Understand how Arweave utilizes game design to achieve permanent network storage

Written by: Amber Group

Author: Perry Wang

The vision of the Arweave protocol is to provide decentralized, scalable, and permanent on-chain data storage. Just as Ethereum is considered the world computer, Arweave can be seen as the world hard drive that never forgets. The protocol combines innovative blockchain technology with clever game-theoretic design mechanisms to create a healthy and sustainable network.

Achieving Permanent Storage Through Incentives

Arweave uses a new data structure called blockweaves, which is an iterative update to the original design of blockchains. Each block links to two previous blocks:

• The previous block in the chain (similar to traditional blockchains like Bitcoin);

• A block from the historical history of the blockchain (the "recall block").

Miners must have access to the recall block to mine new blocks and receive rewards (random access succinct proofs, abbreviated as SPoRA). Since the selection of recall blocks is unpredictable, miners are incentivized to store a large amount of data, thereby increasing their chances of accessing the correct recall block, which allows them to mine new blocks and earn mining rewards. The incentive mechanism also encourages miners to store rare blocks rather than replicate good blocks, as the former means fewer miners competing for the same level of rewards.

Arweave block construction, source: Arweave Yellow Paper

Thus, Arweave takes a probabilistic and incentive-driven approach to ensure data replicability and permanent storage. The net effect of these incentives is that the likelihood of blocks being discarded by the network is nearly zero.

Block discard probability sensitivity table, source: Amber Group. The blue highlight is the estimated current state.

Note that the above figure assumes miners randomly store blocks. Since miners are incentivized to store rare blocks, the actual probability of block discard is lower than reflected.

One-Time Payment for Permanent Storage

Arweave users make a one-time upfront payment to permanently store their data. This contrasts sharply with some Web2 or Web3 storage platforms (such as Amazon Web Services, Google Cloud, or Filecoin), where users typically need to engage in recurring transactions. We believe the Arweave model offers a completely different experience—a more suitable experience for Web3. Customers of subscription-based pay-as-you-go platforms may become "meat tickets" due to future price increases or changes in terms, while Arweave users can access their stored data for free repeatedly.

Not all transaction fees paid by users are immediately transferred to miners. Instead, about 86% goes to a donation fund, which distributes fees to miners over time to ensure a sustainable miner economy (and permanent storage). The donation fund is currently accumulating its reserves and is expected to start paying miners only after Arweave's permaweb is several times larger than the current surface network.

The sustainability of the donation fund model is supported by the assumption that storage prices will decline over time. For the past 50 years, storage costs have decreased by an average of 30.6% annually. Arweave's transaction pricing model conservatively estimates that these costs will only decline by 0.5% per year.

Note that while the pace of upgrades in the CPU domain has slowed due to Moore's Law, the current data density in consumer storage hardware is still far below the densities achieved in research or the theoretical maximum limits. Even assuming a relatively optimistic annual growth rate of 30% in data density, it would take over 400 years to reach the theoretical limit. In other words, the vision of Arweave's donation fund model is to sustain the miner economy for centuries.

Utilizing Effective Game Theory Design

The peer-to-peer (P2P) download protocol BitTorrent was launched in 2001 and became the largest P2P file-sharing protocol, once accounting for over 60% of global internet traffic. Its success is largely attributed to its elegant game-theoretic design, known as the "optimistic tit-for-tat" strategy. BitTorrent nodes cooperate optimistically with other nodes but punish non-cooperative behavior, encouraging most participants in the network to act positively.

Arweave draws on this effective framework design. Each miner in the Arweave network has its own proprietary algorithm to rank other nodes, ranking them according to what they perceive as the most efficient nodes and allocating their scarce resources accordingly. As a result, Arweave's network is highly resilient and adaptable to new environments.

For example, in March of this year, some nodes in the Arweave network identified a portion of miners using pooling software, which undermined Arweave's goal of maximizing data replicability. Subsequently, another group of miners modified their ranking algorithms to lower the priority of these miners, preventing free-loading behavior and improving the overall health of the network.

Building: Unlocking Scalability

In September of this year, Arweave released an effective second-layer (L2) scaling solution: Bundles. Through Bundles, each Arweave transaction is moved off-chain, grouped with other transactions, and then returned to the main chain as a large transaction. This approach allows extremely large data files to be easily uploaded to the Arweave network. In September, a single block uploaded 47GB of data. Bundles also improve transaction certainty and developer experience. The release of Bundles catalyzed a stepwise increase in blockweave size, indicating a strong resonance between users and developers.

