In-depth Analysis: Arweave is a key player in long-term blockchain storage

Original Title: 《Arweave------Web3.0 Storage Disruptor》

Author: Nicole Cheng (OFR Investment Manager), Mstone (OFR Analyst)

At the beginning of the new year, Ryan Selkis wrote in the Messari 2022 paper: "Among the various components of the Web3 hardware stack, decentralized storage can be said to be the most powerful." Compared to the short-term services provided by IPFS and Sia, the report acknowledges that Arweave is a key player in long-term blockchain storage.

Permanent Storage

Arweave is a blockchain network aimed at achieving decentralized permanent storage for data. One-time payment for lifetime use also solves the cumbersome process of users needing to subscribe continuously. Arweave promises to provide users with at least 200 years of storage service, and with the annual decline in storage costs, this goal becomes increasingly clear.

1) Why is permanent storage needed?

Long before Web3.0, people had already explored the importance of permanent data storage. Nowadays, can users still access a URL from ten years ago or browse and download data stored on centralized servers? In the crypto world, NFT artworks worth tens of millions of dollars, stored on traditional centralized servers, inevitably pose significant risks.

An internet reliant on centralized storage is fragile and fragmented, with data growing exponentially on one side and frequent incidents of old data loss or theft on the other. Over the past 20 years, 98.4% of web links have suffered decay, leading to the familiar "404 Not Found." Looking at the timeline, the permanence of data on the blockchain will represent a new value proposition, and achieving permanent data storage will be an exciting revolution in the future development of the internet and the Web3.0 era.

2) Why can Arweave achieve permanent storage?

Arweave utilizes the BlockWeave data structure and the SPoRA consensus mechanism to provide new solutions to the problem of permanent storage. The fibrous architecture of Blockweave inherently possesses sharding properties and high scalability, while the SPoRA consensus mechanism ensures that miners receive sufficient incentives to store rare data, achieving permanent data storage.

So how do miners achieve permanent storage? The SPoRA mechanism at the consensus level can be understood as a combination of three concepts:

1. PoW

2. PoA

3. Data access speed.

Arweave's block generation requires the participation of a previous random block (recall block), and this consensus mechanism is called Proof of Access (PoA). Additionally, to prevent all miners from storing all data and being unable to determine the accounting rights, the PoW mechanism is introduced to ensure that the miner who computes the random number the fastest has the accounting rights. However, if a large number of miners choose to run nodes in low-cost regions to reduce expenses, this geographic centralization of storage patterns will increase the data access speed for certain users. Therefore, data access speed is also a factor in determining miner rewards.

Under the PoA mechanism, there is also another characteristic that incentivizes miners to store data—the probability of recall blocks is consistent. Thus, miners storing rare blocks have a greater chance of competing for rewards. This will lead to all data being evenly stored on Arweave.

Although the subjective willingness of miners to store can satisfy permanent storage, will objective data loss affect the feasibility of permanent storage? That is, if a certain block happens not to be stored by miners, it could lead to permanent loss.

Taking the above example with a replication rate of 50% and 100 nodes, we can see that when miners only store half of all data, the probability of losing blocks is already very small. However, in reality, the number of nodes in the Arweave network exceeds 1,000, and the replication rate can reach 90%. It can be said that the probability of permanent loss is negligible.

In addition, storage costs are also an important factor in maintaining Arweave's permanent storage. People have become accustomed to price increases in almost all areas of life, but data storage is one of the few areas that goes against this trend. Over the past 50 years, the cost of data storage has averaged a decline of over 30.5% per year. The working assumption for the economic viability of Arweave's permanent storage is very conservative: Arweave assumes that the cost of data storage will only decrease by 0.5% per year. The initial cost of uploading data to the Arweave network covers storage for the first 200 years. If the cost of data storage decreases by more than 0.5% per year, it will extend the storage duration of the data.

At the same time, Arweave has also established its own donation foundation—whenever users pay storage fees, 86% of the fees will go into the donation foundation. Over time, the funds from this donation will gain value, just like cash accumulating interest in a bank account. The aim is to provide expenditures as needed to keep the rewards for storing data higher than the storage costs.

In the recently updated hard fork, the v2.5 hard fork has had a direct positive impact on users of the Arweave network, with the cost of storing data on the permanent network having decreased by nearly half. This fork will gradually implement HDD storage to replace SSD storage, thereby reducing initial storage costs.

Image Source: Ardrive

Image Source: Wikibon, 2021

Arweave Ecosystem

From a data perspective, Arweave only achieved a maximum transaction volume of 600M three years after its launch, while Solana and Avalanche achieved the same transaction volume within just one year.

Image Source: CoinMarketCap

Looking at the history of public chain development, it is not difficult to find that the development of public chains is often top-down. The prosperity of the application layer drives the construction of underlying infrastructure, thereby promoting a virtuous cycle of public chain ecosystem development. Uniswap and Opensea, as the two heavyweight applications that burn the most Ether, have added a large number of transactions and active addresses to Ethereum, supporting this round of Ethereum bull market; DEXs led by Serum and Raydium have promoted the early development of Solana, the rise of GameFi has driven the activity of BSC, while unique DeFi asset protocols like Anchor and Mirror have brought funding and growth momentum to Terra.

