1. Building a value Internet based on distributed ledgers
The traditional Internet built on the TCP/IP protocol family is called the information Internet because it can express, copy and transmit information efficiently and at low cost, such as chatting and sending pictures on WeChat, uploading and publishing videos on YouTube, and remote work on Feishu.
The emergence of blockchain has brought changes to the Internet from the underlying protocol architecture. Here we take the three-layer protocol stack of the Bitcoin blockchain as an example, as shown in Figure 1-1.
Figure 1-1 BTC’s three-layer technology stack
$BTC can be expressed and transmitted, relying on the script software running Bitcoin, which is built on the underlying Bitcoin blockchain. Generally speaking, a blockchain is a chain formed by connecting different blocks end to end through hash pointers. Each block records transactions and related data, including block version, hash value, Merkle root, user address, transaction amount, transaction time, etc. A single block can be regarded as a transaction account page, and the connection of all blocks forms a complete ledger.
At the same time, since the blockchain is built on a P2P network and POW consensus mechanism, it has the characteristics of decentralization, openness, transparency, permissionlessness, verifiability, traceability, loss prevention, and non-tamperability. Therefore, the BTC blockchain is essentially a distributed ledger about $BTC with a global consensus.
Importantly, the three-layer protocol stack built on the $BTC distributed ledger has realized the currency protocolization and created the first programmable encrypted digital currency in human history, making it no longer dependent on a centralized third party and can be issued, traded, paid and transmitted on the Internet. It can be said that this marks the beginning of the value Internet.
The innovation of Bitcoin led to the discovery of blockchain (distributed ledger), and based on it, the Internet was reconstructed through software protocols at all levels, promoting the formation and prosperous development of the value Internet, as shown in Figure 1-2.
Figure 1-2 Distributed ledgers promote the formation and development of the value Internet
These software protocols all have native tokens, and a token economy system (Tokenomics) is built around the tokens, realizing the assetization of the protocols. As a result, the entire blockchain protocol framework has realized the currency protocolization and protocol assetization, building a value Internet that integrates currency, assets, and software protocols.
In short, compared with the traditional information Internet, the blockchain-based distributed ledger has promoted the formation of the concept of value Internet, and has carried out in-depth exploration and innovation around "value" in practice.
2. Token-oriented distributed ledger — building a financial value system
Since the birth of Bitcoin, blockchain has been developed for 15 years and has gone through several cycles. Why is its main application still focused on the issuance of encrypted digital assets and decentralized finance around encrypted digital assets (such as DeFi, NFTFi, GameFi, SocialFi, etc.)? We explore the logic behind it from the two public chains with the largest market value, Bitcoin and Ethereum.
The public chain is the core infrastructure for ecological development. Other protocols, smart contracts or DApps are built on the public chain. Different public chains are essentially different distributed ledgers. It can be said that to a large extent, the underlying architecture of the distributed ledger determines and limits its upper-layer construction.
Bitcoin was originally created by Satoshi Nakamoto. It was originally designed as a peer-to-peer electronic cash system, focusing on the transmission, payment and simple transaction functions of $BTC. Bitcoin's design is very conservative and deliberately limits its expansion capabilities. Therefore, before the birth of the inscription, Bitcoin had almost no ecosystem and was just a distributed ledger for $BTC.
Compared with Bitcoin, Ethereum’s scalability is indeed stronger, mainly reflected in its ability to support the construction of various smart contracts and decentralized applications (DApps). This has led to a series of crazes in the blockchain field, such as ICO, DeFi (decentralized finance), NFT (non-fungible tokens), etc. These technologies and applications have not only made the Ethereum ecosystem flourish, but also attracted widespread attention and participation from around the world.
However, it is very obvious that despite the high calls and expectations for "going out of the circle" in the industry at that time, the entire ecosystem was still almost centered around the issuance of encrypted digital assets and decentralized finance that was closely related to the assets, so much so that everyone generally believed that the Ethereum public chain had developed into the settlement layer for financial applications.
Going back to the nature of the Ethereum public chain as a distributed ledger, perhaps we can better understand its current development status. If this distributed ledger is regarded as a production system, the core element of its processing is the token. However, compared with the Bitcoin distributed ledger, Ethereum supports tens of thousands of tokens of various types such as FT, SFT, and NFT. These tokens exist in the form of smart contracts on Ethereum, allowing them to participate in various complex processing, transactions, and circulation processes. This has established a set of closely related, mutually combinable, and prosperous financial systems.