Stepwise growth brought by Bundling, source: Viewblock

Market Competition Landscape

Arweave is often compared to Filecoin, which may be the most well-known decentralized storage platform.

Filecoin was founded by Protocol Labs in 2014, and the Protocol Labs team is behind the creation of the InterPlanetary File System (IPFS). IPFS is the foundational technology protocol for decentralized data storage, using content addressing to identify files. While most files are currently found by their location (e.g., which server they are stored on), IPFS identifies files by what the data is. Users can share and download files using these identifiers. Filecoin acts as an economic layer on top of IPFS to incentivize nodes to host IPFS data.

There are many differences in the economic models between Arweave and Filecoin. Filecoin operates on a pay-as-you-go model, very similar to the fee mechanisms of AWS and Google Cloud. Unlike Arweave, Filecoin primarily offers temporary storage solutions rather than permanent storage solutions.

Additionally, in the Filecoin protocol, there are thousands of different contracts between users and nodes, each with different storage terms (e.g., price, duration, replication count, etc.). In contrast, the Arweave platform effectively offers only one contract: data is permanently stored.

Differences between Arweave and Filecoin models

Therefore, we believe that Arweave does not directly compete with Filecoin (and similar variants). The solutions of the two may actually be complementary. In some cases, permanent storage of data may be more cost-effective; in other cases, paying for short-term storage makes more sense.
In fact, it is difficult to find another platform with a similar value proposition to Arweave—IPFS is the closest, but it lacks economic incentives, and files can still be discarded from the IPFS network. For example, Infura's IPFS fixed service will delete user data that hasn't been accessed in six months.

Comparison of Arweave, Filecoin, and Sia, source: Web3 Index, Viewblock, Siastats, Filecoin, Chronobot, CoinGecko, press releases

Use Cases in the Web3 Stack

Arweave initially experienced slow growth after its mainnet launch, but this year it has gained significant market traction by adopting many Web3 applications. Below, we outline some use cases to demonstrate how Arweave has found market fit and more clearly illustrate the unique opportunities presented by the permaweb.

Providing Security for NFTs

The buyers of NFTs theoretically purchase immutable, permanent objects. However, these files are rarely stored on-chain—storing on-chain is prohibitively expensive for most NFT projects. Instead, the smart contracts of NFTs typically store the actual content in a simple token URI that points to the internet address where the digital object actually resides.

This raises a problem: most URIs cannot guarantee permanence or immutability. For example, the World of Women NFT project stores its image files on AWS, meaning these files could be changed or deleted in the future. A survey by @pencilflip found that 50% of the top 22 NFT projects store their files on centralized servers.

50% of projects store their files on centralized servers, source: Pencilflip

Even IPFS cannot guarantee permanence. CheckMyNFT discovered that some blue-chip artists' assets, including Grimes, Deadmau5, and Steve Aoki, were temporarily offline despite being hosted on IPFS. Another example is nft.storage, which claims that its provided data "will be indefinitely available on IPFS." However, its terms and conditions warn that "data will persist indefinitely until Protocol Labs decides to terminate the NFT.storage project."

Given that this issue is becoming increasingly prominent, artists and creators are increasingly using Arweave's NFT storage platform, including renowned NFT artists Beeple and hip-hop superstar Jay-Z.

The persistence rating of this NFT is listed as excellent. The metadata quality associated with this NFT exceeds current industry standards. The metadata is stored in the smart contract and complies with all standards in the Ethereum Improvement Proposals (EIPs) adopted by all NFT platforms. The media data associated with this NFT is stored on the most robust decentralized file storage system, Arweave.

------ Sotheby's auction house's appraisal report on Jay-Z's first NFT Heir to the Throne

In addition to image NFT projects, media platforms like Mirror (which turns text articles into NFTs) and Pianity (audio NFTs) also host their files on Arweave. Given Arweave's unique advantage of providing decentralized permanence and immutability, we expect to continue witnessing an increase in Arweave adoption in the NFT and creator economy.

