The only provably undervalued crypto. What are people afraid of, and how can you profit?

One of the greatest things about blockchain is its ability to eliminate the issue of trust. Blockchain can thus increase security in many aspects, which leads to an interesting use case, namely digital storage. With blockchain technology it is possible to anonymously store digital files without the risk of a centralised entity being able to see what you store, block you from accessing it or changing the files in any way. There are a number of projects working on providing this service, SIA, Filecoin, Storj, to name a few. But, there is one in particular with a tumultuous history that we will be examining today, Opacity. We will go through how Opacity works, the future outlook of the project as well as its token OPQ and an analysis of its value as an investment.

Opacity means the opposite of transparency, meaning that something that is opaque is hard or impossible to see through. The name is well chosen as it describes the service they provide. Opacity uses blockchain to offer opaque cloud file storage. But, how exactly do they accomplish this? Let's give it a run down:

When you upload a file to Opacity it is first divided into chunks and then it is encrypted. You, and only you, receive a private key to decrypt and reassemble the file. The fragmented and encrypted file is then sent to AWS (Amazon Web Services), to be stored on their servers. This is a big problem with the current structure of Opacity, but they are still in early development and plan to change this later on.

However, this means that at the moment, Opacity is really just middleman that encrypts and fragments your files to later store them on Amazon cloud. If Amazon wanted, they could shut opacity out of their system, and thus leave you without access to your files. Albeit, keep in mind that Amazon can still not access the files as they are fragmented and encrypted, so it is still safer than regular cloud storage, although you could fragment and encrypt the files yourself.

Oyster, which was the precursor to Opacity, had a decentralised solution where the storage was provided by people renting out their own storage. These storage providers would be the ones receiving the payments of PRL (Oyster’s native token). On the one hand this system removed the centralisation risk of storing things in the servers of just one corporation, on the other hand, that solution made it possible for someone renting out storage to just unplug from the system (or get a power outage) and thus corrupting your files as you won't be able to access all parts of them, although this would only affect those files that are partly stored on that hard drive. So, although the risk for total disruption is higher with the current system, the reliability is a lot higher. Finding a balance between these aspects is a big challenge, and probably a big reason why decentralised blockchain storage has not taken off yet.

Do not let this scare you off, though. As with any new technology, there are major problems to solve at first, and Opacity are working on solving these issues. However, it’s important to start by underlining the fact that Opacity is by no means perfect at the moment, and investing at this point is speculating on Opacity's capacity to innovate and perfect the concept. But, that out of the way, let's look deeper into Opacity's platform and it's token, OPQ, as an investment.

So, how does this all work? let's outline an example where you want to upload some photos to opacity:

1. You get 10GB for free, but for the sake of this example let's say you have a photo album of 64GB. In this case you can buy their cheapest plan which costs 39.99$ or 2 OPQ (herein, lies the investment case, which we will dive deeper into later in the article.). This money then goes to Opacity.

2. Now you simply upload the pictures as you would with any other cloud based storage solution

3. Your pictures are fragmented and encrypted, and only you can access them with your private key.

4. If you want to view, download or share your photos you simply log in to the site, use your private key and you are ready to go.

As you can see, the only thing that differentiates Opacity from other storage providers is the fragmentation and encryption of your files. It must also be noted that some functionality like file editing or streaming is not yet possible in the Opacity platform. But the idea is that using a system like this is very valuable for storing sensitive data like legal documents, private media, business documents etc. Storing these things with traditional cloud providers puts sensitive and valuable data at risk of hacks and other centalisation related risks.

Enough about the platform, how can you profit from this? As said, the storage costs either 39.99$ or 2 OPQ. Does this mean that 1 OPQ costs ~20$? Well, no. Not yet at least. At the time of writing one OPQ costs ~0.016$. This means that you get a ~99.9% discount by paying with OPQ. This price disparity is what makes OPQ an interesting investment opportunity. As an OPQ investor you are betting on this price disparity closing. This should happen as people wanting to use Opacity see the massive discount and decide to buy OPQ to pay with instead of paying with USD. In the long run, this means that OPQ will approach the dollar cost of Opacity storage. Thus a current fair value of OPQ should be just below 20$, which would warrant a 125x increase in the OPQ price. However, because of trading and transfer fees, and the general difficulty of purchasing crypto to pay with compared to paying with money already in your bank account OPQ will probably always be worth a bit less than the dollar cost of storage. I would guess that the fair value would end up being about 16$ which would still indicate a 100x increase in price.

This seems almost too good to be true, right? But, there are some major risks and problems that would jeopardize the investment case. The most obvious risk being Opacity failing to attract enough customers to increase the price of OPQ. But from what I have seen the team seem to be both ambitious and persistent in their work, they are also apart of the crypto start-up incubator XIO, which could help them. They managed to completely rebuild the project and its community to its current state in only a year after the ex CEO of Oyster went insane and crashed the whole project. Now, in October they showed upper double digit growth in their storage plans, and lower triple digit growth in website traffic (report). The growth slowed down a bit in November though (report), and they have yet to make a report for December but the overall growth picture still seems positive.

