Data Storage in Blockchain: What are the Steps, Methods, Benefits, and Challenges?

Data storage in blockchain provides a decentralized way to manage data securely. Unlike traditional systems, blockchain stores data in blocks, each linked together. This method ensures transparency and makes data tamper-proof. 

It is especially useful in industries like finance and healthcare, where data integrity is critical. The decentralized design also reduces risks of data breaches and system failures.

This blog will explain the methods of data storage in blockchain, its benefits, and the challenges businesses face in adopting it.

Explore the power of blockchain and data through our online data science programs. Build the skills you need to succeed in a technology-driven future!

What is Data Storage in Blockchain, and Why is it Important?

Data storage in blockchain allows you to store data across a distributed ledger system, where information is secured in "blocks" and linked using cryptographic hashes. This structure ensures that once data is stored, it becomes immutable. 

Unlike traditional databases that rely on central authorities, blockchain uses a decentralized approach to distribute data across multiple nodes. This makes it a more secure and transparent method for storing data.

Decentralization reduces the risk of breaches for you, as no single entity controls the data.  

In 2025, professionals with expertise in data science, AI, and blockchain are increasingly needed to drive technological progress in businesses. If you want to expand your skills in these areas, consider these top-rated programs: 

• Masters in Data Science Degree
• Executive Diploma in Data Science & AI
• Advanced Generative AI Certification Course

In industries like finance, media, and healthcare, secure data storage in blockchain is crucial for you to maintain the integrity, confidentiality, and accessibility of sensitive information.

Let’s look at the importance of secure data storage in these industries.

Next, let’s explore the different methods used to store data on the blockchain.

What are the Methods Used for Storing Data on Blockchain?

Data Storage in Blockchain involves choosing the right approach to balance security and scalability. Blockchain has limited storage capacity, so efficient methods are needed to manage large amounts of data. These methods help maintain the decentralized and transparent nature of blockchain while ensuring data integrity.

Let’s now look at the Data Storage in Blockchain methods in detail.

On-Chain Data Storage

On-chain data storage directly stores small, critical data like metadata, transaction details, or smart contract variables on the blockchain. It ensures security, transparency, and immutability through the decentralized network.

Technologies

Ethereum: A popular blockchain platform that allows smart contracts to store small amounts of data directly on the chain, providing transparency and security.

Bitcoin: Though primarily used for transactions, Bitcoin also supports storing minimal data, such as transaction details, within the blockchain to ensure integrity and traceability.

Polkadot: A multi-chain framework that enables on-chain storage across different blockchains, allowing for interoperability and secure data storage across multiple networks.

Use Cases and Examples for On-Chain Storage:

• Cryptocurrency Transactions: Storing transaction data directly on the blockchain to ensure transparency, security, and traceability (e.g., Bitcoin, Ethereum).
• Smart Contracts: Storing small amounts of contract-related data (like conditions or terms) directly on the blockchain to ensure they are immutable and accessible (e.g., Ethereum).
• Tokenized Assets: Storing metadata associated with tokenized assets such as NFTs (Non-Fungible Tokens) to guarantee authenticity and ownership (e.g., ERC-721 tokens on Ethereum).
• Voting Systems: Ensuring secure and transparent vote recording on the blockchain, making it tamper-proof and auditable (e.g., Follow My Vote).
• Supply Chain Tracking: Storing critical product information on the blockchain for traceability and accountability (e.g., IBM Food Trust using Ethereum for food traceability).
• Decentralized Identity Management: Storing user identity information on the blockchain to prevent fraud and provide individuals with control over their data (e.g., Sovrin Network).

Discover how NFTs are changing the way we think about ownership and blockchain. Begin upGrad’s Introduction to NFTs course and understand the role of NFTs in the blockchain space.

Pros and Cons:

Also Read: Blockchain vs Big Data: Key Differences, Use Cases & Benefits

After on-chain data storage, it's important to consider off-chain storage, which has its own benefits and challenges.

Off-Chain Data Storage

Off-chain data storage stores data outside the blockchain while maintaining a reference (such as a hash) to it on the blockchain. This method is suitable for large datasets, which would be impractical to store directly on the blockchain. 

Off-chain storage solutions like IPFS (InterPlanetary File System), Filecoin, and Arweave provide decentralized options for securely storing data off-chain while maintaining the benefits of blockchain technology.

Technologies

• IPFS: Decentralized file storage system that ensures data integrity by using content-addressable storage.
• Filecoin: A blockchain-based storage network that incentivizes users to store data and retrieve it efficiently.
• Arweave: A blockchain-like storage solution that offers permanent data storage with a one-time payment.

