Based on the AR+AO implementation framework of SCP, build a "financial-economic incentive integration" value internet

1. Build a value Internet based on distributed ledger

The traditional Internet based on the TCP/IP protocol family is called the information Internet because it can efficiently and cost-effectively realize the expression, replication, and transmission of information, such as chatting and sending pictures in WeChat, uploading and publishing videos on YouTube, and remote office work on Feishu.

The emergence of blockchain has brought changes to the Internet from the bottom-up 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 Three-layer Technology Stack of BTC

$BTC can be expressed and transmitted, relying on the script software running Bitcoin, which is built on top of the underlying Bitcoin blockchain. Generally speaking, the blockchain is a chain formed by different blocks continuously extending through hash pointers. Each block records transactions and related data, including block version, hash value, Merkle root, user address, transaction amount, and transaction time, etc. A single block can be viewed as a transaction record page, and the connection of all blocks forms a complete ledger.

Moreover, because blockchain is built on a P2P network and POW consensus mechanism, it has the characteristics of decentralization, openness, transparency, no permission required, verifiability, traceability, anti-loss, and tamper-proof. Therefore, the BTC blockchain is essentially a distributed ledger about $BTC with global consensus.

It is important that the three-layer protocol stack built on the distributed ledger based on $BTC has realized the protocolization of currency and created the world’s first programmable encrypted digital currency in human history, which means that currency no longer relies on centralized third parties for issuance, trading, payment and transmission on the Internet. It can be said that this marks the beginning of the value internet.

Bitcoin’s innovation led to the discovery of blockchain (distributed ledger), and based on this, the Internet was restructured at all levels through software protocols, promoting the formation and prosperous development of the value Internet, as shown in Figure 1-2.

Figure 1-2 Distributed Ledger Promotes the Formation and Development of the Value Internet

These software protocols are all equipped with native Tokens, and have built a tokenomics around the Tokens, realizing the securitization of the protocols. As a result, the entire blockchain protocol framework has achieved monetary protocolization, protocol securitization, and built a value internet that integrates currency, assets, and software protocols.

In short, compared to the traditional information internet, the blockchain-based distributed ledger has promoted the formation of the concept of value internet, and has conducted in-depth exploration and innovation around “value” in practice.

2, Distributed Ledger for Tokens - Building a Financial Value System

Since the birth of Bitcoin, blockchain has developed for 15 years, experiencing several cycles. Why is its main application still focused on the issuance of encrypted digital assets, and the decentralized finance around encrypted digital assets (such as DeFi, NFTFi, GameFi, SocialFi, etc.)? Let’s explore the logic behind the two largest public chains, Bitcoin and Ethereum, in terms of market capitalization.

The public chain is the most core infrastructure for ecological development. Other protocols, smart contracts, or DApps are built on top of the public chain. Essentially, different public chains are different distributed ledgers. It can be said that to a large extent, the underlying architecture of the distributed ledger determines and limits its upper-level construction.

Bitcoin was originally created by Satoshi Nakamoto as a peer-to-peer electronic cash system, focusing on the transfer, payment, and simple transaction functions of Bitcoin ($BTC). The design of Bitcoin is very conservative, deliberately limiting its scalability. Therefore, before the advent of inscription, Bitcoin had almost no ecosystem and was just a distributed ledger for Bitcoin ($BTC).

Compared to Bitcoin, Ethereum has stronger scalability, mainly reflected in its ability to support the construction of various smart contracts and decentralized applications (DApps). This has sparked a series of crazes in the blockchain field, such as ICOs, DeFi (Decentralized Finance), NFTs (Non-Fungible Tokens), etc. These technologies and applications not only make the Ethereum ecosystem prosperous, but also attract widespread attention and participation globally.

However, it is very clear that although there was a high expectation for ‘going beyond’ at that time, the entire ecosystem was still centered around the issuance of encrypted digital assets and decentralized finance closely related to assets, to the point where it was widely believed that the Ethereum public chain had developed into the settlement layer of financial applications.

Returning to the Ethereum public chain is a manifestation of its distributed ledger nature, which may help us better understand its current development status. If we regard this distributed ledger as a production system, the core element it processes is Token. However, compared to the distributed ledger of Bitcoin, Ethereum supports various types of Tokens, including FT, SFT, and NFT, numbering in the tens of thousands. These Tokens exist on the Ethereum platform in the form of smart contracts, enabling them to participate in various complex processing, trading, and circulation processes. This establishes a closely linked, mutually combinable, and prosperous financial system.

