Arweave is a decentralized data storage network attempting to provide solutions to data impermanence on the internet. Arweave relies on its underlying technology, the Blockweave, which allows data to be stored across a distributed network. This ensures that the data is always available and secure. Unlike traditional blockchains, where each block only links to its predecessor, Arweave uses a unique design in which each block connects to the two previous blocks - one directly before it and one from the past, creating a web-like architecture.
The Arweave network is powered by its native AR token, which users leverage to spend money on permanent data storage. AR is also a reward token given to miners who contribute their existing storage capacity on their local computers to the network. Other blockchain data solutions also use a similar model, but Arweave’s is differentiated as users only need to pay a one-time fee to store data indefinitely, with the network covering storage costs for at least 200 years using a portion of the fees.
Overtop the Arweave network is the AO Computer (AO) - a decentralized, hyper-parallel computing system that introduces a modular, actor-oriented architecture to advance distributed computing capabilities. It enables parallel execution of processes, which allows it to scale indefinitely without bottlenecks. This is crucial for handling the growing demands of decentralized applications (dApps), particularly those involving complex computational workloads like AI models and smart contracts. AO was officially launched in February 2024 when the public testnet went live.
Why Decentralized Storage and Why Arweave?
Arweave is a decentralized data storage platform that leverages its underlying technology called Blockweave to offer permanent, immutable storage on the blockchain. Its primary utility is enabling long-term data preservation, removing the risk of data loss, censorship, or the need for recurring payments. This makes it especially suited for storing critical and large-scale data versus other existing solutions - both on-chain and off-chain.
Most data storage solutions, such as traditional cloud storage providers, are not necessarily set up for long-term storage as they rely on annual or month-to-month contracts, necessitating ongoing monitoring and maintenance. Arweave differentiates itself by focusing on providing true, long-term storage solutions that could be imperative for several entities, including AI companies, financial services, or government agencies.
Arweave accomplishes this by incentivizing miners to store and replicate historical data across the network using a Proof of Access (PoA) mechanism. This system was upgraded to Succinct Proof of Random Access (SPoRA) in 2022, improving both security and data retrieval speed.
Key features of Arweave’s data storage system include:
- Permanent storage: Users pay a one-time fee for indefinite data storage, which is supported by an endowment system that ensures miner incentives for the long term.
- AR token: The native currency that powers the network, used to pay for storage and reward miners for maintaining data integrity.
- Decentralized infrastructure: Arweave removes the risk of centralized control over data by distributing storage responsibilities across a global network, ensuring data integrity, availability, and resilience against censorship
The Permaweb
The Permaweb is Arweave’s decentralized layer that allows developers to build dApps on top of the network, similar to how applications are built on the traditional web. This layer enables applications like permanent email, website hosting, and file storage. For example, Weavemail offers decentralized email, ArDrive provides file storage, and Spheron enables decentralized web hosting.
What distinguishes Permaweb from traditional cloud-based services is the immutability and resistance to censorship that Arweave's storage offers. This has drawn significant interest from developers seeking to store crucial NFT metadata and DeFi front ends permanently. For instance, the Solana-based Metaplex Candy Machine stores NFT metadata on Arweave, ensuring that digital collectibles retain their value without risk of data loss.
As of 2024, developers have built a wide range of dApps on the Permaweb, including email systems like Weavemail, file storage services like ArDrive, and hosting solutions like Spheron. These applications provide decentralized alternatives to centralized systems like Gmail, Dropbox, and GoDaddy, adding to the overall value proposition of the Arweave network.
To this end, the Permaweb has also become an essential tool for storing digital heritage and media archives, preserving important documents, research, and even digital cultural artifacts in an immutable, accessible format. This is somewhat similar to what the Internet Archive does for the broader internet, preserving legacy media, websites, files, and more.
Use Cases Unlocked by AO
The introduction of the AO Computer in 2024 further expands Arweave’s use cases by providing decentralized computing power alongside its storage capabilities. AO’s hyper-parallel architecture is designed to handle complex workloads such as AI modeling, large-scale data processing, and decentralized applications that need robust computational power. This opens new possibilities for decentralized finance (DeFi), decentralized autonomous organizations (DAOs), and real-world assets (RWAs).
Some potential applications unlocked by AO include:
- Autonomous agents: Decentralized bots and AI programs that can operate autonomously on the blockchain, leveraging Arweave's verifiable on-chain compute.
- Stablecoins and decentralized finance: The Astro stablecoin uses Arweave's infrastructure to provide a decentralized, stable medium of exchange
. - Decentralized data services: Projects like DataOS offer blockchain data analytics through Arweave, unlocking better access to on-chain information
AO is particularly poised to make significant impacts on industries requiring scalable, decentralized computational resources, such as AI and financial technologies, giving Arweave a broader utility in the evolving Web3 ecosystem.
How Does Arweave Work?
Arweave’s architecture is reliant on Blockweave. Blockweave enables permanent data storage by allowing users to interact with the network through gateways (i.e., arweave.net), which serve as entry points for uploading and retrieving data. Once data is uploaded, it becomes part of the Permaweb, allowing it to remain accessible and immutable. The unique combination of content-addressable storage and decentralized replication ensures that data is always available, resistant to censorship, and secure against alteration.
Blockweave itself is similar to a traditional blockchain but with key differences that make it optimized specifically for storage. Arweave’s blockchain links each new block not only to the previous one but also to a randomly selected older block called a recall block. This dual linking structure ensures that older data is constantly validated, promoting redundancy and long-term preservation. This is integral in incentivizing miners to actually store and maintain access to historical data on the network. Essentially, Arweave’s entire value proposition of long-term data accessibility and transparency relies on the recall block design.
Miners must prove they can access this recall block to mine a new one. This mechanism serves several important purposes:
- Data Redundancy and Permanence: The system encourages widespread replication of all data by requiring miners to access data from random points in the block weave's history.
- Incentivizing Storage of Rare Blocks: Miners are more likely to receive mining rewards if they store blocks that are not widely replicated (i.e., "rare" blocks). When a rare block is chosen as a recall block, fewer miners can compete for the reward, so those who have stored it have a better chance of winning.
- Security and Integrity: The use of a recall block makes it difficult for any miner to tamper with or alter the data in the Blockweave. If a miner tried to change a block, it would break the link to the recall block, making it evident that tampering had occurred.
Consensus Mechanism (SPoRA)
Arweave’s Proof of Access (PoA) is the consensus mechanism that ensures data integrity across the Blockweave. PoA requires miners to provide cryptographic proof that they have access to data from previous blocks in the Blockweave. Specifically, to mine a new block, miners must demonstrate access to a randomly selected recall block from the network’s history, incentivizing them to store a broader range of older data.