User Interface—Hidden Centralization Touchpoints

The explosive growth of DeFi illustrates the endless innovation that can be unlocked by providing users with freely accessible, autonomous, and transparent platforms. However, these platforms face a hidden centralization risk: the front-end user interface. Cloud providers still have the ability to stop and censor dApps, and even if most users prefer the old version, developers can force front-end changes and "updates."

This has already happened. In July of this year, Uniswap removed tokenized stocks from its front end due to concerns about U.S. regulatory policies. The smart contracts beneath the user interface still exist; developers simply wanted to hide them. In response, users uploaded the previous Uniswap user interface (UI) to Arweave, allowing users to access the version of Uniswap prior to censorship. There are also uncensored versions of other platforms on the permaweb, such as Sushiswap, Compound, and 1inch, minimizing the threat of censorship.

Blockchain Storage

Blockchains are growing ledgers. These ledgers should exist forever, but few are willing to store old chain data. As blockchain networks rapidly expand, this issue becomes more complex.

Blockchain network scale (in GB), source: Blockchain.info

This issue is particularly severe for high-performance blockchains like Solana. The blocks generated by Solana are equivalent to more than twice the total blocks generated by Ethereum, Bitcoin, Polkadot, Algorand, and Cosmos combined.

Developers did not design internal solutions but turned to Arweave's technology.

One of the challenges of building a high-performance smart contract platform is to ensure that ledger data has a highly fault-tolerant, decentralized storage solution… As we enter a multi-chain future, blockchains can and should specialize and interoperate. It is unreasonable to build a dedicated storage network and impose it on validators when a perfect solution already exists and is economically more viable than anything we can build.

------ Anatoly Yakovenko, co-founder of Solana Labs

Arweave has already partnered with Solana, Cosmos, Polkadot, Avalanche, NEAR, and Skale. The blockchain indexing protocol the Graph will also support Arweave, allowing for more efficient access to archived blockchain data.

Other Use Cases

We have only showcased a few use cases above, but Arweave's technology addresses multiple issues in Web3 and the real world, such as financial audits, media publishing, and information archiving. Furthermore, we believe that by creating new features and functionalities, Arweave's technology will create new markets and use cases, further expanding the total size of the available market.

Token Economics

The genesis supply of Arweave's native token, AR, is 55 million. The maximum circulating supply of tokens will be 66 million AR tokens. The issuance of new AR tokens is similar to the Bitcoin model, where the issued tokens are halved periodically, except that Arweave's issuance rate continuously halves, while Bitcoin has discrete halving events.

Currently, approximately 64 million AR tokens have been issued. About 22% of the issued tokens are held by advisors and the project team or are held for future use and development. This indicates that current public holders face a dilution of up to 24% (22% from insiders releasing current tokens + 2% from the remaining lifecycle inflation rate).

Arweave token supply timeline, source: Arweave Yellow Paper, Amber Group estimates

As the demand for storage on the Arweave protocol increases, the value of AR tokens is expected to rise. Additionally, as most transaction fees are sent to Arweave's donation fund, tokens are continuously exiting public circulation. For example, if the total scale of the Arweave network grows to 10PB, with a fee of about 200 AR per TB (current cost is about 480 AR per TB), approximately 1.7 million tokens will be withdrawn from public circulation. These tokens will eventually be reintroduced into circulation—miners will need to sell them to pay for storage costs—but the pace of reintroduction may be gradual and will occur over time.

Thus, Arweave users can expect the value of their held tokens to appreciate through two avenues: increased demand for a fixed supply and the exit of tokens from circulation due to transaction fees entering the donation fund.

Conclusion

The team behind Arweave has thoughtfully launched the network. Arweave introduced profit-sharing tokens, allowing developers to earn "micro-dividends" from applications built on Arweave, incentivizing founders to build applications on Arweave. It also regularly hosts the Open Web Foundry, a six-week program designed to help entrepreneurs bring their ideas to market on Arweave's platform. All these initiatives contribute to the thriving Arweave ecosystem.

Source: Verto Protocol

Arweave is still just getting started; execution and adoption risks abound. Nevertheless, Arweave's ambitions for the future are very lofty. If successful, it could become the default decentralized data platform for Web3 applications. From a broader perspective, Arweave could also bring us closer to establishing a truly permanent library of human knowledge.

Source link: medium.com