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Issue #9: Web3’s only decentralized permanent data storage network gets an upgrade

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Summary

SymbolARCirculating Supply (estimated)50,108,502
Rank (MCAP)#83Total Supply64,598,643
(max 66,000,000)
Price (2022-10-11)US$10.23Market CapitalizationUS$512,804,708

Complete historical Arweave price chart. Source: CoinGecko

In this report, we’ll answer the following:

What is Arweave?

Arweave is a high-speed decentralized network that provides permanent data storage. This service stores data in the cloud like Google Drive, Amazon AWS or Filecoin (FIL). 

Yet, it’s unique since it permanently stores its data. It accomplishes this by using miner incentives and blockweave technology. This feature fulfills an essential need for users needing indefinite storage of data.

It began in 2017 as Archain, rebranding to Arweave and launching in June 2018. Its primary goals are to

  1. Provide decentralized storage for all types of data
  2. Preserve vital historical and cultural information
  3. Offer cost-effective storage

Who uses Arweave?

Arweave is one of the most popular data storage networks, with 95.53 terabytes of data stored. This amount is equal to approximately 3,912,909 pictures.

Some major blockchains store their data on Arweave. These include

Other integrations include:

How does Arweave work?

Arweave works by matching people who need to store data with data providers (miners). Its users pay a one-time fee to store their data. Over time, this fee pays out to storage space providers.

It costs US$2.26 to store one gigabyte (GB) of data. The fee fluctuates based on network factors. This cost is reasonable since Arweave stores data forever without any recurring fees.

Arweave uses a blockchain technology called blockweave. It incentives miners to store more data. 

Miners need to create new blocks that store data to receive rewards. To create new blocks, they must link each block to a previous block and a random block. This linking incentivizes miners to preserve data by keeping earlier blocks accessible.

What is Arweave’s permaweb?

Arweave provides the foundation for the permaweb. This permaweb is like the traditional Web, except it’s permanent. Once a user uploads data to Arweave, nobody can change it.

The permaweb is a collection of interlinked documents and applications. It’s a layer over Arweave’s core data storage that can store many kinds of information. This data includes videos, web applications, documents and wikis.

What does Arweave’s community bring to the table?

To help build permaweb applications, the Arweave community created tools and services. They offer UI hosting, database tools, smart contracts and more.

Arweave also enables profit-sharing communities (PSC). These are like open-source companies built on the permaweb.

These PSCs pay out dividends on their profits, benefiting developers and investors. Profit-sharing tokens (PSTs) ensure that developers receive rewards for application usage.

Developers can sell their PSTs to raise capital as upfront revenue. Meanwhile, investors can profit from the application’s proven business model.

One example of a PSC is Weve. It’s a Weavemail client that offers immutable privacy. They can’t sell your data, read your mail or be forced to shut down.

Illustration of Arweave’s ecosystem. Source: Foresight Ventures

How does Arweave grow its ecosystem?

Arweave also funds projects to build on the permaweb. Open Web Foundry is an incubator and accelerator program. It helps developers create new PSCs and permaweb applications.

Its “Boost” program offers up to US$50,000 of Arweave storage. Accepted startups gain access to Arweave’s core team. They also get advice from industry pioneers like a16z crypto and Union Square Ventures.

What are the uses for Arweave’s AR token?

Arweave’s AR token rewards miners and pays for data storage. Users pay in AR when they upload a file. The block producer receives 15% of this fee up-front and the rest over time.

The other 85% of the fee goes to Arweave’s endowment fund. Sending tokens to this fund effectively removes them from circulation. This dynamic can help the token’s price to climb since it reduces token supply as more users pay fees.

Illustration of how Arweave’s endowment fund pays for storage into the future. Source: Technology | Arweave.org

The endowment fund earns interest and pays for Arweave’s future storage costs. As long as the endowment fund has value, it pays miners to store Arweave data. 

Currently, conservative estimates suggest this fund can pay for 200 years of storage. This length of time increases as the AR token becomes more valuable.

Users can also pay to store data with non-AR tokens. Bundlr, a layer-2 (L2) on Arweave, converts these non-AR tokens to AR.

Who’s behind Arweave?

Sam Williams and William Jones, two Ph.D. candidates at the University of Kent, founded Arweave. Now, Arweave’s LinkedIn lists 27 employees.

Sam Williams left graduate school to focus on Arweave. He’s experienced with decentralized systems. He also advised Minespider, which provides blockchain supply chain tracking. The Techstars program used him as a mentor.

