Selected ChainNews | How Arweave Utilizes Game Design to Achieve Permanent Network Storage

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's eternal hard drive. The protocol combines innovative blockchain technology with clever game theory design mechanisms to create a healthy and sustainable network.

This article is authorized for reprint from ChainNews, titled "Understanding How Arweave Achieves Permanent Network Storage Through Game Design," original article available here

Author: Amber Group
Translator: Perry Wang

Achieving Permanent Storage through Incentives

Arweave utilizes a novel data structure called blockweaves, which is an iterative update to the original design of blockchain. Each block is linked to two previous blocks:

• The chain, similar to the previous block in traditional blockchains like Bitcoin;
• A recall block from the previous history of the blockchain.

Miners must have access to the recall block to mine new blocks and earn rewards with a random access succinct proof, known as SPoRA. Since the selection of the recall block is unpredictable, miners are incentivized to store a large amount of data, increasing their chances of accessing the correct recall block to mine new blocks and earn mining rewards. The incentive mechanism also encourages miners to store rare blocks rather than duplicating well-stored blocks, as the former means fewer miners competing for rewards at the same level.

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

It should be noted that the above diagram assumes miners store blocks randomly. As miners are incentivized to store rare blocks, the actual probability of discarding blocks is lower than reflected.

One-Time Payment, Permanent Storage

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

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

The sustainability of the donation fund model is supported by the assumption of decreasing storage costs over time. Over 50 years, storage costs decrease by an average of 30.6%. Arweave's transaction pricing model conservatively estimates that these costs decrease by only 0.5% annually.

It is worth noting that while the pace of Moore's Law upgrades in the CPU field is slowing down, the maximum data density in the current consumer storage hardware domain is still far below the density achieved in research or theoretical maximum limits. Even with an optimistic 30% annual data density growth rate, 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 mining economy for centuries.

Utilizing Effective Game Theory Design

The peer-to-peer (P2P) file-sharing protocol BitTorrent was launched in 2001 and became the largest P2P file-sharing protocol, accounting for over 60% of global internet traffic at one point. Its success can be largely attributed to its elegant game theory design, known as the "optimistic tit-for-tat" strategy. BitTorrent nodes cooperate optimistically with other nodes but penalize non-cooperative behavior, encouraging the majority of participants in the network to take benign actions.

Arweave has adopted this effective framework design. Each miner in the Arweave network has its proprietary algorithm to rank other nodes, allocating their scarce resources to nodes they perceive as having the highest utility and adjusting their priorities accordingly. Hence, the Arweave network possesses strong resilience and adaptability to new environments.

For instance, in March of this year, some nodes in the Arweave network identified a portion of miners using pooling software, which was detrimental to Arweave's goal of maximizing data replicability. Subsequently, another group of miners modified their ranking algorithm, lowering the priority of these miners, preventing freeloading behavior, and improving the overall health of the network.

Construction: Unlocking Scalability

In September of this year, Arweave released an effective Layer 2 (L2) scaling solution: Bundles. With Bundles, every Arweave transaction is moved off-chain, grouped with other transactions, and then returned to the main chain as a single large transaction. This approach enables extremely large data files to be easily uploaded to the Arweave network. In September, a single block uploaded 47GB of data. Bundles also enhance transaction certainty and developer experience. The release of Bundles catalyzed a stepwise growth in blockweave size, indicating strong resonance between users and developers.

Market Competition Landscape

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

Filecoin was founded by Protocol Labs in 2014, and the Protocol Labs team is the behind-the-scenes team that created the InterPlanetary File System (IPFS). IPFS is the foundational protocol for decentralized data storage, using content addressing to identify files. While most files are currently located based on where they are stored, IPFS identifies files based on what they are. Users can share and download files using these identifiers. Filecoin acts as the 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 similar to AWS and Google Cloud's fee mechanisms. Unlike Arweave, Filecoin primarily provides 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 such as prices, durations, replication levels, etc. In contrast, the Arweave platform essentially offers only one contract: data permanence.

Therefore, we believe that Arweave will not directly compete with Filecoin and similar variants. The solutions of both may actually be complementary. In some cases, permanent data storage may be more cost-effective, while paying for short-term storage may make more sense in other situations.
In fact, it is difficult to find another platform with similar value propositions to Arweave—IPFS comes close, but lacks economic incentives, and files can still be discarded from the IPFS network. For example, Infura's IPFS pinning service deletes data from users who have not accessed it in six months.