In 2022, Arweave updated its PoA system with Succinct Proofs of Random Access (SPoRA). This upgrade addressed some of the challenges of PoA, such as slow data retrieval and centralization risks from miners using remote storage solutions. SPoRA improves the system by adding a performance dimension to the consensus mechanism: miners are rewarded based on both their access to data and the speed at which they can retrieve it.
SPoRA prevents centralization by discouraging the use of remote storage and ensures that miners who keep data "close" to their nodes have a better chance of earning rewards. The protocol aligns incentives with performance, ensuring that the network remains fast and decentralized while maintaining the permanence of stored data.
AR Tokenomics
Arweave’s economic model is centered around the AR token, which is used to pay for storage. The AR token itself has a maximum supply of 66 million tokens, with nearly all (65.4 million) currently in circulation. As of 2024, the AR token holds a $1.3 billion valuation. When it launched, the AR token supply was set at 55 million tokens but has since inflated to its current supply.
Miners supporting Arweave are compensated through transaction fees, inflationary token emissions, and endowment payments. This is critically important, as miners should be expected to sell off their earnings to cover their operational expenses (such as electricity, hardware, and other overheads). This creates selling pressure on AR. However, because transaction fees are largely collected by the endowment fund, as AR is used, it actually reduces the circulating supply on the market as tokens become locked up in the endowment. In short, while miner activity creates short-term selling pressure, the design of the endowment and the long-term deflationary assumption of storage costs provide a counterbalance.
Arweave has gone to great lengths to carefully develop its tokenomics model. First, users interested in using the Arweave network need to pay a one-time fee in AR that gives them 200 years of storage, with the proceeds mostly going straight to a storage endowment. This endowment is used to cover the costs indefinitely as storage prices on the network decline (in theory). The assumption here is based on historical data, which shows that storage costs have dropped by just over 30% annually.
The idea is that, as technology advances, the cost to store data becomes progressively cheaper due to improvements in hardware efficiency, higher-density storage devices, and economies of scale. This deflationary trend in storage costs is fundamental to Arweave's model of paying for 200 years of data storage upfront in a single transaction. So, is this a solid assumption for Arweave to make?
For traditional data storage, data storage costs have been massively deflationary. Over the past several decades, storage technology (i.e., hard drives, flash memory) has followed a predictable trajectory of becoming cheaper and more efficient. Innovations in materials science, data compression, and manufacturing processes have driven this trend. Likewise, advances in storage density and cloud infrastructure have consistently driven down the cost per gigabyte of storage. Now, how does this relate to Arweave?
Remember that miners are the primary storage providers for the entirety of Arweave’s distributed network - leveraging the store capabilities of their individual devices for prospective on-chain customers. As the costs of data storage decline for traditional devices, this corresponds to cheaper storage costs for on-chain users. However, this also assumes that Arweave’s own network capacity will continue to increase.
While the assumption of deflationary data costs has historically held up, there is no guarantee that this trend will continue indefinitely. If storage costs were to stagnate or even increase due to factors like supply chain constraints on the Arweave network, the Arweave economic model could face challenges. The endowment set aside to cover the long-term costs might not be sufficient. This could force miners to seek higher fees to maintain profitability, potentially increasing costs for users.
AO Computer
AO is an advanced initiative built overtop Arweave that enables parallel processing of dApps through a modular architecture that allows users to select their own virtual machines (VMs), sequencing models, and security protocols. This highly robust, customizable architecture is designed to scale massively while maintaining trustlessness and transparency - key qualities necessary for modern dApp design and functionality.
At its core, AO operates as a single, unified computing environment for developers, allowing for multiple independent processes to run simultaneously and communicate with one another. By localizing the state to each application, AO creates more efficient computation and the ability to run a higher number of parallel processes.
AO Architecture
AO’s architectural design is purposely established to support actor-oriented processes, where each process operates independently but communicates with others through a message-passing system. This is relatively similar to the relationship between roll-ups and data availability (DA) layers, with AO enabling processes to interact without needing to access each other’s state, creating highly scalable parallelization.
Several key components make message-passing possible:
- Message Creation and Dispatch: When a process wants to interact with another process, it creates a message. This message contains relevant data such as the sender, target, and a unique identifier (message ID). It also includes a cryptographic signature to ensure authenticity.
- Messenger Units (MUs): Once a message is created, it is sent to a Messenger Unit (MU), which is responsible for relaying it to the correct destination process. The MU ensures the message is signed properly and verifies its origin before passing it on.
- Scheduler Units (SUs): The message is then forwarded to a Scheduler Unit (SU), which plays a role similar to a sequencer. It assigns a nonce (a unique sequence number) and epoch to the message, ensuring that all messages are ordered and timestamped correctly. The SU then stores the message on Arweave for permanence.
- Compute Units (CUs): The message is processed by a Compute Unit (CU), which executes the required computation or action based on the message’s content. CUs work in a competitive environment, where they can choose which processes to execute, adding flexibility to the system.
- Result Retrieval: Once the computation is complete, the CU returns a signed attestation of the result back to the MU. This allows the originating process to retrieve the output of the computation from the Scheduler Unit using the message ID.
The entire system operates on ANS-104 protocol messages, ensuring that all interactions are verifiable, traceable, and permanently stored on Arweave. This design not only allows for scalability but also provides trust-minimized interoperability between processes.
What is Storage-based Consensus Paradigm (SCP)
The storage-based consensus paradigm (SCP) is a concept introduced by Arweave to separate computation from storage, enabling a more scalable, efficient, and secure system for dApps. SCP relies on off-chain computation using Arweave strictly for only permanent data storage.
In SCP, Arweave more or less acts like a decentralized hard drive. Off-chain clients (i.e., nodes and servers) handle the computation, boosting scalability considerably as computation can occur on virtually any device without burdening the actual blockchain. By keeping just the data on-chain, SCP guarantees the immutability and verifiability of stored information. Additionally, SCP allows developers to use any programming language for off-chain computations, eliminating the need to rely on specialized languages like Solidity in Ethereum. This makes development easier, enabling the seamless transformation of traditional applications into decentralized ones.
Some of the early implementations of SCP are evident in projects like everPay, which leverages Arweave's storage to facilitate fast, gas-free payments. Other projects like KYVE also use SCP to manage data reliability for various blockchain ecosystems. SCP’s ability to combine the transparency of blockchain with the efficiency of traditional computing makes it ideal for a wide range of applications, from financial services to decentralized storage.
What about Verifiability?
Verifiability in AO is achieved through a decentralized system that allows any process or user to verify computational outputs using the stored logs of interactions on Arweave. While computations are performed off-chain, the results are stored on-chain, ensuring that any participant can reprocess the inputs to confirm the accuracy of the outputs.
