Arweave: Capturing Market Opportunity with AO Computer

Greythorn Asset Management
9 min readMay 29, 2024

Market Opportunity

Web3, the next iteration of the internet, will be built on decentralised technology across three fundamental pillars: consensus, storage, and computation. Blockchain technology started a revolution of decentralisation, and Web3 extends this concept to decentralise the entire internet.

Decentralised storage, exemplified by peer-to-peer networks, creates a global, trustless, and immutable hard drive. Arweave, a leader in this space, offers cost-efficient solutions ensuring permanence, immutability, and censorship resistance, essential for the growing needs of NFTs and dApps.

Source: Binance Research

According to the International Data Corporation (IDC), global data creation is expected to reach around 221,000 exabytes (EB) by 2026. To put that into perspective, 1 EB is equal to 1,048,576 terabytes (TB), making the total global data volume approximately 231.7 billion TB by 2026. This massive amount of data highlights the huge market potential for decentralised storage protocols like Arweave.

Arweave is also venturing into decentralised computation with AO, a ‘hyper-parallel’ computer designed to integrate large AI models with smart contracts. AO combines the speed of L1 blockchains like Solana with the verifiability needed for decentralised projects.

The global AI market is projected to grow to around $2,575.16 billion by 2032, with an annual growth rate of 19%. Decentralised AI addresses transparency and control concerns in machine learning, promoting a fair and accessible AI environment that safeguards intellectual property and personal data.

Arweave’s progress in decentralised storage and computation places it at the forefront of the Web3 movement, meeting key needs and expanding its market potential.

The Protocol

Arweave is a decentralised storage protocol designed to store data permanently with a single upfront fee. It comprises two key components: the blockweave and the permaweb.

The blockweave serves as Arweave’s storage layer, where storage orders are processed and data is replicated. It employs a consensus mechanism called Succinct Random Proofs of Access (SPoRA), which ensures that nodes provide cryptographic proof of access to previously uploaded data before accepting new data.

On top of the blockweave lies the permaweb, a human-readable layer that mimics the World Wide Web. Unlike traditional web data, content on the permaweb is immutable, ensuring that websites and dApps remain unchanged once uploaded.

Source: Arweave

Arweave supports smart contracts through its SmartWeave platform. Unlike traditional blockchain networks like Ethereum, where smart contracts are executed on every node, SmartWeave computes contract states only on the local machines requesting to run the contract. This design enhances efficiency and scalability.

The native utility token of the Arweave network is AR. This token is essential for paying into storage funds, which are then used to compensate miners, ensuring that storage and network capacity costs are covered indefinitely.

To store files on Arweave, users pay a one-time fee, most of which goes into a storage endowment. This endowment is designed to cover storage costs indefinitely, based on conservative assumptions about the declining cost of storage over time. Historically, storage costs have declined at an average annual rate of -30.57%, which supports the protocol’s long-term viability.

Source: Arweave

Miners in the Arweave network are rewarded through a combination of transaction fees, inflationary token emissions (gradually decreasing at a rate dependent on the block weight) and endowment payments.

Arweave’s tokenomics include an initial issuance of 55 million AR tokens, with an additional 11 million tokens introduced as inflationary emissions. These emissions will continue to decrease over time until the total circulation reaches 66 million AR tokens. The protocol does not employ token burning mechanisms, maintaining a fixed supply.

Source: Arweave

Arweave’s “Fork Drama” and Latest Network Upgrade

On December 18, 2023, Sam, the founder of Arweave, tweeted that Irys was planning to fork Arweave, which involved deleting datasets and resetting token supply. This led to a backlash from the community. DataOS stopped using Irys, calling their actions against Permaweb principles. Community Labs’ founder, Tate, supported Sam and hoped Irys would fork correctly and Decent Land Labs decided to stop integrating with Irys, while everVision pledged to continue supporting the ecosystem. On January 4, 2024, Irys’ founder, Josh Benaron, clarified that there were misunderstandings and no current plans to fork. Sam welcomed Irys back to the Arweave community.

Meanwhile, The Arweave fork on March 26, 2024, introduced coordinated mining, allowing multiple nodes to work together, boosting efficiency and hashrate. It also added support for pooled mining, enabling resource sharing among miners. Protocol changes increased the difficulty for 1-chunk solutions to promote full data replicas, introduced new pricing measures, and reduced checkpoint depth to 18 blocks. Initially controversial, these changes have been accepted, leading to a rise in Arweave’s price due to improved performance and stability.

Arweave’s AO Computer

AO Computer blends blockchain security with the efficiency and scalability of platforms like Amazon EC2, forming a new computing paradigm. By leveraging Arweave’s robust foundation, AO addresses the scalability and efficiency challenges of zero-knowledge machine learning (zkML). It provides a transparent, verifiable computation system supported by Arweave’s secure and permanent data storage.