Looking at other public chain ledgers besides Bitcoin and Ethereum, they basically do not deviate from this framework paradigm: Token is the core element in the ledger, but they differ in terms of computing performance, privacy, asset cross-chain, protocol interoperability, etc., to meet different application scenarios and user needs.

So far, the encryption industry has developed decentralized finance (various smart digital contracts based on blockchain) starting from cryptocurrency (assets), but it has not developed a scaled encryption digital economy, let alone the practical significance for the real economy and the sustainable development of society. In previous articles (see Appendix 1), the author has sorted out the interrelationships among currency, assets, finance, economy, and social development, which will not be elaborated here. However, their interrelationships can be abstractly represented by Figure 2-1.

Figure 2-1 The Interrelationship Among Financial Assets, Contracts, and Economic Activities

In the figure above, if the core element of the center remains only Token, then its ability, as it develops in fact, mainly lies in the construction of today’s financial value Internet. However, I believe that the value Internet should not only have financial value, but also economic value. Based on the Token-based distributed ledger, its ability circle is difficult to extend to the encrypted economy. But what kind of scene will it bring if the core element is no longer just Token, but Data as the core element?

I think this is exactly what Arweave is doing, and it is worth further exploration.

3. Three Steps of Data - Building a Distributed Ledger Oriented Towards Data

Although Arweave has always been classified as a decentralized storage track, it does not compete at the same level as storage projects such as Filecoin, Sia, Storj, etc., because Arweave has the ability to provide ‘decentralized permanent storage’ and can build applications based on the ‘Storage Consensus Paradigm (SCP)’ to promote data storage on the blockchain, supporting the transformation of ‘data resources’ into ‘consensus data’ and further becoming ‘data elements’. Through this ‘data trilogy’, Arweave becomes a distributed ledger oriented towards data, providing innovative resources and scalability 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 Building a distributed ledger oriented towards data in three steps, bringing innovative development

3.1 Data Resources: Decentralized Permanent Storage

Arweave can permanently store data of any type and size, including not only encrypted digital money or assets (Token, FT/SFT/NFT), but also documents, images, audio and video files, web pages, games, legal contracts, program codes, holographic states, etc.

Is it feasible for this data to be paid once, permanently stored on-chain, and open for reading? The Arweave yellow paper analyzes the feasibility from two aspects: economic feasibility and the feasibility of implementing the permanent storage mechanism.

In terms of economic feasibility, the yellow paper mentions that the cost of storage has been decreasing at a rate of about 30% per year for the past few decades, and the cost will be a constant after an infinite number of years, providing a finite cost opportunity for permanent storage, 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. In terms of actual costs, permanently storing 1GB of data costs approximately $2, which is cost-effective.

In the implementation of the perpetual mechanism, Arweave adopts the PoW + PoA (Proof of Access) mining mechanism to incentivize miners to mine data effectively. The more data stored, the higher the income, and storing rare data yields even higher returns. These measures ensure a data replication rate of over 90%, preventing data loss due to the failure of a single node or server malfunction, thereby ensuring durability and reliability.

In summary, adding arbitrary data to permanent on-chain storage, Arweave accumulates massive on-chain data resources, builds a public knowledge base in the process of human development, lays the foundation for forming common cognition, and also provides the possibility of introducing the SCP paradigm to construct applications.

3.2 Consensus Data: Store Consensus Paradigm SCP

Arweave has introduced the Storage-based Consensus Paradigm (SCP), which is an abstraction and paradigm refinement of the SmartWeave concept. SmartWeave is a smart contract on Arweave, with the typical feature of separating storage and computation, storing on-chain and computing off-chain.

In terms of computing, SCP uses off-chain smart contracts, which can run on any device with computing power. This means that computing power is not constrained by on-chain consensus rules, and computing power can be infinitely scaled, achieving excellent performance similar to traditional applications. This brings possibilities for large-scale data processing, intensive computing, real-time interactive blockchain applications, such as machine learning, graphics rendering, online games, and social interaction. Super-parallel computing AO is generated on this basis, which will be discussed further.