Use Cases and Examples for Off-Chain Data Storage:

• Large File Storage: Store large files like videos or documents outside the blockchain to avoid high storage costs while linking them to blockchain records (e.g., Filecoin, IPFS).
• Decentralized File Sharing: Share files securely using decentralized systems while keeping references on the blockchain (e.g., IPFS for content sharing).
• Healthcare Data Management: Keep medical records off-chain and reference them on the blockchain to ensure privacy (e.g., Medicalchain).
• Supply Chain Documentation: Store detailed documents like contracts or certifications off-chain, using the blockchain for verification (e.g., VeChain).
• Real Estate Records: Store property documents off-chain while using blockchain for tracking ownership and transactions (e.g., Propy).
• Cloud Storage Integration: Use traditional cloud storage for data storage and store transaction logs or metadata on the blockchain for transparency (e.g., Origin Protocol).

Also Read: What Makes a Blockchain Network Immutable? Immutability Explained

Pros and Cons:

Understand the core features of blockchain technology. Join upGrad's Blockchain Features Simplified course and get the basics right to work with blockchain in any field.

While on-chain and off-chain storage each serve their unique purposes, there are times when combining both is essential. This is where hybrid data storage comes in, utilizing the strengths of both methods to meet specific storage needs.

Hybrid Data Storage

Hybrid data storage combines the strengths of both on-chain and off-chain storage to balance security, transparency, and scalability. In this model, critical data is stored directly on the blockchain, while larger data files are stored off-chain, often in decentralized file systems. 

This approach offers a more flexible and efficient way to manage data while retaining the benefits of blockchain.

Technologies

• Ethereum: Utilizes a hybrid approach by storing essential smart contract data on-chain. Similarly, large assets like media files can be stored off-chain using IPFS or similar systems.
• Filecoin: Offers decentralized storage for larger files and integrates with blockchain platforms to store references on-chain.
• Arweave: Provides permanent data storage with blockchain-like security for off-chain data, while using blockchain for important references.

Use Cases and Examples for Hybrid Storage:

• Decentralized File Storage: Storing large files like images, videos, or documents off-chain while using blockchain to store metadata or file references (e.g., Filecoin combined with Ethereum).
• NFT Storage: Storing large media files associated with NFTs off-chain while storing key data such as ownership, transactions, and metadata on-chain (e.g., using IPFS with Ethereum for NFTs).
• Supply Chain Management: Storing detailed product information off-chain and tracking key transactional data on-chain to ensure transparency and accountability (e.g., IBM Food Trust using hybrid storage).
• Healthcare Records: Storing patient data off-chain and keeping key transaction details, like consent or updates, on-chain for secure access and integrity (e.g., Medicalchain with hybrid storage).
• Voting Systems: Storing voting results and metadata off-chain while keeping voter identities and election conditions secure and immutable on-chain (e.g., Follow My Vote with hybrid storage).

Pros and Cons:

Also Read: Top 10 Blockchain Applications and Use Cases in 2025

As we explore these solutions, it's clear that different blockchain technologies offer distinct advantages depending on your storage needs and objectives.

Comparing On-Chain, Off-Chain, and Hybrid Data Storage in Blockchain

On-chain, off-chain, and hybrid data storage each have their own strengths, depending on the type of data and how it needs to be managed. By comparing these methods, you can better understand which approach suits your specific needs for security, scalability, and cost. 

Here’s a quick comparison to help you decide.

Each of these Data Storage in Blockchain methods offer unique advantages depending on the size and nature of the data being stored.

Also read: Step-by-Step Guide to Learn Blockchain Technology

Now let’s explore some specialized blockchain solutions designed to cater to specific storage requirements and use cases.

Specialized Blockchain Solutions

Some blockchain-based storage solutions focus on providing specialized services that cater to different storage needs, from decentralized storage networks to private enterprise blockchains. These solutions offer unique advantages, such as permanence, encryption, or private access, ensuring your data is secure and accessible as required.

Here’s a comparison of some specialized blockchain solutions for data storage, each offering unique features and benefits for various use cases.

Also Read: Best Cloud Storage Services in 2025: Future-Proof Your Data

Now that the basics of Data Storage in Blockchain technologies are clear, let’s explore the key steps involved in securely storing data on the blockchain.

How to Store Data in Blockchain: 6 Steps You Must Know

Storing data on blockchain requires a structured approach to ensure security, transparency, and immutability. The process involves selecting the right storage method, preparing data for blockchain compatibility, and ensuring that the data is securely integrated into the system. 

To effectively store data on the blockchain, you must understand the key steps involved in the process. 

Below are the six essential steps you need to follow for secure and efficient data storage in blockchain.

Step 1: Determine the Data Type and Size

The first step in storing data on the blockchain is to assess the type and size of the data you want to store. This is a critical decision, as it influences whether you store the data on-chain, off-chain, or use a hybrid approach. The nature of your data will determine the most efficient and cost-effective storage solution.