William Jones focused on neural networking and graph theory. In mid-2018, he left the Arweave project to complete his Ph.D.

Minimum Spanning Technologies Ltd owns Arweave. After starting with centralized leadership, Arweave launched a governance DAO in early 2020. This DAO helps the network and ecosystem develop and expand.

Arweave underwent funding rounds. Its investors include:

Arweave’s team delivered a mature, working product with a unique value proposition. It already stores a significant amount of data. Many of the most prominent blockchains use its services.

As usage continues to grow, AR’s token price may rise. Users need AR tokens to pay storage fees. 

Paying fees removes tokens from circulation for the near future. This removal reduces supply pressure and encourages the token’s price to appreciate.

How are Arweave tokens distributed and released?

At launch, Arweave minted 55 million of its total 66 million tokens. It’s releasing the remaining 11 million as block rewards for miners. 

The emission rate gradually declines as blocks produce, halving each year. By reducing emissions, token inflation continues to drop. This decrease in inflation makes it easier for the token’s price to climb.

Arweave initial supply distribution. Source: Information from Arweave’s Discord 

Arweave distributed the initial 55 million tokens in the following percentages:

Arweave locked some of these initial tokens:

The majority of tokens are now unlocked. It’s less likely that the sudden sale of many freshly unlocked tokens will push the price down.

Why could Arweave be valuable in the future?

Arweave solves a vital data storage problem 

Applications need data storage. For some applications, this data storage needs to be permanent. Examples of this data include journalistic publications and government data. Legal data and valuable NFTs are also candidates for indefinite storage.

For example, NFTs’ selling point is immutability. Their value proposition is that nothing can change them or their uniqueness.

Yet, most blockchains don’t store the actual NFT. They keep a URL pointing to the NFT’s data. If the data pointed to by the URL changes, the valuable NFT might disappear or change. Immutable storage for NFTs is critical, or they lose their value.

Beyond data immutability, other problems exist. Large centralized companies host most storage. This paradigm means that a small number of entities control most stored data. They can shut down, block access or tamper with essential records. 

Local servers are also susceptible since they can lose their data. Meanwhile, subscription models mean users can lose their data if they miss a payment.

Arweave helps solves these problems. 

Arweave benefits from a major narrative

The need for cloud storage is skyrocketing

The costs to store data are declining each year. Meanwhile, the amount of data that needs storage is growing exponentially. 

Graph depicting estimated created and replicated data volume over time. Source: Redgate Blog

Projections for the cloud storage market suggest growth from US$83.41 billion to US$376.37 billion by 2029. Some of this data will need Arweave’s permanent decentralized storage. These estimates show enormous growth potential for Arweave.

Web3, blockchain and NFT growth is accelerating

Recent years have seen an explosion in the usage of blockchain technology. Estimates show that the NFT market share may increase by US$147.25 billion by 2026.

Web3 is a growing movement using blockchain and NFTs to create a new phase of the Web. Permanent data storage like Arweave is vital for many of these applications.

Web3 is in its early stages and growing fast. From 2020 to 2021, active Web3 developers nearly doubled. As this trend continues, these new developers will create more Web3 applications.

Chart depicting active Web3 developers growth over time. Source: Electric Capital Developer Report (2021)

As some of these applications use Arweave, AR’s token price is more likely to climb. These applications will need AR tokens to pay for data storage. 

Also, these payments remove some tokens from circulation as they go to the endowment fund. This decrease in circulating supply creates upward price pressure for the AR token.

What’s next for Arweave?

Arweave is getting a major upgrade

Arweave doesn’t have an official marketing roadmap. Its major features are complete.

Yet, development continues. In September 2022, Arweave announced a significant upgrade: Arweave 2.6. This upgrade is the culmination of 18 months of research and development. Developers expect its release in mid-November 2022.

Arweave 2.6 will:

Tweet describing how Arweave 2.6 will significantly increase the number of replicas on Arweave. These replicas help ensure data preservation. Source: @dh_association on Twitter

In the words of Arweave co-founder Sam Williams, “So the Arweave protocol itself is essentially becoming stable… The value of protocols tends to get unlocked after they stop changing.”

These features and product maturity make Arweave more useful for consumers and developers. More usage helps the token’s price to climb by increasing demand and reducing supply. Maturity increases developer confidence that they won’t encounter problems by integrating Arweave’s features.

The release could provide a short-term boost to the token’s price. Meanwhile, it may help increase the network’s usage. More users help the token’s price climb as demand increases while supply decreases.