In scenarios where high trust is required, AO can implement optimistic verification with staking and slashing mechanisms. Compute Units (CUs) can be required to verify the outputs of other CUs, ensuring that malicious actors are penalized and accurate results are incentivized. This modular security model allows different processes to choose from a variety of verification methods, including Proof of Stake, Proof of Authority, or even advanced mechanisms like zk-SNARKs, depending on the needs of the application.
AO Security Model
The AO security model utilizes a modular approach, allowing each component within the system to select its own security mechanism, meaning that the security of its application can be tailored and customized to best fit its computational needs. Currently, the AO testnet itself defaults to Proof-of-Authority (PoA), where validators are pre-selected based on their identity and reputation. In PoA, validators are accountable for their actions, and the consensus is maintained by a trusted group of validators, making it energy-efficient and highly scalable. However, this approach is often centralized and works best in controlled environments or permissioned networks.
However, for production environments, many developers are likely to prefer a PoS-based model, where validators stake tokens to participate in the network. This model ensures that validators have a financial incentive to act honestly, as their stake can be slashed if they behave maliciously or make errors.
While this flexible security model offers significant advantages in terms of scalability and efficiency, it also introduces complexities. Developers must carefully select the appropriate security model for each use case. Moreover, different PoS systems may result in varying slashing rules and mechanisms, raising questions about how to monitor malicious activities and manage slashing events. This problem relates closely to criticisms of cross-chain bridges like LayerZero.
One major critique of LayerZero is its trusted relayers system, where the security relies on a combination of off-chain oracles and relayers to pass messages between chains. Similar to AO, the variability in trust models can create confusion and risks, particularly if developers choose suboptimal security models for their use case. For LayerZero, concerns have arisen around the centralization of relayers and the complexity of ensuring they act honestly across different transactions. This mirrors the challenges in AO, where differing PoS systems or slashing rules across processes might complicate monitoring and enforcement, potentially leading to uncoordinated security measures and vulnerabilities.
Both systems face questions about how to handle malicious activity, especially in a decentralized ecosystem where multiple security mechanisms coexist. For AO, this manifests in uncertainties over slashing enforcement and whether different PoS rules can create inconsistencies.
AO Economics
While connected to Arweave, AO offers its economic model and AO token. The AO token economics are structured similarly to Bitcoin's, with a total supply of 21 million tokens and a halving cycle every four years. However, unlike Bitcoin's sharp halving events, AO has a smooth emission curve where the number of new tokens minted decreases slightly every month. This creates a more gradual reduction in token issuance rather than sudden supply shocks.
36% of the total AO supply is allocated to AR token holders, providing them with an additional incentive for holding AR tokens. This creates a direct link between the growth of the Arweave ecosystem and the value proposition of AR. The remaining 64% of AO tokens are distributed to users who bridge assets to the AO network. This is a significant component of AO’s economic model, as it encourages external liquidity to flow into the network, fueling its growth and adoption. Overall, this model is designed to create a feedback loop or economic flywheel, where more asset bridging and network usage lead to an increasing supply of AO tokens entering circulation.
New AO tokens are minted every five minutes, and the monthly minting rate is approximately 1.425% of the remaining supply. Due to the halving mechanism, similar to Bitcoin, the supply will gradually decrease over time. As of 2024, 1.0387 million AO tokens have been minted, with the total supply expected to reach 3.15 million AO tokens by early 2025.
Arweave’s Future
The thought process behind the development and launch of AO Computer is to better position the Arweave network as a strategic, highly competitive platform with which to host large datasets. The most obvious market penetration Arweave can accomplish via AO is artificial intelligence (AI). The global AI market is expected to appreciate into a multi-trillion dollar market over the next decade while simultaneously dragging all interrelated markets along with it - including data storage.
In short, there will be robust demand for storing massive quantities of data associated with the large language models (LLMs) behind the world’s most adopted AI protocols. With AO, the thinking here is that the economic model and performance capabilities will be competitive and secure enough to disrupt traditional data hosting channels. Even a relatively small market share capture (1%) could lead to a substantial valuation for the Arweave ecosystem by 2030.
Now, it's worth noting that AO usage isn’t all theoretical. There are already builders utilizing it as a platform for automation. One such example is Autonomous Finance, which has built a “DCA Agent” that enables users to dollar-cost average into specific tokens automatically. Of course, this is one such utility, but it demonstrates that AO can be leveraged for automated bots, tasks, and other related AI protocols.
Overall, AO is still in development. However, Arweave is already demonstrating significant, real-world usage. As of late 2024, it has already crossed over 9 billion cumulative on-chain transactions and looks to aim higher as the go-to-market strategy for AO continues to evolve going forward.
Disclaimer: This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.
Arweave is a decentralized data storage network attempting to provide solutions to data impermanence on the internet. Arweave relies on its underlying technology, the Blockweave, which allows data to be stored across a distributed network. This ensures that the data is always available and secure. Unlike traditional blockchains, where each block only links to its predecessor, Arweave uses a unique design in which each block connects to the two previous blocks - one directly before it and one from the past, creating a web-like architecture.
The Arweave network is powered by its native AR token, which users leverage to spend money on permanent data storage. AR is also a reward token given to miners who contribute their existing storage capacity on their local computers to the network. Other blockchain data solutions also use a similar model, but Arweave’s is differentiated as users only need to pay a one-time fee to store data indefinitely, with the network covering storage costs for at least 200 years using a portion of the fees.
Overtop the Arweave network is the AO Computer (AO) - a decentralized, hyper-parallel computing system that introduces a modular, actor-oriented architecture to advance distributed computing capabilities. It enables parallel execution of processes, which allows it to scale indefinitely without bottlenecks. This is crucial for handling the growing demands of decentralized applications (dApps), particularly those involving complex computational workloads like AI models and smart contracts. AO was officially launched in February 2024 when the public testnet went live.
Why Decentralized Storage and Why Arweave?
Arweave is a decentralized data storage platform that leverages its underlying technology called Blockweave to offer permanent, immutable storage on the blockchain. Its primary utility is enabling long-term data preservation, removing the risk of data loss, censorship, or the need for recurring payments. This makes it especially suited for storing critical and large-scale data versus other existing solutions - both on-chain and off-chain.
Most data storage solutions, such as traditional cloud storage providers, are not necessarily set up for long-term storage as they rely on annual or month-to-month contracts, necessitating ongoing monitoring and maintenance. Arweave differentiates itself by focusing on providing true, long-term storage solutions that could be imperative for several entities, including AI companies, financial services, or government agencies.
Arweave accomplishes this by incentivizing miners to store and replicate historical data across the network using a Proof of Access (PoA) mechanism. This system was upgraded to Succinct Proof of Random Access (SPoRA) in 2022, improving both security and data retrieval speed.
Key features of Arweave’s data storage system include:
- Permanent storage: Users pay a one-time fee for indefinite data storage, which is supported by an endowment system that ensures miner incentives for the long term.