In contrast, Arweave, despite having spawned many excellent applications, has yet to produce a moat-level presence similar to those mentioned above. Below are some of the current ecosystem projects on Arweave, categorized by infrastructure and applications:

Bundlr: When mentioning Bundlr, one must talk about a new technology of Arweave—Bundles. Bundles elevate Arweave's scalability to another dimension, allowing any amount of data to be compressed into a single block that can be processed by L1 through L2 technology. Its emergence allows Arweave's transaction capacity to increase linearly. Users can thus upload large amounts of single data without worrying about ineffective uploads—solving a common problem in blockchains, where transactions may be rejected if others' submissions yield more rewards for miners.

Bundlr processed over 10,000,000 transactions in its first month, while Arweave only handled 1,000,000 transactions. As Bundlr expands, the network will be able to handle multiple orders of magnitude of data. Statistics show that currently, 70% of transactions belong to bundled data.

RedStone (Middleware): An oracle solution on Arweave. At the same time, RedStone aims to become the Chainlink of the Web3 space: uploading verified data to Arweave (staking token), allowing anyone to obtain correct data from it. All applications built through SCP are off-chain computations. Users can directly read data stored on the blockchain when using the oracle. The correctness of this data is ensured by RedStone's economic mechanism.

Kyve Network (Application Layer/Middleware): Utilizing Arweave's storage capabilities, KYVE provides structured data storage, verification, and access services for different blockchains, helping different chains achieve cross-chain data storage. Data uploaders are responsible for obtaining data from the source and storing it in Arweave, while validators ensure the validity and reliability of data on Arweave through a series of incentive and penalty mechanisms, thus ensuring the usability of the application layer. After data storage, users can retrieve data using KYVE's query interface or access it directly on Arweave. The validation by KYVE and the permanent storage by Arweave ensure the integrity of data supplied to downstream users.

ArDrive: As an excellent front-end application of the Arweave network, ArDrive greatly simplifies the difficulty for users to use the Arweave network. Before ArDrive, users needed to interact with the Arweave network using CLI (command line interface) to store uploaded content. However, with ArDrive, users can upload their content with just a click of the mouse.

AR I/O: AR I/O, as a product from the same team as ArDrive, serves as an information hub. Works uploaded to Arweave via ArDrive will first go through AR I/O before being sent to the Arweave network, and vice versa. The existence of AR I/O will greatly enhance user efficiency and experience with ArDrive.

everPay (Middleware): An on-chain payment settlement protocol developed based on Arweave, allowing users to achieve real-time token transfers on Ethereum and Arweave without gas fees. everPay aims to provide everyone with a trustworthy, decentralized payment application and offers developers an SDK to simplify the establishment of DEXs.

Pianity (Application Layer): As an NFT minting and trading platform, Pianity uses a new NFT standard built on Arweave, fundamentally solving the problem of off-chain storage of NFT metadata. The process of minting NFTs involves sending a transaction to the NFT contract on Arweave while saving the audio file of the song on-chain when minting a new NFT. This allows for low-cost on-chain storage while further reducing users' trust costs during NFT transactions. Users no longer need to understand complex concepts like metadata and various storage methods, making the transaction process straightforward and truly achieving trustlessness in transactions.

Conclusion

It is evident that Arweave, as an infrastructure-level protocol, has significant differences in narrative, logic, and value support compared to other public chains. Therefore, unlike the top-down development trajectory of most public chains, the Arweave ecosystem seems to have spent the majority of its efforts on underlying infrastructure over the past three years, attempting to carve out its unique bottom-up development path. To date, the ecosystem has over 400 projects, nearly doubling compared to the same period last year. Under the narrative of Web3.0, a large number of native blockchain dApps are inclined to use on-chain storage. As the underlying infrastructure matures, more application layer projects will surely emerge, bringing incremental users and funds into the Arweave ecosystem.

Arweave has become a leader in the field with its unique permanent storage in the storage sector. Users achieve permanent data storage with a one-time payment for lifetime use; at the same time, based on its storage services, it gradually realizes an ecosystem where SmartWeave contracts and PermaWeb collaborate. However, in the future exploration of Web3, the important characteristic of data ownership will not only be reflected through permanence but will also require more empowerment to help Arweave tell its story.

Finally, here are a few application scenarios we are optimistic about for your reference:

1. NFT metadata storage, currently the most widely used use case, will inevitably continue to see growth in demand as audio and video NFTs rise.

2. Similar to the Kyve Network mentioned above, backing data from other public chains on Arweave, permanently storing public chain historical data, and providing easy retrieval and access interfaces, serving as Layer 0 for public chains.

3. Storage of Web3.0 technology stack and code, for example, Uniswap and Compound have already stored their front-end programs on Arweave.

4. Decentralized social platforms can carry large amounts of data, and Arweave inherently possesses high scalability.