On-Chain Data:

• Includes small amounts of data that benefit from blockchain's key features: transparency, immutability, and security.
• Ideal for text, metadata, transaction details, and hash values.
• Best suited for data that needs to be verified, secure, and permanent, such as smart contract details or cryptocurrency transactions.

Off-Chain Data:

• Best for larger files like images, videos, and documents that exceed the storage capacity of the blockchain.
• Storing large files directly on the blockchain is costly and inefficient due to limited storage space.
• Off-chain storage improves scalability and reduces costs, while still using blockchain to securely track and verify ownership or references to the data.

Hybrid Storage:

• Combines both on-chain and off-chain storage for a flexible solution.
• Critical and immutable data (e.g., transaction hashes, ownership records, contract terms) is stored on-chain.
• Larger files (e.g., media, documents, product specifications) are stored off-chain, with the blockchain storing references or hashes to link back to the off-chain data. This maintains security and transparency without overburdening the blockchain.

Understanding the type and size of your data will help you choose the appropriate storage method. This, in turn, can help you avoid unnecessary costs or limitations associated with data storage in blockchain.

Step 2: Choose a Blockchain Platform

The next step in securely storing data on the blockchain is selecting the right blockchain platform. The choice of platform is crucial, as it influences factors like privacy, scalability, speed, and cost. When evaluating platforms, consider your project's specific requirements, such as whether you need public visibility, permissioned access, or higher throughput.

Here’s a comparison of public and private blockchain platforms to help you decide:

Key Considerations:

• Public Blockchains:

Public blockchains are open to all and do not require permission to join. They are ideal for applications needing transparency, security, and decentralization. Examples include Ethereum and Filecoin, used for cryptocurrency, DApps, and storage solutions.

• Private Blockchains:

Private blockchains offer more control with permissioned access, allowing only authorized participants to access or alter data. They are more scalable and faster, making them ideal for industries needing confidentiality and compliance, like finance and supply chains. Examples include Hyperledger.

Choosing the right platform depends on whether your project requires public access or a more controlled environment for sensitive data. Understanding the differences between them will help you select the platform that best suits your project’s needs.

Also Read: Understanding Blockchain Architecture in 2025: Key Concepts, Benefits, Applications, and More

Step 3: Encrypt the Data

After selecting the blockchain platform, the next essential step is to encrypt your data to ensure its security and privacy. Encryption protects sensitive information by making it unreadable to unauthorized users, ensuring that only those with the correct keys can access or interpret the data. 

This step is crucial for maintaining the confidentiality of your data, especially when storing it on public blockchains or external systems.

Below are common encryption techniques used to secure blockchain data. 

Encryption ensures that sensitive data remains confidential and secure, whether stored directly on the blockchain or in external storage systems. It prevents unauthorized access and protects your data across decentralized networks.

Step 4: Upload Data

Once the data is encrypted, the next step is to upload it to the blockchain. The method you choose for uploading will depend on whether you are using on-chain, off-chain, or hybrid storage. 

On-Chain Storage:

• Directly upload encrypted data onto the blockchain through a transaction.
• Suitable for small data like transaction records, metadata, or smart contract details.
• Provides immutability and easy accessibility.
• Can be costly due to transaction fees and limited storage capacity.
• Ideal for critical, small-scale data.

Off-Chain Storage:

• Store larger data (e.g., documents, images, videos) on external systems like IPFS or Filecoin.
• Blockchain stores only references or hashes to the off-chain data.
• Enhances scalability and reduces costs.
• Ensures data integrity and traceability through blockchain.

Hybrid Storage:

• Combines on-chain and off-chain storage methods.
• Stores critical, small-scale data on-chain (e.g., transaction hashes, ownership details).
• Stores larger files off-chain using systems like IPFS or Filecoin.
• Optimizes security and scalability, balancing data storage needs.

Choosing the right storage method ensures that the data remains both secure and efficiently accessible. The decision should be based on the size, security requirements, and cost considerations specific to your project.

Also Read: 10 Best Blockchain Courses Online for Students and Professionals in 2025

Step 5: Validate the Data

Validation ensures that the data stored on the blockchain is accurate and reliable. Without validation, data could be inconsistent or tampered with, compromising security. Consensus mechanisms like Proof of Work (PoW) and Proof of Stake (PoS) ensure the network verifies the data before adding it to the blockchain.

• Consensus Mechanisms: These protocols ensure that all nodes agree on the data’s validity. PoW (used by Bitcoin) involves solving complex puzzles, while PoS (used by Ethereum 2.0) selects validators based on their stake.
• Transaction Verification: After consensus, transactions are verified by the network to confirm they are legitimate, preventing fraudulent data from being added.

These methods maintain data integrity and security across the blockchain.