- AR token: The native currency that powers the network, used to pay for storage and reward miners for maintaining data integrity.
- Decentralized infrastructure: Arweave removes the risk of centralized control over data by distributing storage responsibilities across a global network, ensuring data integrity, availability, and resilience against censorship
The Permaweb
The Permaweb is Arweave’s decentralized layer that allows developers to build dApps on top of the network, similar to how applications are built on the traditional web. This layer enables applications like permanent email, website hosting, and file storage. For example, Weavemail offers decentralized email, ArDrive provides file storage, and Spheron enables decentralized web hosting.
What distinguishes Permaweb from traditional cloud-based services is the immutability and resistance to censorship that Arweave's storage offers. This has drawn significant interest from developers seeking to store crucial NFT metadata and DeFi front ends permanently. For instance, the Solana-based Metaplex Candy Machine stores NFT metadata on Arweave, ensuring that digital collectibles retain their value without risk of data loss.
As of 2024, developers have built a wide range of dApps on the Permaweb, including email systems like Weavemail, file storage services like ArDrive, and hosting solutions like Spheron. These applications provide decentralized alternatives to centralized systems like Gmail, Dropbox, and GoDaddy, adding to the overall value proposition of the Arweave network.
To this end, the Permaweb has also become an essential tool for storing digital heritage and media archives, preserving important documents, research, and even digital cultural artifacts in an immutable, accessible format. This is somewhat similar to what the Internet Archive does for the broader internet, preserving legacy media, websites, files, and more.
Use Cases Unlocked by AO
The introduction of the AO Computer in 2024 further expands Arweave’s use cases by providing decentralized computing power alongside its storage capabilities. AO’s hyper-parallel architecture is designed to handle complex workloads such as AI modeling, large-scale data processing, and decentralized applications that need robust computational power. This opens new possibilities for decentralized finance (DeFi), decentralized autonomous organizations (DAOs), and real-world assets (RWAs).
Some potential applications unlocked by AO include:
- Autonomous agents: Decentralized bots and AI programs that can operate autonomously on the blockchain, leveraging Arweave's verifiable on-chain compute.
- Stablecoins and decentralized finance: The Astro stablecoin uses Arweave's infrastructure to provide a decentralized, stable medium of exchange
. - Decentralized data services: Projects like DataOS offer blockchain data analytics through Arweave, unlocking better access to on-chain information
AO is particularly poised to make significant impacts on industries requiring scalable, decentralized computational resources, such as AI and financial technologies, giving Arweave a broader utility in the evolving Web3 ecosystem.
How Does Arweave Work?
Arweave’s architecture is reliant on Blockweave. Blockweave enables permanent data storage by allowing users to interact with the network through gateways (i.e., arweave.net), which serve as entry points for uploading and retrieving data. Once data is uploaded, it becomes part of the Permaweb, allowing it to remain accessible and immutable. The unique combination of content-addressable storage and decentralized replication ensures that data is always available, resistant to censorship, and secure against alteration.
Blockweave itself is similar to a traditional blockchain but with key differences that make it optimized specifically for storage. Arweave’s blockchain links each new block not only to the previous one but also to a randomly selected older block called a recall block. This dual linking structure ensures that older data is constantly validated, promoting redundancy and long-term preservation. This is integral in incentivizing miners to actually store and maintain access to historical data on the network. Essentially, Arweave’s entire value proposition of long-term data accessibility and transparency relies on the recall block design.
Miners must prove they can access this recall block to mine a new one. This mechanism serves several important purposes:
- Data Redundancy and Permanence: The system encourages widespread replication of all data by requiring miners to access data from random points in the block weave's history.
- Incentivizing Storage of Rare Blocks: Miners are more likely to receive mining rewards if they store blocks that are not widely replicated (i.e., "rare" blocks). When a rare block is chosen as a recall block, fewer miners can compete for the reward, so those who have stored it have a better chance of winning.
- Security and Integrity: The use of a recall block makes it difficult for any miner to tamper with or alter the data in the Blockweave. If a miner tried to change a block, it would break the link to the recall block, making it evident that tampering had occurred.
Consensus Mechanism (SPoRA)
Arweave’s Proof of Access (PoA) is the consensus mechanism that ensures data integrity across the Blockweave. PoA requires miners to provide cryptographic proof that they have access to data from previous blocks in the Blockweave. Specifically, to mine a new block, miners must demonstrate access to a randomly selected recall block from the network’s history, incentivizing them to store a broader range of older data.
In 2022, Arweave updated its PoA system with Succinct Proofs of Random Access (SPoRA). This upgrade addressed some of the challenges of PoA, such as slow data retrieval and centralization risks from miners using remote storage solutions. SPoRA improves the system by adding a performance dimension to the consensus mechanism: miners are rewarded based on both their access to data and the speed at which they can retrieve it.
SPoRA prevents centralization by discouraging the use of remote storage and ensures that miners who keep data "close" to their nodes have a better chance of earning rewards. The protocol aligns incentives with performance, ensuring that the network remains fast and decentralized while maintaining the permanence of stored data.
AR Tokenomics
Arweave’s economic model is centered around the AR token, which is used to pay for storage. The AR token itself has a maximum supply of 66 million tokens, with nearly all (65.4 million) currently in circulation. As of 2024, the AR token holds a $1.3 billion valuation. When it launched, the AR token supply was set at 55 million tokens but has since inflated to its current supply.
Miners supporting Arweave are compensated through transaction fees, inflationary token emissions, and endowment payments. This is critically important, as miners should be expected to sell off their earnings to cover their operational expenses (such as electricity, hardware, and other overheads). This creates selling pressure on AR. However, because transaction fees are largely collected by the endowment fund, as AR is used, it actually reduces the circulating supply on the market as tokens become locked up in the endowment. In short, while miner activity creates short-term selling pressure, the design of the endowment and the long-term deflationary assumption of storage costs provide a counterbalance.
Arweave has gone to great lengths to carefully develop its tokenomics model. First, users interested in using the Arweave network need to pay a one-time fee in AR that gives them 200 years of storage, with the proceeds mostly going straight to a storage endowment. This endowment is used to cover the costs indefinitely as storage prices on the network decline (in theory). The assumption here is based on historical data, which shows that storage costs have dropped by just over 30% annually.
The idea is that, as technology advances, the cost to store data becomes progressively cheaper due to improvements in hardware efficiency, higher-density storage devices, and economies of scale. This deflationary trend in storage costs is fundamental to Arweave's model of paying for 200 years of data storage upfront in a single transaction. So, is this a solid assumption for Arweave to make?
For traditional data storage, data storage costs have been massively deflationary. Over the past several decades, storage technology (i.e., hard drives, flash memory) has followed a predictable trajectory of becoming cheaper and more efficient. Innovations in materials science, data compression, and manufacturing processes have driven this trend. Likewise, advances in storage density and cloud infrastructure have consistently driven down the cost per gigabyte of storage. Now, how does this relate to Arweave?