In terms of storage, storage is consensus, forming consensus data. We can understand it this way:

First, the input for computation comes from the stored data in the Arweave blockchain, and the generated state in computation is also stored on the blockchain. The blockchain acts like a computer’s hard drive. However, its role is not only to store various types of data, but also to ensure data storage is resistant to loss, tampering, and traceable, making the stored data a reliable source.

Secondly, the source code of the smart contract and all its inputs are sequentially stored on the blockchain, which ensures that the computation only produces deterministic states. This makes it feasible for the client to generate and verify states locally, becoming a trusted terminal, and the data submitted to the chain is also trusted data.

Both of them together constitute the consensus data on the chain, which indicates 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, but has higher-level functions and significance. It can be an object used for verification and participation in consensus, and can support various applications and smart contracts on the blockchain.

So, Arweave is not only a storage platform, but also a distributed ledger with data consistency consensus, which provides new paradigms and solutions for the storage, sharing and utilization of data on the blockchain. Based on it, SCP has made two very important contributions: first, it has promoted data resources to become consensus data, which lays the foundation for data to become productive factors; second, computational 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, which is trusted data; so how will these data be effective? This is based on the circulation and collaborative production of data.

But before that, there are some fundamental issues to consider: how to identify data? Whose data is it? How to price data? How to distribute benefits? This requires discussing the form of data on Arweave.

In general, regardless of the type of data uploaded to Arweave, the data size is considered as an Atomic Asset, which is the NFT paradigm of Arweave on-chain data. On Arweave, treating data as atomic assets does bring multiple advantages and solutions, especially in data circulation, production collaboration, and asset management:

• Data recognition and ownership confirmation

Every piece of data uploaded to Arweave is treated as an atomic asset with a unique transaction ID. This design makes the data easy to identify and track, as all asset data, metadata, and contracts are bound together with the same transaction ID. Additionally, each data item can be clearly attributed to its creator or uploader, facilitating ownership confirmation.

• Data monetization and pricing

Data as atomic assets can be monetized as a new form of digital asset and achieve price discovery through circulation and trading in the market.

• Distribution of benefits and collaborative innovation

Atomic assets are easily identifiable, have ownership vesting, can be monetized, and have a pricing feature. This can bring a clearer model for benefit distribution and be executed automatically and transparently 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 method not only solves basic issues such as data identification, ownership, pricing, and benefit distribution, but also unleashes the liquidity and potential applications of data, promoting the process of data assetization in the digital economy.

These examples demonstrate how to use Arweave’s concept of atomic assets to drive innovative use of various data assets:

• Purchasing big data for a certain scenario can serve machine learning and artificial intelligence;
• Audio and video data can be used as atomic assets to build a copyright consumption market and for non-permitted secondary development;
• Game enthusiast identity and experience data can be used to establish a trusted, decentralized player reputation system.

Even Web2 applications, combined with Arweave’s consensus data, can drive the Web2 towards 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 have already stored their data on Arweave, demonstrating their trust and recognition of Arweave’s decentralized storage and consensus data model. This approach not only provides data persistence and verifiability for their users, but also promotes the possibility of cross-chain interaction and collaboration based on consensus data among various public chains and applications.

In summary, Arweave has broken free from the token-based development framework and has evolved from data resources to consensus data, and then to data elements. With SCP support, Arweave has broken through traditional constraints, created new data production materials, brought about large-scale high-performance computing power, and reconstructed the production relationships between entities in the process of data circulation, exchange, production, consumption, and value distribution. Arweave is expected to bring new momentum for the innovative development of the encryption industry and build a truly encrypted digital economic system.

4. Building an Economic Value System Based on the SCP AR+AO Framework

Usually, the challenge facing blockchain is the imbalance between strong validation and weak computing, known as the Impossible Triangle of blockchain. However, SCP successfully eliminates this constraint by implementing the separation of consensus (storage) and computation on the basis of Arweave, allowing computational performance to scale infinitely. AO, based on the core theory of SCP, is committed to achieving the interconnection and collaboration of large-scale parallel computers on the Arweave network, providing feasibility for the implementation of large-scale computational applications and contributing to the construction of a data-based economic value system.