Step 6: Access and Retrieve Data

The final step in the data storage process is accessing and retrieving the data. The retrieval method depends on whether the data is stored on-chain, off-chain, or using a hybrid approach. Understanding how to access and verify the data is crucial for maintaining security, transparency, and integrity.

On-Chain Data:

• Stored directly within the blockchain's blocks, making it publicly accessible via the blockchain's ledger.
• Data is retrieved by anyone with access to the blockchain.
• Retrieval is fast through blockchain explorers or smart contract interfaces.
• Data is immutable, remaining unchanged and verifiable once recorded.

Off-Chain Data:

• Stored externally, like in IPFS or Filecoin, and referenced by a hash or pointer on the blockchain.
• Retrieval involves using the blockchain reference to locate the data externally.
• Data must be decrypted using the original encryption method used during storage.
• Allows efficient storage of large files but can be slower due to external system queries.

Hybrid Storage:

• Combines on-chain and off-chain storage for flexibility.
• Critical data (e.g., transaction hashes, ownership records) is stored on-chain for fast access.
• Larger files (e.g., media, documents) are stored off-chain, with references stored on the blockchain.
• Retrieval involves accessing the reference on the blockchain and verifying the off-chain data’s integrity against the blockchain hash.

Understanding how to access and retrieve data from these storage methods ensures that your system remains secure, efficient, and reliable.

Learn the fundamentals of cryptocurrencies and their connection to blockchain. Start upGrad’s Introduction to Cryptocurrency course and explore how blockchain powers digital currencies.

Explore how blockchain is transforming the financial industry. Take upGrad’s Digital Innovations in the Financial System course and see how digital technologies are shaping finance.

Also read: 18+ Must-Explore Hyperledger Projects for Beginners and Experts in 2025

Let’s now explore the key benefits of storing data in blockchain.

What are the Benefits of Storing Data in Blockchain?

Storing data in blockchain offers several key advantages, especially for ensuring security, transparency, and immutability. By utilizing blockchain's decentralized nature, businesses can gain enhanced control over data integrity and access. 

Below are the primary benefits of storing data in blockchain.

By using blockchain for data storage, you can significantly improve the security and transparency of your data management while reducing costs.

Also read: Exploring Cryptography in Blockchain: Types and Key Algorithms

Get introduced to blockchain technology and its various uses. Sign up for upGrad’s Blockchain: A Quick Introduction course to build a strong understanding of blockchain fundamentals.

Now, let’s take a look at the challenges that come with storing data on blockchain.

What are the Challenges and Limitations of Blockchain Storage?

While data storage in blockchain offers numerous benefits, some challenges and limitations must be considered. These include scalability, energy consumption, and data privacy concerns. 

However, emerging solutions aim to address these challenges, making blockchain storage more efficient and viable for widespread use.

Here are the main challenges and their potential solutions for data storage in blockchain:

Understanding these challenges and solutions enables you to make informed decisions when implementing blockchain storage in your projects.

Also Read: Top 5 Blockchain Applications Transforming the World of Technology

upGrad’s Exclusive Software Development Webinar for you –

SAAS Business – What is So Different?

Now that data storage in blockchain technology has been covered, let us see how upGrad can help you advance your career in the blockchain field.

Also read: Why Blockchain is Important? 21 Reasons That Shows How Blockchain Transforms the World

Conclusion 

Data storage in blockchain offers a secure, transparent, and decentralized alternative to traditional systems. By storing data in immutable blocks, blockchain ensures data integrity while minimizing the risks of breaches and system failures. As blockchain continues to mature, it will play an increasingly pivotal role in revolutionizing data management across various industries, from finance to healthcare.

If you're aiming to build expertise in blockchain and data storage, upGrad offers specialized courses designed to equip you with the necessary skills. With hands-on learning, expert guidance, and personalized feedback, upGrad ensures you are prepared for the challenges of this growing field.

Here are some of the additional courses that will help you advance in this field:

• Masters in Artificial Intelligence and Machine Learning - IIITB Program
• Master’s Degree in Artificial Intelligence and Data Science
• Professional Certificate Program in Cloud Computing and DevOps

Feeling unsure about where to begin with your blockchain career? Connect with upGrad’s expert counselors or visit your nearest upGrad offline centre to explore a learning plan tailored to your goals.

Explore popular Software Engineering courses and discover the perfect program to enhance your expertise and advance your career!

Explore our Popular Software Engineering Courses

Discover Software Development free courses designed to enhance your expertise and kickstart your journey in the tech world!

Explore Our Software Development Free Courses

Master in-demand Software Development skills and take your expertise to the next level in the tech industry!

In-Demand Software Development Skills

Dive into popular articles on Software Development and discover insights to keep you ahead in the tech world!

Popular Articles related to Software Development