This execution risk also includes the fact that Opacity has to find a way to not rely on a centralized storage provider. Reading their whitepaper it is clear that it is an issue that they are aware of: "The security of the Opacity network will not be complete until it becomes fully decentralized. Enabling public nodes to support the ecosystem and be rewarded with OPQ tokens as payment will secure the network for the future. " This shows that Opacity strives to become more decentralised, but it is not clear whether these nodes will serve as storage providers as well, or if they only will be used to decentralise the network as transaction validators. Although both are important on their own, they are needed in tandem to truly make the network decentralised

Another execution risk is the fact that streaming and editing files stored broken apart and encrypted is extremely difficult for a number of reasons, which you can read more about in Opacity's whitepaper. Many users demand streaming and editing from their cloud providers, but even if this issue is not solved there should still be a big enough market for digital storage that does not need streaming and editing.

Other than the ever persistent execution risk, my main concern is that OPQ really has a shaky use case from Opacity's point of view. When Opacity started accepting fiat for their storage it was celebrated in the community but if you think a bit deeper it means that Opacity really does not have any need to keep accepting OPQ as selling their storage for OPQ is just a loss for them at the current price. This risks eroding the value of OPQ as it is now only a financial drag for Opacity and they could function completely fine without it.

The only reason for the organisation to keep OPQ is probably that most of their customer base is invested in it and have been for a long time, as well as the fact that they themselves hold OPQ. They would face bad PR, an exodus from their platform and an erosion of their own funds if they decided to dump the OPQ idea. But, in the future, where the hope is for Opacity to be used by non crypto users, the OPQ community will represent only a small portion of their customer base and the backlash for ditching OPQ will be minimal. However, Opacity may want OPQ as their very own stable coin, not because it is useful in the Opacity ecosystem but because they can control a coin that is pegged to the value of 64GB of Opacity storage. This in itself would be quite valuable if Opacity manages to grow bigger, in this way it could be used as Facebook wants to use Libra.

But, there is a way that Opacity can keep OPQ while not having to make a loss every time someone pays with it: "Over time, the intention is to provide a stabilizing reference for the utility provided by the Opacity token, such that the storage amount received adjusts to storage market supply and demand" (Opacity whitepaper). "storage market supply and demand" is just a complicated way to say storage price. So, what they really are saying here is that they intend to make 1 OPQ only give as much storage as it's dollar value would provide. This would be devastating for OPQ as it completely destroys the investment case.

The 0.016$ OPQ value is, as we calculated earlier, a 99.9% discount on the dollar cost of Opacity storage, which in turn is the token's whole investment case. With this new way of pegging the token you would not get a 99.9% discount but you would get only 99.9% of the storage you would gete by paying 20$. If you wanted storage for 20$ you would have to buy 20$ worth of OPQ, which would make using OPQ at all completely unnecessary as it is a lot easier and cheaper to purchase with fiat. Of course this solves the problem of Opacity not making money from OPQ payments, but it completely breaks the current investment thesis behind OPQ as that is based on it's undervaluation compared to storage prices. With this system OPQ would only give as much storage as it is worth, so there can be no undervaluation compared to storage prices. However, it could be a bet on storage prices going up in the future. Historically, though, storage prices have only gone down as storage technology keeps improving:

Another quote from the whitepaper confirming Opacity's intention to change the current OPQ value is this: "...the 64GB amount is subject to change until such time the peg becomes fixed." This is really one of the main risks of investing in OPQ at the moment.

To be honest, I liked the old Oyster model more than Opacity. The current model is more profitable and effective for the Opacity organisation than the token holders. However neither of the solutions provide true decentralised storage as we discussed previously. This is a real problem with decentralised storage. Either you store it all in the same place, in which case it is of course not decentralised as the storage provider holds all the power over your files. The other solution, which Oyster used, is to spread the files across many different storage providers in which case only one of them need to unplug to make your file unusable. Whichever way you do it, your files are not really stored in a truly decentralised manner. This is a problem that has to be solved by decentralised storage providers, otherwise there is always a single point of failure.

Opacity is a project with great promise, but there are major risks to investing in OPQ. If Opacity sticks to their current token model, and manage to overcome the issues inherent to this promising technology of decentralised digital storage this will probably be a very rewarding investment as the current OPQ price would be extremely undervalued. However, this chance is slim as Opacity can not keep accepting OPQ in its current form forever as it is only a financial burden and really provides no current value to Opacity. Unfortunately, their current plans to solve the issue would completely derail the investment thesis of OPQ. So, the only chance for this investment to be profitable is for Opacity to manage to solve the current problems with the platform and technology (which is quite unlikely to be honest), then they must attract enough money (through investors or customers) to be able to keep Opacity afloat for long enough for OPQ’s value to appreciate to its fundamental price. Both the underlying project and the token value, separately and combined, are in jeopardy at the moment. However, if, by the slim chance, they do succeed, OPQ should appreciate immensely.

All in all, this is an extreme case of high risk, high reward. I will continue holding my tiny amount of OPQ left over after buying PRL a long time ago, just because it currently is of such a small value that it is not worth selling it. If I see progress being made on securing the the value of OPQ and on solving the fundamental issues of decentralised cloud storage, I am more than willing to buy more OPQ. Actually, I was quite positive on OPQ before doing the research for this article, but as it looks now I am not investing. However, I will be keeping a close eye on Opacity as well as other decentralised storage providers as I am certain that it will be a big market in the future.

If you do invest in OPQ make sure to diversify your portfolio so you are not exposing all your money to the high risk of this investment. If you want to read more about the benefits of diversification and how you can do it, make sure to read our article on the subject.

Happy investing!

/Alex - TheDecrypter.

Note: Invest at your own risk and always make sure to research your investments thoroughly.

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