Use Cases in the Web3 Stack

Arweave initially had slow growth after its mainnet launch, but it has gained significant market attraction this year by embracing many Web3 applications. Below, we outline some use cases to demonstrate how Arweave is finding market fit and showcasing the unique opportunities brought by permaweb more clearly.

Providing Security for NFTs

In theory, buyers of NFTs purchase objects that are immutable and permanent. However, these files are rarely stored on-chain— for most NFT projects, the cost of on-chain storage is prohibitively high. Instead, NFT smart contracts typically store the actual content in a simple token URI that points to the internet address where the digital object is located.

This presents 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 potentially be altered or deleted in the future. Research by @pencilflip on 22 top NFT projects found that 50% of projects store their files on centralized servers.

Even IPFS cannot guarantee permanence. CheckMyNFT discovered some assets of blue-chip artists, including Grimes, Deadmau5, and Steve Aoki, hosted on IPFS but temporarily offline. Another example is nft.storage claiming that its data "will be available indefinitely on IPFS." However, its terms of service and conditions warn that "data will continue to exist indefinitely until Protocol Labs decides to end the NFT.storage project."

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

This NFT's permanence rating is listed as excellent. The metadata quality related to this NFT is higher than the current industry standard. Metadata is stored in smart contracts and complies with all the standards in Ethereum Improvement Proposals (EIPs) adopted by all NFT platforms. Media data related to this NFT is stored on the most powerful decentralized file storage system, Arweave. ── Sotheby's auction house on the authentication report for Jay-Z's first NFT, Heir to the Throne

In addition to image NFT projects, platforms like Mirror, which turn text articles into NFTs, and Pianity, an audio NFT platform, also host their files on Arweave. Due to Arweave's unique advantages in providing decentralized permanence and immutability, we expect to continue witnessing growth in Arweave adoption in the NFT and creator economy.

User Interface — Hidden Centralization Point

The explosive growth of DeFi demonstrates that unlocking an endless number of innovations is possible by providing users with platforms that are freely accessible, autonomous, and transparent. However, these platforms face a hidden centralization risk: the front-end user interface. Cloud providers still have the ability to stop and review dApps through the front-end user interface, and even if most users prefer the old version, developers can force front-end changes and "updates."

Such incidents have already occurred. In July of this year, Uniswap removed tokenized stocks from its front end due to concerns about US regulatory policies. Smart contracts underpinning the user interface remain, but developers want to hide them. In response, users uploaded the previous Uniswap user interface UI on Arweave, allowing users to access the pre-audited version of Uniswap. There are also other platforms on the permaweb, such as Sushiswap, Compound, and 1inch, with unaudited versions, minimizing the threat of audits.

Blockchain Storage

Blockchain is a growing ledger. These ledgers are supposed to exist forever, but few are willing to store old chain data. This problem becomes more complex with the rapid growth of blockchain networks.

This problem is particularly severe for high-performance blockchains like Solana. The blocks generated by Solana are more than twice the sum of blocks generated by Ethereum, Bitcoin, Polkadot, Algorand, and Cosmos.

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 move into 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 reasonable than anything we can build. ── Anatoly Yakovenko, Co-founder of Solana Labs

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

Other Use Cases

We have only shown a few use cases above, but Arweave's technology solves multiple problems in the Web3 and 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 overall available market size.

Token Economics

The genesis supply of Arweave's native token AR is 55 million. The maximum total circulating supply will be 66 million AR tokens. The issuance of new AR tokens is similar to the Bitcoin model, where issued tokens halve periodically, but the issuance rate of Arweave continuously halves, unlike Bitcoin's discrete halving events.

Approximately 64 million AR tokens have been issued to date. About 22% of the issued tokens are held by advisors, the project team, or reserved for future use and development. This indicates that current public holders face a maximum dilution of 24%—22% from current tokens released by insiders + 2% from the remaining life cycle inflation rate.

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

Therefore, Arweave users can expect their holdings to appreciate through two avenues: increasing demand for fixed supply and token outflow from transaction fees entering the donation fund.

Conclusion

The team behind Arweave has carefully launched the network. Arweave has introduced