Remember that miners are the primary storage providers for the entirety of Arweave’s distributed network - leveraging the store capabilities of their individual devices for prospective on-chain customers. As the costs of data storage decline for traditional devices, this corresponds to cheaper storage costs for on-chain users. However, this also assumes that Arweave’s own network capacity will continue to increase.
While the assumption of deflationary data costs has historically held up, there is no guarantee that this trend will continue indefinitely. If storage costs were to stagnate or even increase due to factors like supply chain constraints on the Arweave network, the Arweave economic model could face challenges. The endowment set aside to cover the long-term costs might not be sufficient. This could force miners to seek higher fees to maintain profitability, potentially increasing costs for users.
AO Computer
AO is an advanced initiative built overtop Arweave that enables parallel processing of dApps through a modular architecture that allows users to select their own virtual machines (VMs), sequencing models, and security protocols. This highly robust, customizable architecture is designed to scale massively while maintaining trustlessness and transparency - key qualities necessary for modern dApp design and functionality.
At its core, AO operates as a single, unified computing environment for developers, allowing for multiple independent processes to run simultaneously and communicate with one another. By localizing the state to each application, AO creates more efficient computation and the ability to run a higher number of parallel processes.
AO Architecture
AO’s architectural design is purposely established to support actor-oriented processes, where each process operates independently but communicates with others through a message-passing system. This is relatively similar to the relationship between roll-ups and data availability (DA) layers, with AO enabling processes to interact without needing to access each other’s state, creating highly scalable parallelization.
Several key components make message-passing possible:
- Message Creation and Dispatch: When a process wants to interact with another process, it creates a message. This message contains relevant data such as the sender, target, and a unique identifier (message ID). It also includes a cryptographic signature to ensure authenticity.
- Messenger Units (MUs): Once a message is created, it is sent to a Messenger Unit (MU), which is responsible for relaying it to the correct destination process. The MU ensures the message is signed properly and verifies its origin before passing it on.
- Scheduler Units (SUs): The message is then forwarded to a Scheduler Unit (SU), which plays a role similar to a sequencer. It assigns a nonce (a unique sequence number) and epoch to the message, ensuring that all messages are ordered and timestamped correctly. The SU then stores the message on Arweave for permanence.
- Compute Units (CUs): The message is processed by a Compute Unit (CU), which executes the required computation or action based on the message’s content. CUs work in a competitive environment, where they can choose which processes to execute, adding flexibility to the system.
- Result Retrieval: Once the computation is complete, the CU returns a signed attestation of the result back to the MU. This allows the originating process to retrieve the output of the computation from the Scheduler Unit using the message ID.
The entire system operates on ANS-104 protocol messages, ensuring that all interactions are verifiable, traceable, and permanently stored on Arweave. This design not only allows for scalability but also provides trust-minimized interoperability between processes.
What is Storage-based Consensus Paradigm (SCP)
The storage-based consensus paradigm (SCP) is a concept introduced by Arweave to separate computation from storage, enabling a more scalable, efficient, and secure system for dApps. SCP relies on off-chain computation using Arweave strictly for only permanent data storage.
In SCP, Arweave more or less acts like a decentralized hard drive. Off-chain clients (i.e., nodes and servers) handle the computation, boosting scalability considerably as computation can occur on virtually any device without burdening the actual blockchain. By keeping just the data on-chain, SCP guarantees the immutability and verifiability of stored information. Additionally, SCP allows developers to use any programming language for off-chain computations, eliminating the need to rely on specialized languages like Solidity in Ethereum. This makes development easier, enabling the seamless transformation of traditional applications into decentralized ones.
Some of the early implementations of SCP are evident in projects like everPay, which leverages Arweave's storage to facilitate fast, gas-free payments. Other projects like KYVE also use SCP to manage data reliability for various blockchain ecosystems. SCP’s ability to combine the transparency of blockchain with the efficiency of traditional computing makes it ideal for a wide range of applications, from financial services to decentralized storage.
What about Verifiability?
Verifiability in AO is achieved through a decentralized system that allows any process or user to verify computational outputs using the stored logs of interactions on Arweave. While computations are performed off-chain, the results are stored on-chain, ensuring that any participant can reprocess the inputs to confirm the accuracy of the outputs.
In scenarios where high trust is required, AO can implement optimistic verification with staking and slashing mechanisms. Compute Units (CUs) can be required to verify the outputs of other CUs, ensuring that malicious actors are penalized and accurate results are incentivized. This modular security model allows different processes to choose from a variety of verification methods, including Proof of Stake, Proof of Authority, or even advanced mechanisms like zk-SNARKs, depending on the needs of the application.
AO Security Model
The AO security model utilizes a modular approach, allowing each component within the system to select its own security mechanism, meaning that the security of its application can be tailored and customized to best fit its computational needs. Currently, the AO testnet itself defaults to Proof-of-Authority (PoA), where validators are pre-selected based on their identity and reputation. In PoA, validators are accountable for their actions, and the consensus is maintained by a trusted group of validators, making it energy-efficient and highly scalable. However, this approach is often centralized and works best in controlled environments or permissioned networks.
However, for production environments, many developers are likely to prefer a PoS-based model, where validators stake tokens to participate in the network. This model ensures that validators have a financial incentive to act honestly, as their stake can be slashed if they behave maliciously or make errors.
While this flexible security model offers significant advantages in terms of scalability and efficiency, it also introduces complexities. Developers must carefully select the appropriate security model for each use case. Moreover, different PoS systems may result in varying slashing rules and mechanisms, raising questions about how to monitor malicious activities and manage slashing events. This problem relates closely to criticisms of cross-chain bridges like LayerZero.
One major critique of LayerZero is its trusted relayers system, where the security relies on a combination of off-chain oracles and relayers to pass messages between chains. Similar to AO, the variability in trust models can create confusion and risks, particularly if developers choose suboptimal security models for their use case. For LayerZero, concerns have arisen around the centralization of relayers and the complexity of ensuring they act honestly across different transactions. This mirrors the challenges in AO, where differing PoS systems or slashing rules across processes might complicate monitoring and enforcement, potentially leading to uncoordinated security measures and vulnerabilities.
Both systems face questions about how to handle malicious activity, especially in a decentralized ecosystem where multiple security mechanisms coexist. For AO, this manifests in uncertainties over slashing enforcement and whether different PoS rules can create inconsistencies.
AO Economics
While connected to Arweave, AO offers its economic model and AO token. The AO token economics are structured similarly to Bitcoin's, with a total supply of 21 million tokens and a halving cycle every four years. However, unlike Bitcoin's sharp halving events, AO has a smooth emission curve where the number of new tokens minted decreases slightly every month. This creates a more gradual reduction in token issuance rather than sudden supply shocks.