4.1 Modular Architecture and Advantages of AO

AO is a ‘verifiable distributed computing system’ built on Arweave, and it is an implementation of the Storage Consensus Paradigm (SCP). It consists of three basic units: MU, SU, and CU. The architecture is shown in Figure 4-1.

Figure 4-1 Modular AO Computing Architecture (Image from AO White Paper)

This is a modular architecture, where computing and storage are separated, and MU, SU, CU, and Arweave are independent modules that are interconnected and interact with each other.

• MU (Messenger Unit): This is the messenger unit, responsible for sending information to the appropriate SU for processing, and then delivering it to the CU for execution. The calculation result is then returned to the SU, and the messenger unit repeats this process continuously;
• SU (Scheduler Unit): This is the scheduler unit, responsible for scheduling and message sorting, and uploading messages to Arweave;
• CU (Compute Unit): This is a computing unit that receives messages, performs calculations, achieves state transitions, and uploads to Arweave.

This architecture demonstrates advantages in computing performance, consensus data, and application innovation:

• In terms of computing performance, launching an application on AO is equivalent to launching a process, and the system will allocate and schedule resources such as MU, SU, CU, etc. These units can be horizontally scaled to obtain unlimited computing and storage resources, thereby achieving high performance and 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 time, forming what is called holographic data. This holographic data will be uploaded to Arweave, and Arweave is responsible for settlement processing and data storage for each independent process. This not only ensures data integrity, immutability, and verifiability, but also makes AO a verifiable distributed computing system.
• In terms of application innovation, the true value of data lies in the analyzed meaning and created value after calculation. Arweave, as a platform for carrying a large amount of trusted data, provides an ideal foundation for this. The super parallel computing capability of AO promotes collaboration and application innovation based on data, such as running AI large language models, executing machine learning tasks, and implementing high-computing tasks such as autonomous agent intelligent applications.

4.2 The value Internet of integrated incentives

As mentioned above, such an architecture decouples computation and storage (consensus), highlighting their respective advantages 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 a technical complement, but also of great significance in building a value Internet system:

• Building an Economic Value System

From the transformation of building a financial value system based on Token to building an economic value system based on Data. Tokens have typical financial attributes, with the core being liquidity, and the value internet system built on this is Decentralized Finance (DeFi), such as asset issuance, trading, liquidity provision, and collateralized lending.

As an asset, Data has financial attributes, but as a data production material, it has economic attributes. It can circulate and collaborate based on Data, such as artificial intelligence (AI), intelligent agents, computing power market, copyright management, game development, and social web, etc. It can build a more diverse and innovative economic value internet system, not only limited to the financial field, but also covering a wide range of economic activities and possibilities to create value.

• Finance - Economic Incentives Merge

In the crypto field, the financial value system is relatively mature, and the economic value system needs to be built. When the Internet of Value has both financial value and economic value, currency, assets, finance and economy will form a complete closed loop. Finance will provide power to the economy, and the economy, in turn, will promote the development of finance, so as to realize the value Internet of “financial-economic incentive integration”.

Summary

Finally, we will make some modifications to Figure 3-1, which is the overall view of the entire text (Figure 4-2), and make a summary combing.

Figure 4-2 SCP-based AR+AO implementation framework, building a value Internet that integrates ‘finance-economic incentives’

First of all, we provide a perspective that the essence of blockchain is a distributed ledger, based on which the system of the value Internet is initiated. However, the distributed ledger based on Token and the one based on Data are two different types of foundations. The former starts with BTC and is represented by Ethereum, constructing a financial value system with decentralized finance at its core. The latter, represented by Arweave, achieves the ‘data trilogy’, and then, under the framework of AR+AO based on SCP, separates storage (consensus) from computation, thereby promoting innovation in means of production, relations of production, and productive forces, and is expected to realize a value internet of ‘integration of finance and economic incentives’ and promote the innovative development of encrypted digital economy.

Note: This research report was first released on PermaDAO (@perma_daoCN). You can also follow me at: @web3thinking

Appendix

1. From FT, NFT to SFT, DeFi may open a new chapter of Web3

2. Avi: a protocol that economically and sustainably permanently preserves information.

3, Storage-based Consensus Paradigm

4. AO Protocol: Decentralization, permissionless supercomputer

5, Arweave, AO, AI - Modular framework and flexible security