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Online storage start-ups are a dime a dozen. And yet, entrepreneurs don’t give up on this highly commoditized sector. Dominik Grolimund is one of them. He has started Wua.la, a Zurich-based company that is using principles of peer-to-peer networking and applying them to storage.

The five-person company has been funded so far by Grolimund’s other start-up, a German-language CRM suite for small businesses. Wua.la is offering a free online storage and sharing service that combines the best of Pando and Grouper. It is elegant, clever, and easy to use, and its sharing features alone are worthy of giving it a whirl. [digg=http://digg.com/software/Wuala_Combining_the_Best_of_P2P_Storage_Sharing]

Here is how it works:

You download the Wua.la client (works on Windows, Mac & Linux), and install it. Once you open the client after installation, you are logged into the Wua.la network. You get one gigabyte of storage capacity on their servers to get you going.

You can drag and drop files – images, videos, music, document – onto the client. You can tag your files just like you would on Flickr or YouTube. You can search through files like you would normally search on a web-based service. You can even comment on the photos or videos.

All the metadata is stored locally on your drive. The storage space is divided into folders that are color coded to indicate the level of privacy. You can share the folders with one person or almost anyone, by making them public.

If you need more storage, you have to contribute to the entire P2P cloud. And this is where I think it gets interesting: you can only join the cloud if you are online for at least five hours a day, and have a solid broadband connection. The system gives you an incentive to stay online.

Say if you kick in 10 GB of local storage to the “cloud” and are online 70 percent of the day, then the system gives you an additional 7 GB of online storage. The incentive for providing upload bandwidth is similar – the more upload bandwidth you provide, the faster your download speed will be. They also have super nodes, a.k.a. servers, that ensure that your files are available all the time. (How it works.)

Wua.la, in other words, is trying to avoid the problems associated with BitTorrent, where upstream connections become a problem. Wua.la will make money by embedding small relevant ads or referral links in the client in order to make money.

I am not sure if this is going to pay the bills, and they’d be better off offering premium storage options. It also remains to be seen if the service can scale – it has a less than 1000 alpha users for now. Nevertheless, it is an attractive option for those who crave privacy and don’t want to share personal videos and photos over the web.

If you would like to try the service, visit http://gigaom.wua.la. The first 100 visitors can use invite code gigaom, and download the client. Let us know what you think of the service. If you have feedback on the technology particularly, I would love to hear it.