36% of the total AO supply is allocated to AR token holders, providing them with an additional incentive for holding AR tokens. This creates a direct link between the growth of the Arweave ecosystem and the value proposition of AR. The remaining 64% of AO tokens are distributed to users who bridge assets to the AO network. This is a significant component of AO’s economic model, as it encourages external liquidity to flow into the network, fueling its growth and adoption. Overall, this model is designed to create a feedback loop or economic flywheel, where more asset bridging and network usage lead to an increasing supply of AO tokens entering circulation.
New AO tokens are minted every five minutes, and the monthly minting rate is approximately 1.425% of the remaining supply. Due to the halving mechanism, similar to Bitcoin, the supply will gradually decrease over time. As of 2024, 1.0387 million AO tokens have been minted, with the total supply expected to reach 3.15 million AO tokens by early 2025.
Arweave’s Future
The thought process behind the development and launch of AO Computer is to better position the Arweave network as a strategic, highly competitive platform with which to host large datasets. The most obvious market penetration Arweave can accomplish via AO is artificial intelligence (AI). The global AI market is expected to appreciate into a multi-trillion dollar market over the next decade while simultaneously dragging all interrelated markets along with it - including data storage.
In short, there will be robust demand for storing massive quantities of data associated with the large language models (LLMs) behind the world’s most adopted AI protocols. With AO, the thinking here is that the economic model and performance capabilities will be competitive and secure enough to disrupt traditional data hosting channels. Even a relatively small market share capture (1%) could lead to a substantial valuation for the Arweave ecosystem by 2030.
Now, it's worth noting that AO usage isn’t all theoretical. There are already builders utilizing it as a platform for automation. One such example is Autonomous Finance, which has built a “DCA Agent” that enables users to dollar-cost average into specific tokens automatically. Of course, this is one such utility, but it demonstrates that AO can be leveraged for automated bots, tasks, and other related AI protocols.
Overall, AO is still in development. However, Arweave is already demonstrating significant, real-world usage. As of late 2024, it has already crossed over 9 billion cumulative on-chain transactions and looks to aim higher as the go-to-market strategy for AO continues to evolve going forward.
Disclaimer: This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.
Arweave is a decentralized data storage network attempting to provide solutions to data impermanence on the internet. Arweave relies on its underlying technology, the Blockweave, which allows data to be stored across a distributed network. This ensures that the data is always available and secure. Unlike traditional blockchains, where each block only links to its predecessor, Arweave uses a unique design in which each block connects to the two previous blocks - one directly before it and one from the past, creating a web-like architecture.
The Arweave network is powered by its native AR token, which users leverage to spend money on permanent data storage. AR is also a reward token given to miners who contribute their existing storage capacity on their local computers to the network. Other blockchain data solutions also use a similar model, but Arweave’s is differentiated as users only need to pay a one-time fee to store data indefinitely, with the network covering storage costs for at least 200 years using a portion of the fees.
Overtop the Arweave network is the AO Computer (AO) - a decentralized, hyper-parallel computing system that introduces a modular, actor-oriented architecture to advance distributed computing capabilities. It enables parallel execution of processes, which allows it to scale indefinitely without bottlenecks. This is crucial for handling the growing demands of decentralized applications (dApps), particularly those involving complex computational workloads like AI models and smart contracts. AO was officially launched in February 2024 when the public testnet went live.
Why Decentralized Storage and Why Arweave?
Arweave is a decentralized data storage platform that leverages its underlying technology called Blockweave to offer permanent, immutable storage on the blockchain. Its primary utility is enabling long-term data preservation, removing the risk of data loss, censorship, or the need for recurring payments. This makes it especially suited for storing critical and large-scale data versus other existing solutions - both on-chain and off-chain.
Most data storage solutions, such as traditional cloud storage providers, are not necessarily set up for long-term storage as they rely on annual or month-to-month contracts, necessitating ongoing monitoring and maintenance. Arweave differentiates itself by focusing on providing true, long-term storage solutions that could be imperative for several entities, including AI companies, financial services, or government agencies.
Arweave accomplishes this by incentivizing miners to store and replicate historical data across the network using a Proof of Access (PoA) mechanism. This system was upgraded to Succinct Proof of Random Access (SPoRA) in 2022, improving both security and data retrieval speed.
Key features of Arweave’s data storage system include:
- Permanent storage: Users pay a one-time fee for indefinite data storage, which is supported by an endowment system that ensures miner incentives for the long term.
- AR token: The native currency that powers the network, used to pay for storage and reward miners for maintaining data integrity.
- Decentralized infrastructure: Arweave removes the risk of centralized control over data by distributing storage responsibilities across a global network, ensuring data integrity, availability, and resilience against censorship
The Permaweb
The Permaweb is Arweave’s decentralized layer that allows developers to build dApps on top of the network, similar to how applications are built on the traditional web. This layer enables applications like permanent email, website hosting, and file storage. For example, Weavemail offers decentralized email, ArDrive provides file storage, and Spheron enables decentralized web hosting.
What distinguishes Permaweb from traditional cloud-based services is the immutability and resistance to censorship that Arweave's storage offers. This has drawn significant interest from developers seeking to store crucial NFT metadata and DeFi front ends permanently. For instance, the Solana-based Metaplex Candy Machine stores NFT metadata on Arweave, ensuring that digital collectibles retain their value without risk of data loss.
As of 2024, developers have built a wide range of dApps on the Permaweb, including email systems like Weavemail, file storage services like ArDrive, and hosting solutions like Spheron. These applications provide decentralized alternatives to centralized systems like Gmail, Dropbox, and GoDaddy, adding to the overall value proposition of the Arweave network.
To this end, the Permaweb has also become an essential tool for storing digital heritage and media archives, preserving important documents, research, and even digital cultural artifacts in an immutable, accessible format. This is somewhat similar to what the Internet Archive does for the broader internet, preserving legacy media, websites, files, and more.
Use Cases Unlocked by AO
The introduction of the AO Computer in 2024 further expands Arweave’s use cases by providing decentralized computing power alongside its storage capabilities. AO’s hyper-parallel architecture is designed to handle complex workloads such as AI modeling, large-scale data processing, and decentralized applications that need robust computational power. This opens new possibilities for decentralized finance (DeFi), decentralized autonomous organizations (DAOs), and real-world assets (RWAs).
Some potential applications unlocked by AO include:
- Autonomous agents: Decentralized bots and AI programs that can operate autonomously on the blockchain, leveraging Arweave's verifiable on-chain compute.
