space, Arweave does not seem like a clear winner, given the storage discrepancies between them and Filecoin. If they can get 40–50% market share of the space (reasonable given Filecoin’s strategic advantages), Lighthouse could see $800mm to $1.0 billion of revenue in today’s terms (50% of $2bn, from 1% of public cloud). See additional data below.