AO employs parallel processing, running multiple programs simultaneously on a massive scale, akin to multitasking on a computer but greatly amplified. This method optimises resource allocation, shifting resources from less active tasks to those needing more, similar to how busy websites distribute traffic to serve numerous users effectively. This intelligent management results in smoother, faster operations, enhancing scalability and performance to meet increasing demands.

The open data protocol on which AO is built offers a flexible and modular design, allowing easy upgrades and replacements of components like sequencers and virtual machines.

AOS System functions as a decentralised operating system for AO, letting developers run command-line processes similar to smart contracts. It combines the familiarity of cloud server operations with the benefits of decentralisation and trustless processing. Built with Lua, a programming language used in popular games like Roblox and Angry Birds, AOS supports creating blockchains compatible with various virtual machines, including EVM.

Autonomously Operating Contracts

In AO, processes act as autonomous agents, frequently interacting with Arweave for data storage, facilitating efficient data exchanges crucial for applications such as tokenized gaming or AI chatbots. Unlike typical smart contract platforms that rely on user triggers, AO allows contracts to self-execute at predetermined times, paving the way for truly autonomous blockchain applications.

Source: Community Labs

Competitors

In the decentralised storage landscape, Filecoin is Arweave’s main competitor. The main difference between them is that Arweave focuses on long-term data storage, while Filecoin aims to disrupt the current storage market with a low-cost alternative for temporary storage. Arweave is creating a new market for permanent storage, whereas Filecoin needs to compete on price to succeed in the cloud storage market as its main competitors are tech giants like Amazon and Alibaba. It will be interesting to see how this competition unfolds in the coming years.

In terms of blockchain performance, by late February, Arweave reached over 600 transactions per second, making it the top-performing permissionless blockchain in throughput, according to co-founder Sam. This achievement is remarkable, especially considering that the AO computer is still in its early stages, surpassing competitors like Solana and Polygon in TPS rates.

Here are some AO Testnet statistics:

Source: Sam Arweave
Source: Sam Arweave

Team, Fundraising and Ecosystem

Arweave was founded by Sam Williams and William Jones during their PhD studies at the University of Kent. The inspiration for the project came during a walk in Scotland, combined with Jones’ technical insights. Their shared vision led to the creation of Arweave, a blockchain-based platform focused on permanent data storage.

Arweave has successfully raised funds through multiple rounds:

  • Pre-seed (October 2017): Raised $8.7 million.
  • Seed (December 2017): Raised $5 million.
  • Community Token Sale Part 1 (March 2018): Raised $900,000 at $0.132 per token, achieving a 298x ROI.
  • Community Token Sale Part 2 (June 2018): Raised $675,000 at $0.132 per token, also achieving a 298x ROI.
  • Private Round (February 2020): Raised $8.3 million.

Notable investors include Coinbase Ventures and Andreessen Horowitz. The public coin offering in 2020 further bolstered Arweave’s financial foundation. The project is guided by a DAO, ensuring community-led decisions and voting.

Arweave’s ecosystem is a vibrant part of the web3 universe. As of Q3 2023, Community Labs’ Ecosystem Map highlighted more than 130 projects built on Arweave. The network has surpassed 1 billion on-chain transactions, showcasing its growing adoption and robust infrastructure.

Source: Community Labs

Bullish Fundamental Factors

  • The launch of AO elevates Arweave beyond storage, establishing it as a formidable player in the AI sector.
  • AO enables decentralised applications to access and store data on Arweave, expanding possibilities for machine learning and AI integrations.
  • Its Hyper-Parallel Architecture facilitates efficient training and deployment of AI models at scale and AO’s modular setup provides an ideal backdrop for developing DeFi applications.
  • Growing speculation about an airdrop for Arweave’s early adopters. The team is formulating a plan for a native AO token, designed to complement the native Arweave token.
  • AO Computer addresses zkML’s scalability and efficiency challenges, introducing a transparent, verifiable computation system backed by Arweave’s secure, permanent data storage.
  • In 2023, Arweave’s network saw a significant increase in transaction volume, with about 100 million transactions processed monthly from June, surpassing 2022’s figures.
  • Future Growth: With AO’s TPS and its applicability in AI and ML, transaction volume on Arweave is expected to climb further in 2024 as AO transitions from testnet to full operation.

Bearish Fundamental Factors

  • The AO test phase might uncover technical issues, including bugs and network access problems, that could hinder progress.
  • AO’s capacity to effectively scale AI models on-chain is still unproven, casting doubt on its overall functionality.
  • Merging the new AO token with the existing AR token could face difficulties, introducing additional uncertainty.
  • As demand for storage and computational power increases, Arweave might struggle with scalability despite recent advancements.
  • With the AO computer and its integration with Arweave being in the early stages, unexpected technical and operational challenges could arise.
  • Speculation about potential airdrops and token burns might lead to significant volatility and unpredictability in the value of the AR token.

Disclaimer

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Greythorn Asset Management

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