- Stablecoins and decentralized finance: The Astro stablecoin uses Arweave's infrastructure to provide a decentralized, stable medium of exchange
. - Decentralized data services: Projects like DataOS offer blockchain data analytics through Arweave, unlocking better access to on-chain information
AO is particularly poised to make significant impacts on industries requiring scalable, decentralized computational resources, such as AI and financial technologies, giving Arweave a broader utility in the evolving Web3 ecosystem.
How Does Arweave Work?
Arweave’s architecture is reliant on Blockweave. Blockweave enables permanent data storage by allowing users to interact with the network through gateways (i.e., arweave.net), which serve as entry points for uploading and retrieving data. Once data is uploaded, it becomes part of the Permaweb, allowing it to remain accessible and immutable. The unique combination of content-addressable storage and decentralized replication ensures that data is always available, resistant to censorship, and secure against alteration.
Blockweave itself is similar to a traditional blockchain but with key differences that make it optimized specifically for storage. Arweave’s blockchain links each new block not only to the previous one but also to a randomly selected older block called a recall block. This dual linking structure ensures that older data is constantly validated, promoting redundancy and long-term preservation. This is integral in incentivizing miners to actually store and maintain access to historical data on the network. Essentially, Arweave’s entire value proposition of long-term data accessibility and transparency relies on the recall block design.
Miners must prove they can access this recall block to mine a new one. This mechanism serves several important purposes:
- Data Redundancy and Permanence: The system encourages widespread replication of all data by requiring miners to access data from random points in the block weave's history.
- Incentivizing Storage of Rare Blocks: Miners are more likely to receive mining rewards if they store blocks that are not widely replicated (i.e., "rare" blocks). When a rare block is chosen as a recall block, fewer miners can compete for the reward, so those who have stored it have a better chance of winning.
- Security and Integrity: The use of a recall block makes it difficult for any miner to tamper with or alter the data in the Blockweave. If a miner tried to change a block, it would break the link to the recall block, making it evident that tampering had occurred.
Consensus Mechanism (SPoRA)
Arweave’s Proof of Access (PoA) is the consensus mechanism that ensures data integrity across the Blockweave. PoA requires miners to provide cryptographic proof that they have access to data from previous blocks in the Blockweave. Specifically, to mine a new block, miners must demonstrate access to a randomly selected recall block from the network’s history, incentivizing them to store a broader range of older data.
In 2022, Arweave updated its PoA system with Succinct Proofs of Random Access (SPoRA). This upgrade addressed some of the challenges of PoA, such as slow data retrieval and centralization risks from miners using remote storage solutions. SPoRA improves the system by adding a performance dimension to the consensus mechanism: miners are rewarded based on both their access to data and the speed at which they can retrieve it.
SPoRA prevents centralization by discouraging the use of remote storage and ensures that miners who keep data "close" to their nodes have a better chance of earning rewards. The protocol aligns incentives with performance, ensuring that the network remains fast and decentralized while maintaining the permanence of stored data.
AR Tokenomics
Arweave’s economic model is centered around the AR token, which is used to pay for storage. The AR token itself has a maximum supply of 66 million tokens, with nearly all (65.4 million) currently in circulation. As of 2024, the AR token holds a $1.3 billion valuation. When it launched, the AR token supply was set at 55 million tokens but has since inflated to its current supply.
Miners supporting Arweave are compensated through transaction fees, inflationary token emissions, and endowment payments. This is critically important, as miners should be expected to sell off their earnings to cover their operational expenses (such as electricity, hardware, and other overheads). This creates selling pressure on AR. However, because transaction fees are largely collected by the endowment fund, as AR is used, it actually reduces the circulating supply on the market as tokens become locked up in the endowment. In short, while miner activity creates short-term selling pressure, the design of the endowment and the long-term deflationary assumption of storage costs provide a counterbalance.
Arweave has gone to great lengths to carefully develop its tokenomics model. First, users interested in using the Arweave network need to pay a one-time fee in AR that gives them 200 years of storage, with the proceeds mostly going straight to a storage endowment. This endowment is used to cover the costs indefinitely as storage prices on the network decline (in theory). The assumption here is based on historical data, which shows that storage costs have dropped by just over 30% annually.
The idea is that, as technology advances, the cost to store data becomes progressively cheaper due to improvements in hardware efficiency, higher-density storage devices, and economies of scale. This deflationary trend in storage costs is fundamental to Arweave's model of paying for 200 years of data storage upfront in a single transaction. So, is this a solid assumption for Arweave to make?
For traditional data storage, data storage costs have been massively deflationary. Over the past several decades, storage technology (i.e., hard drives, flash memory) has followed a predictable trajectory of becoming cheaper and more efficient. Innovations in materials science, data compression, and manufacturing processes have driven this trend. Likewise, advances in storage density and cloud infrastructure have consistently driven down the cost per gigabyte of storage. Now, how does this relate to Arweave?
Remember that miners are the primary storage providers for the entirety of Arweave’s distributed network - leveraging the store capabilities of their individual devices for prospective on-chain customers. As the costs of data storage decline for traditional devices, this corresponds to cheaper storage costs for on-chain users. However, this also assumes that Arweave’s own network capacity will continue to increase.
While the assumption of deflationary data costs has historically held up, there is no guarantee that this trend will continue indefinitely. If storage costs were to stagnate or even increase due to factors like supply chain constraints on the Arweave network, the Arweave economic model could face challenges. The endowment set aside to cover the long-term costs might not be sufficient. This could force miners to seek higher fees to maintain profitability, potentially increasing costs for users.
AO Computer
AO is an advanced initiative built overtop Arweave that enables parallel processing of dApps through a modular architecture that allows users to select their own virtual machines (VMs), sequencing models, and security protocols. This highly robust, customizable architecture is designed to scale massively while maintaining trustlessness and transparency - key qualities necessary for modern dApp design and functionality.
At its core, AO operates as a single, unified computing environment for developers, allowing for multiple independent processes to run simultaneously and communicate with one another. By localizing the state to each application, AO creates more efficient computation and the ability to run a higher number of parallel processes.
AO Architecture
AO’s architectural design is purposely established to support actor-oriented processes, where each process operates independently but communicates with others through a message-passing system. This is relatively similar to the relationship between roll-ups and data availability (DA) layers, with AO enabling processes to interact without needing to access each other’s state, creating highly scalable parallelization.
Several key components make message-passing possible:
- Message Creation and Dispatch: When a process wants to interact with another process, it creates a message. This message contains relevant data such as the sender, target, and a unique identifier (message ID). It also includes a cryptographic signature to ensure authenticity.
- Messenger Units (MUs): Once a message is created, it is sent to a Messenger Unit (MU), which is responsible for relaying it to the correct destination process. The MU ensures the message is signed properly and verifies its origin before passing it on.
- Scheduler Units (SUs): The message is then forwarded to a Scheduler Unit (SU), which plays a role similar to a sequencer. It assigns a nonce (a unique sequence number) and epoch to the message, ensuring that all messages are ordered and timestamped correctly. The SU then stores the message on Arweave for permanence.