Looking at other public chain ledgers besides Bitcoin and Ethereum, they have basically not broken away from this framework paradigm: Tokens are the core elements of the ledger, but they have different emphases in terms of computing performance, privacy, cross-chain assets, protocol interoperability, etc. to meet different application scenarios and user needs.
So far, the crypto industry has developed decentralized finance (various blockchain-based intelligent digital contracts) from cryptocurrency (assets), but has not developed a large-scale crypto digital economy, let alone its practical significance for the real economy and the continued development of society. In previous articles (see Appendix 1), the author has sorted out the relationship between currency, assets, finance, economy and social development. I will not elaborate on it here, but the relationship between them can be abstractly represented by Figure 2-1.
Figure 2-1 The relationship between financial assets, contracts, and economic activities
In the above figure, if the core element of the center is still just Token, then its ability, as it actually develops, is mainly to build today's financial value Internet. But the author believes that the value Internet is not only financial value, but also economic value. The distributed ledger based on Token is difficult to extend its circle of competence to the crypto economy. But if the core element is no longer just Token, but Data is the core element, what kind of scene will it bring?
I think this is exactly what Arweave is doing and it’s worth exploring further.
3. Data Three Steps — Building a Distributed Ledger for Data
Although Arweave has always been classified as a decentralized storage track, it does not compete with storage projects such as Filecoin, Sia, and Storj at this level, because Arweave has the ability of "decentralized permanent storage" and can build applications based on the "Storage Consensus Paradigm (SCP)", promote data storage on the chain, and support the transformation of "data resources" into "consensus data" and further become "data elements". With this "data trilogy", Arweave has become a distributed ledger for data, providing innovative resources and expansion capabilities that are different from other decentralized storage projects, bringing feasibility to the innovation and development of the encrypted digital economy, as shown in Figure 3-1.
Figure 3-1 Three steps to build a distributed ledger for data, bringing innovative development
3.1 Data resources: decentralized permanent storage
In Arweave, data of any type and size can be permanently stored, including not only encrypted digital currencies or assets (Tokens, FT/SFT/NFT), but also documents, pictures, audio and video, web pages, games, legal contracts, program codes, and holographic states.
Is it feasible to pay once for these data on the chain, store them permanently, and open them for reading? The Arweave Yellow Paper analyzes this from two aspects: one is economic feasibility, and the other is the feasibility of implementing the perpetual storage mechanism.
Regarding economic feasibility, the Yellow Paper states that storage costs have been declining at a rate of about 30% per year over the past few decades, and the cost will be a constant in an infinite number of years, which provides an opportunity for permanent storage with a limited cost, thus opening up the permanent storage market. In terms of storage pricing, the protocol adopts a storage fund mechanism to incentivize miners to permanently store any amount of data. From the actual cost point of view, permanent storage of 1GB of data is about US$2, which has a good cost-effectiveness.
In the implementation of the perpetual storage mechanism, Arweave adopts the PoW + PoA (Proof of Access) mining mechanism to incentivize miners to conduct effective data mining. The more data stored, the higher the income, and the higher the income when storing rare data. These measures ensure that the data replication rate exceeds 90%, and the data will not be lost due to the failure of a single node or server failure, thus ensuring persistence and reliability.
To sum up, with any data plus permanent on-chain storage, Arweave will accumulate massive on-chain data resources, build a public knowledge base in the process of human development, lay the foundation for the formation of common cognition, and provide the possibility for introducing the SCP paradigm to build applications.
3.2 Consensus Data: Storage Consensus Paradigm SCP
Arweave introduces the Storage-based Consensus Paradigm (SCP), which is an abstraction and paradigm refinement of the SmartWeave concept. SmartWeave is a smart contract on Arweave, and its typical feature is the separation of storage and computing, with storage on the chain and computing off the chain.
In terms of computing, SCP uses off-chain smart contracts and can run on any device with computing power. This means that computing performance does not have to be constrained by on-chain consensus rules, and computing performance can be infinitely expanded, achieving excellent performance similar to traditional applications, and making it possible to run blockchain applications that require large-scale data processing, intensive computing, and real-time interaction, such as machine learning, graphics rendering, online games, and social interaction. Hyperparallel computing AO was created on this basis, and will be discussed later.
In terms of storage, storage is consensus, which forms consensus data. We can understand it this way:
First, the input of the calculation comes from the stored data in the Arweave blockchain, and the state generated in the calculation will also be stored in the blockchain. The blockchain is equivalent to the hard disk of a computer. But its role is not only to store various types of data, but also to ensure that the stored data is anti-loss, anti-tampering, and traceable, making the stored data a credible data source.
