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

Advisor & Editor: JX (Partner of OFR)

At the start of the year, Ryan Selkis wrote in his Messari 2022 Crypto Theses, “Of the various components in the Web3 hardware stack, decentralised storage is arguably the most robust.” Compared to the short-term services offered by IPFS and Sia, the report acknowledges Arweave as a key player in the long-term blockchain storage sector. So how exactly does Arweave come to carry the weight on the decentralised storage space?

Arweave is a block network whose goal is to achieve decentralised permanent storage for data. Arweave promises to provide users with at least 200 years of storage, and this goal is becoming clearer as the annual cost of storage decreases.

Why we need Permanent Storage?

Long before Web 3.0, it was explored that permanent storage of data was an important thing. Nowadays, a question remains of how users can still access a URL address from 10 years ago besides ‘https://archive.org/web’ or browse and download data stored on a centralised server? In the crypto world, NFT works that can cost tens of millions of dollars are inevitably stored in traditional centralised servers, all of which create great pitfalls.

An Internet that relies on centralised storage is fragile and fragmented, with exponential data growth 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 from corruption, resulting in the familiar "404 Not Found". Stretching the timeline, data integrity on the blockchain will be a new value proposition, and achieving permanent data storage will be an exciting area of innovation for the future of the Internet and Web 3.0 era.

How Arweave store data permanently?

Arweave provides a new solution to the problem of permanent storage by leveraging data structure - Blockwave and SPoRA's consensus mechanism. Blockweave's spun architecture comes with sharding properties and high scalability, while SPoRA's consensus mechanism ensures that miners receive enough incentive to store rare data for permanent data storage.

So how miners achieve permanent storage? The SPoRA mechanism at the consensus level can be explained as a set of three concepts: 1. PoW 2. PoA 3. speed of data access. Arweave requires a previous random block (recall block) to produce the new block, and this consensus mechanism is Proof of Access (PoA). In addition, on top of PoA, PoW mechanism is introduced to ensure that the miner who calculates the random number fastest has the right to bookkeeping in order to prevent all miners from storing all data and not being able to decide the right to bookkeeping. However, if a large number of miners will coincidentally choose low-cost regions to run nodes in order to reduce costs, this geographically centralized storage pattern will increase the data access speed for certain users. Therefore, data access speed is also a factor in determining miners' rewards.

The PoA mechanism also conceals another feature that motivates miners' willingness to store - the probability of recall blocks is consistent. So miners who store rare blocks have a higher probability of competing for the reward. This results in the entire data being stored evenly on Arweave.

While the subjective willingness of miners to store can be satisfied with permanent storage, will objective data loss affect the performance of permanent storage? In other words, a block happens not to be stored by a miner resulting in permanent loss.

Taking the above replication rate of 50% and the number of nodes of 100 as an example, we can see that the probability of losing blocks is already very small when miners store only half of the total data. But in reality, the number of nodes in the Arweave network is above 1000, and the replication rate can reach 90%. It can be said that the probability of permanent loss is negligible.

In addition to this, storage cost is also an important factor in maintaining permanent storage in Arweave. Everyone has become accustomed to price increases in almost all areas of life, but data storage is one of the few areas that runs counter to this trend. In the last 50 years. The cost of data storage has fallen by an average of more than 30.5% per year. And Arweave's working assumptions for the economic viability of permanent storage are very conservative: Arweave assumes that the cost of data storage decreases by only 0.5% per year. The initial cost to the user of uploading data to the Arweave network covers the first 200 years of storage. If the amount of data storage decreases by more than 0.5% per year, this will increase the number of years of data storage. In other words, further adding to the deflationary trend mentioned above.

At the same time, Arweave has set up its own endowment - whenever a user pays for storage, 86% of the cost goes to the endowment. Over time, the fees in this endowment will gain in value, much like the interest that accumulates on cash in a bank account. The aim is to provide expenses as needed to keep the rewards of storing data higher than the cost of storage.

In the most recent update of the hard fork, the version2.5 hard fork has had an immediate positive impact on users of the Arweave network, where the AR cost of storing data on the permanent storage network has been reduced by nearly half. This fork will gradually implement HDD storage to replace SSD storage, thus reducing the initial storage costs.