- Compute Units (CUs): The message is processed by a Compute Unit (CU), which executes the required computation or action based on the message’s content. CUs work in a competitive environment, where they can choose which processes to execute, adding flexibility to the system.
- Result Retrieval: Once the computation is complete, the CU returns a signed attestation of the result back to the MU. This allows the originating process to retrieve the output of the computation from the Scheduler Unit using the message ID.
The entire system operates on ANS-104 protocol messages, ensuring that all interactions are verifiable, traceable, and permanently stored on Arweave. This design not only allows for scalability but also provides trust-minimized interoperability between processes.
What is Storage-based Consensus Paradigm (SCP)
The storage-based consensus paradigm (SCP) is a concept introduced by Arweave to separate computation from storage, enabling a more scalable, efficient, and secure system for dApps. SCP relies on off-chain computation using Arweave strictly for only permanent data storage.
In SCP, Arweave more or less acts like a decentralized hard drive. Off-chain clients (i.e., nodes and servers) handle the computation, boosting scalability considerably as computation can occur on virtually any device without burdening the actual blockchain. By keeping just the data on-chain, SCP guarantees the immutability and verifiability of stored information. Additionally, SCP allows developers to use any programming language for off-chain computations, eliminating the need to rely on specialized languages like Solidity in Ethereum. This makes development easier, enabling the seamless transformation of traditional applications into decentralized ones.
Some of the early implementations of SCP are evident in projects like everPay, which leverages Arweave's storage to facilitate fast, gas-free payments. Other projects like KYVE also use SCP to manage data reliability for various blockchain ecosystems. SCP’s ability to combine the transparency of blockchain with the efficiency of traditional computing makes it ideal for a wide range of applications, from financial services to decentralized storage.
What about Verifiability?
Verifiability in AO is achieved through a decentralized system that allows any process or user to verify computational outputs using the stored logs of interactions on Arweave. While computations are performed off-chain, the results are stored on-chain, ensuring that any participant can reprocess the inputs to confirm the accuracy of the outputs.
In scenarios where high trust is required, AO can implement optimistic verification with staking and slashing mechanisms. Compute Units (CUs) can be required to verify the outputs of other CUs, ensuring that malicious actors are penalized and accurate results are incentivized. This modular security model allows different processes to choose from a variety of verification methods, including Proof of Stake, Proof of Authority, or even advanced mechanisms like zk-SNARKs, depending on the needs of the application.
AO Security Model
The AO security model utilizes a modular approach, allowing each component within the system to select its own security mechanism, meaning that the security of its application can be tailored and customized to best fit its computational needs. Currently, the AO testnet itself defaults to Proof-of-Authority (PoA), where validators are pre-selected based on their identity and reputation. In PoA, validators are accountable for their actions, and the consensus is maintained by a trusted group of validators, making it energy-efficient and highly scalable. However, this approach is often centralized and works best in controlled environments or permissioned networks.
However, for production environments, many developers are likely to prefer a PoS-based model, where validators stake tokens to participate in the network. This model ensures that validators have a financial incentive to act honestly, as their stake can be slashed if they behave maliciously or make errors.
While this flexible security model offers significant advantages in terms of scalability and efficiency, it also introduces complexities. Developers must carefully select the appropriate security model for each use case. Moreover, different PoS systems may result in varying slashing rules and mechanisms, raising questions about how to monitor malicious activities and manage slashing events. This problem relates closely to criticisms of cross-chain bridges like LayerZero.
One major critique of LayerZero is its trusted relayers system, where the security relies on a combination of off-chain oracles and relayers to pass messages between chains. Similar to AO, the variability in trust models can create confusion and risks, particularly if developers choose suboptimal security models for their use case. For LayerZero, concerns have arisen around the centralization of relayers and the complexity of ensuring they act honestly across different transactions. This mirrors the challenges in AO, where differing PoS systems or slashing rules across processes might complicate monitoring and enforcement, potentially leading to uncoordinated security measures and vulnerabilities.
Both systems face questions about how to handle malicious activity, especially in a decentralized ecosystem where multiple security mechanisms coexist. For AO, this manifests in uncertainties over slashing enforcement and whether different PoS rules can create inconsistencies.
AO Economics
While connected to Arweave, AO offers its economic model and AO token. The AO token economics are structured similarly to Bitcoin's, with a total supply of 21 million tokens and a halving cycle every four years. However, unlike Bitcoin's sharp halving events, AO has a smooth emission curve where the number of new tokens minted decreases slightly every month. This creates a more gradual reduction in token issuance rather than sudden supply shocks.
36% of the total AO supply is allocated to AR token holders, providing them with an additional incentive for holding AR tokens. This creates a direct link between the growth of the Arweave ecosystem and the value proposition of AR. The remaining 64% of AO tokens are distributed to users who bridge assets to the AO network. This is a significant component of AO’s economic model, as it encourages external liquidity to flow into the network, fueling its growth and adoption. Overall, this model is designed to create a feedback loop or economic flywheel, where more asset bridging and network usage lead to an increasing supply of AO tokens entering circulation.
New AO tokens are minted every five minutes, and the monthly minting rate is approximately 1.425% of the remaining supply. Due to the halving mechanism, similar to Bitcoin, the supply will gradually decrease over time. As of 2024, 1.0387 million AO tokens have been minted, with the total supply expected to reach 3.15 million AO tokens by early 2025.
Arweave’s Future
The thought process behind the development and launch of AO Computer is to better position the Arweave network as a strategic, highly competitive platform with which to host large datasets. The most obvious market penetration Arweave can accomplish via AO is artificial intelligence (AI). The global AI market is expected to appreciate into a multi-trillion dollar market over the next decade while simultaneously dragging all interrelated markets along with it - including data storage.
In short, there will be robust demand for storing massive quantities of data associated with the large language models (LLMs) behind the world’s most adopted AI protocols. With AO, the thinking here is that the economic model and performance capabilities will be competitive and secure enough to disrupt traditional data hosting channels. Even a relatively small market share capture (1%) could lead to a substantial valuation for the Arweave ecosystem by 2030.
Now, it's worth noting that AO usage isn’t all theoretical. There are already builders utilizing it as a platform for automation. One such example is Autonomous Finance, which has built a “DCA Agent” that enables users to dollar-cost average into specific tokens automatically. Of course, this is one such utility, but it demonstrates that AO can be leveraged for automated bots, tasks, and other related AI protocols.
Overall, AO is still in development. However, Arweave is already demonstrating significant, real-world usage. As of late 2024, it has already crossed over 9 billion cumulative on-chain transactions and looks to aim higher as the go-to-market strategy for AO continues to evolve going forward.
Disclaimer: This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.