Secondly, the smart contract source program and all its input parameters are stored sequentially on the blockchain, which ensures that the calculation will only produce deterministic states. This makes it feasible for the client to generate and verify the state locally, becoming a trusted terminal, and the data submitted to the chain by it is also trusted data.
The two together constitute the consensus data on the chain, which shows that the data on the Arweave network is not just stored content, but also carries a consensus value. It is not just a static information storage. It has a higher level of function and meaning. It can become an object for verification and participation in consensus, and can support various applications and smart contracts on the blockchain.
Therefore, Arweave is not only a storage platform, but also a distributed ledger with data consistency consensus, which provides a new paradigm and solution for the storage, sharing and utilization of data on the blockchain. Based on this, SCP has made two very important contributions: first, it promotes data resources to become consensus data, which lays the foundation for the transformation of data into means of production; second, computing performance can be infinitely expanded, which will accelerate the release of productivity.
3.3 Data Elements: Data Circulation and Production Collaboration
As mentioned above, decentralized permanent storage builds data resources and becomes the source of data; the consensus paradigm based on storage is a mechanism that forms consensus data and is credible data; so how will this data work? This is based on the circulation and production collaboration of data.
But before that, there are some basic questions to consider: How to identify data? Whose data is it? How to price data? How to distribute benefits? This requires talking about the form of data on Arweave.
In general, no matter what type of data is uploaded to Arweave or how large the data is, it is considered an atomic asset, which is the NFT paradigm of data on the Arweave chain. On Arweave, treating data as atomic assets does bring multiple advantages and solutions, especially in data circulation, production collaboration, and asset management:
Data identification and ownership confirmation
Each data uploaded to Arweave is treated as an atomic asset with a unique transaction ID. This design makes data easy to identify and track, because all asset data, metadata, and contracts are tied to the same transaction ID. And each data item can be clearly attributed to its creator or uploader, which facilitates the confirmation of ownership.
Data can be monetized and priced
As an atomic asset, data can be monetized as a new form of digital asset and achieve price discovery through circulation and trading in the market.
Benefit distribution and collaborative innovation
Atomic assets are easy to identify, have ownership, can be monetized, and can be priced, which can bring a clearer profit distribution model and be automatically and transparently executed by smart contracts. In this way, data can be more easily used by other applications or services, promoting collaboration and innovation.
It can be seen that Arweave, as a platform that provides decentralized permanent storage, has given data a new form and function through the concept of atomic assets. This approach not only solves basic problems such as data identification, ownership, pricing, and benefit distribution, but also releases the liquidity and application potential of data, and promotes the process of data assetization in the digital economy.
These examples show how Arweave’s concept of atomic assets can be leveraged to drive innovative uses of various data assets:
Purchasing big data of certain scenarios can serve machine learning and artificial intelligence;
Audio and video data can be used as atomic assets to build a copyright consumption market and secondary development without permission;
Game enthusiasts’ identity and experience data can be used to build a trusted, decentralized player reputation system.
Even the applications of Web2, combined with Arweave's consensus data, can drive Web2 to Web3 and promote integrated development.
At the same time, we also see that public chains or applications such as Lens, Opensea, Mirror, Solana, Cosmos, Avalanche, etc. have stored data on Arweave, demonstrating their trust and recognition of Arweave's decentralized storage and consensus data model. This practice not only provides data persistence and verifiability for their users, but also promotes the possibility of cross-chain interoperability and collaboration between public chains and applications based on consensus data.
In summary, Arweave has broken away from the development framework based solely on Tokens and achieved the evolution from data resources to consensus data and then to data elements. With the support of SCP, Arweave has broken through traditional constraints, created new data production materials, brought large-scale high-performance computing power productivity, and reconstructed the production relationship between subjects in the process of data circulation, exchange, production, consumption, and value distribution. Arweave is expected to bring new impetus to the innovative development of the encryption industry and build a true encrypted digital economic system.
4. Building an economic value system based on the AR+AO framework of SCP
Typically, the challenge facing blockchain is the imbalance between strong verification and weak computation, which is known as the blockchain's impossible triangle problem. However, SCP successfully eliminates this constraint by separating consensus (storage) from computation on the basis of Arweave, allowing computing performance to be infinitely expanded. Based on the core theory of SCP, AO is committed to realizing the interconnection and collaboration of large-scale parallel computers on the Arweave network, providing feasibility for the realization of large-scale computing applications, and will contribute to the construction of an economic value system based on Data.