Arweave Ecosystem

Looking at the numbers alone, Arweave only had a maximum of 600M transactions three years after launch, in contrast to Solana and Avalanche which had the same amount of transactions only a year after launch.

Back in the history of public chain development, we can easily find that: the development of public chains tends to be top-down. Uniswap and Opensea, as the two heavyweight applications that burn the most Ether, have added a large number of transactions and active addresses to Ether, supporting the bull market of Ether one after another; DEX, led by Serum and Raydium, has promoted the early development of Solana, and Game has been the first chain in the world. The early development of Solana led by Serum and Raydium, the rise of GameFi drove the activity of BSC, and the highly distinctive Defi asset protocols such as Anchor, Mirror, etc. brought funding and growth momentum to Terra.

On the contrary, Arweave has yet to explode into a moat-level presence similar to the one mentioned above, in addition to the fact that a number of excellent applications have sprouted so far. Some of the current ecological projects on Arweave are listed below according to infrastructure and applications.

• Bundlr: When it comes to Bundlr, we have to talk about a new technology of Arweave - Bundles, which brings Arweave's scalability up another dimension by compressing any amount of data into a single block that can be processed by L1 through L2. It allows Arweave's transaction capacity to increase linearly. Users can thus upload large amounts of single data without worrying about the data not being uploaded efficiently - it solves a problem that every blockchain has, namely the situation where transactions may be rejected when others submit transactions that reward miners more.Bundlr processed over 10,000,000 transactions in its first month, while Arweave processed only 1,000,000. As Bundlr expands, the network will be able to handle multiple orders of magnitude. Statistically, 70% of all transactions are now bundled data.

• RedStone (middle tier): A prophecy machine solution on Arweave. At the same time, RedStone aims to be the Chainlink of the Web3 space: the validated data is uploaded to Arweave (staking token) and anyone can get the right data on it. At the same time, all applications built through SCP are off-chain computing. Users can go directly to the data on the memory blockchain when using the prophecy machine. And this data will be guaranteed to be correct by RedStone's economic mechanism.

• Kyve Network (Application Layer/Middle Layer) : Using Arweave's storage capabilities, KYVE provides structured data storage, validation and access services for different blockchains, helping different chains to complete data storage across chains. Data uploaders are responsible for acquiring data from the source and storing it within Arweave, while validators ensure the validity and reliability of data on Arweave through a series of incentives and penalties, thus guaranteeing the availability of the application layer. Once the data is stored, users can retrieve it using KYVE's query interface or access it directly in Arweave. Validation by KYVE and permanent storage by Arweave ensures the integrity of the data supplied to downstream users.

• ArDrive: As an excellent front-end application for the Arweave network, ArDrive greatly simplifies the use of the Arweave network for users. Before the advent of ArDrive, users needed to use CLI (Command Line Interface) to interact with Arweave Network to store uploaded contents. However, the advent of ArDrive allows users to upload their own content with just a click of the mouse.

It is easy to see that Arweave, as an infrastructure-level protocol, is very different from other public chains in terms of its narrative, logic and value support. The Web3.0 narrative is so that a large number of native blockchain dApps tend to use on-chain storage. After the underlying facilities gradually mature, more application layer projects will surely emerge as well, bringing incremental users and funds into the Arweave ecosystem.

Arweave has become the leader in this field through its unique permanent storage in the storage segment. Users achieve permanent data storage, once paid, forever use; at the same time, based on their own storage services, gradually realise the SmartWeave contract and PermaWeb mutual synergy of the ecological environment. But in the future exploration of Web3, the important feature of data ownership is not only reflected by perpetual storage, but also requires more empowerment to help Arweave tell the story. The reliance on Solana is bound to be a factor affecting its development in the future, and Bundlr is actively seeking bridges to other public chains in this regard.

The following throws a few interesting use cases and directions for your reference.

1. NFT metadata storage, the most used use case at the moment, and will definitely continue its demand growth after the rise of AV NFT in the future.

2. similar to the Kyve Network mentioned above, backup other public chain data on Arweave, store public chain historical data permanently, and provide an interface entrance for easy retrieval and access, and do Layer 0 on the public chain.

3. Web3.0 technology stack and code storage, such as Uniswap and Compound have already stored their front-end programs on Arweave.

4. Decentralised social platform that can carry large amounts of data, and Arweave is naturally highly scalable.

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