Arweave could begin marketing to an additional demographic

Arweave has done little marketing to end-consumers. It’s focused on attracting large-ticket clients such as other crypto protocols.

There are no known plans to focus on end-consumer marketing. Yet, a small effort could help boost the AR token’s price. Investing in Arweave’s social media presence could make a significant difference.

Even if Arweave never focuses on end consumers, applications built on it may help raise the token’s price. For example, ArDrive offers cloud storage through Arweave for the everyday consumer. Using the service requires AR tokens. 

An explosion in ArDrive’s or similar applications’ usage can help the AR token’s price rise. It would increase demand and reduce supply as users pay for the storage with AR tokens.

What is the market saying about Arweave?

Arweave is the leader in decentralized storage usage

Arweave currently leads the decentralized storage market in fees paid over the last 90 days. These fees illustrate the success and adoption of the platform.

Fee rankings paid to top-five Web3 protocols. Source: The Web3 Index

Meanwhile, Arweave’s data usage has remained relatively constant during the bear market. This usage supports the network’s longevity. It shows that the network’s tokens are in demand despite risk-averse investors.

Arweave’s data usage over time. Source: Arweave Data Usage Chart | ViewBlock

Arweave’s social volume remains high – but its community has room to grow

Arweave’s social volume has remained higher during much of the bear market than during 2021’s bull run. This volume shows that users remain interested in the network. Meanwhile, many other projects are shrinking during the market’s downturn.

Total social volume for Arweave. Source: Santiment

Arweave has no direct competitors in its niche. 

Centralized cloud data storage services like Google and Amazon (AWS) provide similar services. Inside the blockchain ecosystem, Sia, Storj and Filecoin also offer cloud data storage.

However, Arweave has a significant difference from these providers. It offers permanent data storage. These other services offer contract-based storage (CBS). 

CBS means that users make recurring payments to store their data. For some applications, this is useful – not all data needs to be stored permanently. 

For others, this is a drawback. Suppose they miss a payment or a storage service provider goes down or blocks access. In that case, data that needs to be permanent disappears.

Yet, for comparison, Filecoin may be one of Arweave’s closest competitors. Arweave’s social community has:

Filecoin has a larger community. It has 209,100 Twitter followers, 7,855 Discord members and 18,011 Slack members.

Arweave’s community is slightly smaller and may have room to grow. One untapped source of growth is end consumers rather than developers and protocols.

What are the risks for Arweave?

New competitors could emerge, but they have a difficult challenge

Other apparent competitors don’t offer the same service as Arweave. They focus on recurring payments for temporary rather than permanent data storage.

It’s unlikely that a centralized, permanent data storage solution could compete with Arweave. Centralization means the service might shut down, tamper, censor or lose data.

Meanwhile, the crypto landscape is evolving rapidly. A new decentralized permanent storage solution may arise to challenge Arweave.

While this could threaten Arweave’s dominance, it may not be as significant of a threat as it seems. Suppose you have vital data that you need to preserve forever. Would you store it in a single place? 

It’s more likely that you would create backups of this data in many places. This replication reduces the risk of losing your vital data.

This process means that a competitor to Arweave might steal little to no market share. Arweave’s target market might use both services. The competitor would serve as a complementary backup to Arweave.

Also, Arweave is a first-mover, stable, mature product. It’s earned trust over the four years it’s operated. This trust is difficult for a new competitor to build.

Every technology has unavoidable risks 

All technology has the risk of hacks, exploits and bugs. Investors should always be wary of unforeseen problems when investing in technology.

Arweave helps mitigate this risk by auditing its code and prioritizing security. 

Still, most decentralized networks have the risk of a 51% attack. This attack can happen if someone owns more than 51% of the network’s validating power. While this attack may be too expensive to execute, it’s still a theoretical risk.

Bottom line

Arweave offers a unique value proposition: permanent decentralized data storage. 

Centralized competitors can’t compete with the safety offered by decentralization. Decentralized competitors don’t provide permanent data storage.

Blockchain, Web3 and NFTs are growing. Arweave is a first-mover for its niche, which serves these sectors.

As Arweave’s network usage grows, the AR token is more likely to increase in price. More users increase demand and decrease circulating supply. These factors pressure the token’s price upward.

What can I do from here?

Who should I follow?

Sources

The information that Ticker Nerd provides is general in nature as it has been prepared without taking account of your objectives, financial situation or needs. It is not intended as legal, financial or investment advice and should not be construed or relied on as such. Ticker Nerd is for information purposes only. Ticker Nerd is not responsible for any damages or losses that may occur as a result of reliance on this information. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.
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