4.1 AO’s modular architecture and advantages
AO is a "verifiable distributed computing system" built on Arweave. It is an implementation of the Storage Consensus Paradigm (SCP). It consists of three basic units: MU, SU and CU. Its architecture is shown in Figure 4-1.
Figure 4-1 Modular AO computing architecture (picture from AO white paper)
This is a modular architecture. Not only are computing and storage separated, but MU, SU, CU, and Arweave are independent modules, yet they are interconnected and interact with each other.
MU (Messenger Unit): This is the messenger unit, which is responsible for sending information to the appropriate SU for processing, and then delivering it to the CU for calculation. The calculation results are then returned to the SU, and the messenger unit repeats this process continuously;
SU (Scheduler Unit): This is the scheduling unit, responsible for scheduling and message sorting, and uploading messages to Arweave;
CU (Compute Unit): This is the computing unit that receives messages, performs calculations, implements state transitions, and uploads to Arweave.
This architecture has advantages in computing performance, consensus data, and application innovation:
In terms of computing performance, starting an application on AO is equivalent to starting a process, and the system will allocate and schedule resources for it, such as MU, SU, CU, etc. These units can be expanded horizontally to obtain unlimited computing and storage resources, thereby achieving high-performance, large-capacity parallel computing.
In terms of consensus data, a process can be viewed as a series of ordered logs that record the state of the process at any given point in time, forming so-called holographic data. These holographic data will be uploaded to Arweave, which is responsible for settlement processing and data storage for each independent process. In this way, the data not only has the characteristics of anti-loss, tamper-proof and verifiable, but also makes AO a verifiable distributed computing system.
In terms of application innovation, the true value of data lies in the analytical significance and value created after calculation. As a platform that carries a large amount of trusted data, Arweave provides an ideal foundation for this. AO's ultra-parallel computing capabilities promote collaboration and application innovation based on Data, such as running AI large language models, performing machine learning tasks, and realizing high-computation tasks such as autonomous agent intelligent applications.
4.2 Value Internet with Incentive Integration
As mentioned above, such an architecture is the decoupling of computing and storage (consensus), highlighting their respective advantages and features, and bringing modular flexibility and scalability; at the same time, in the overall architecture, AO and Arweave can rely on each other and promote each other. This relationship is not only technically complementary, but also has great significance in building a value Internet system:
Building an economic value system
The transformation from building a financial value system for tokens to building an economic value system for data. Tokens have typical financial attributes, with liquidity at their core, and the value Internet system of decentralized finance (DeFi) is built on them, such as asset issuance, trading, liquidity market making, mortgage lending, etc.
As an asset, Data has financial attributes, but as a means of data production, it has economic attributes. Data can be used for circulation and production collaboration, such as artificial intelligence (AI), intelligent agents, computing power markets, copyright management, game development, and social networks. This can build a more diversified and innovative economic value Internet system that is not limited to the financial field, but also covers a wide range of economic activities and the possibility of creating value.
Finance — Economic Incentive Alignment
In the crypto field, the financial value system is relatively mature, while the economic value system needs to be built. When the value Internet has both financial value and economic value, currency, assets, finance and economy will form a complete closed loop. Finance will provide impetus for the economy, and the economy in turn will promote the development of finance, thus realizing the value Internet of "financial-economic incentive integration".
Summarize
Finally, we slightly modify Figure 3–1 to provide an overall view of the entire article (Figure 4–2) and make a summary.
Figure 4-2 AR+AO implementation framework based on SCP, building a value Internet of "financial-economic incentive integration"
First of all, we have given a perspective that the essence of blockchain is a distributed ledger, based on which the system construction of the value Internet has been started. However, the distributed ledgers based on Token and Data are two different foundations. The former started with BTC and Ethereum as a typical representative, building a financial value system with decentralized finance as the core. The latter, represented by Arweave, has realized the "data trilogy", and then under the framework of AR+AO based on SCP, storage (consensus) and computing are separated, thereby promoting the innovation of means of production, production relations and productivity, and is expected to realize the value Internet of "finance-economic incentive integration" and promote the innovative development of the encrypted digital economy.
Note: This research report was first published on PermaDAO (@perma_daoCN). You can also follow me: @web3thinking
appendix
1. From FT, NFT to SFT, DeFi may open a new chapter in Web3
2. Avi: An economically sustainable protocol for permanently storing information
3、Storage-based Consensus Paradigm
4. AO Protocol: A decentralized, permissionless supercomputer
5. Arweave, AO, AI — Modular framework and flexible security
