Original Title: "The Potential of Arweave is to Revive the Library of Alexandria, Not to Replace Filecoin"

Original Author: Liu Yi, Founder of Cdot Network and Partner at Random Capital

Editor's note: Recently, Zhixiong Pan posted on X, stating that "as Arweave is about to release new technical solutions (and prices reach new highs within a year), it is worth reading Liu Yi's article written four years ago, 'The potential of Arweave is to revive the Library of Alexandria, not to replace Filecoin.' Arweave is the most promising encryption protocol to make large-scale decentralized data storage a reality. We live a life that is completely different from our ancestors, and the only reason is that we inherit and use the knowledge and experience accumulated by humans in tens of thousands of years of history. Perhaps this new technology will put an ENIAC in the revived Library of Alexandria."

Arweave is a "non-typical" blockchain project. Most people know nothing about it, and those who are familiar with it often see it as one of many decentralized storage projects that run alongside Filecoin. Only a few patient friends who have studied the project's white paper and yellow paper will find themselves confused after reading it. This is because the entire paper revolves around the obscure concept of "permanent information storage," and there is no mention of concepts that can catch the attention of the cryptocurrency and blockchain communities, such as scalability, cryptographic innovation, DeFi support, and value capture.

Who would need permanent data storage and pay for it? Life is only a hundred years long, why should we care about preserving human knowledge and history permanently?

The founder and core team of Arweave have their own reasons for being unique. As the translator of the Chinese version of the Arweave Whitepaper, I plan to interpret Arweave from the perspective of typical cryptocurrency and blockchain circles, so that domestic blockchain entrepreneurs and investors do not miss out on this major innovation. First of all, please allow me to transliterate Arweave as "Avi" (although this Chinese name is still under discussion in the Chinese community and has not been finalized), in order to facilitate dissemination in the Chinese crypto community.

Comparison between Arweave and Filecoin/IPFS

IPFS is the pioneer in the field of centralized storage. Since its launch in 2014, it has grown freely like BT and has stored a large amount of data. However, in order for IPFS to become a commercially viable storage system, rather than a casual data sharing platform, it must provide service quality assurance. This is the problem that Filecoin aims to solve, which is the economic incentive layer of IPFS. From the proposal of the Filecoin concept to the upcoming launch of the mainnet this year, it can be said that it has been delayed for a long time. As the protocol laboratory (Protocol Labs) that developed hardcore technologies such as IPFS and libp2p, why can't they get Filecoin done in a timely manner?

The Filecoin protocol has built two markets: the data storage market and the data retrieval market. Users with storage needs go to the data storage market to declare their needs: I want to store ** size of data, require ** copies, and store for ** days. Storage service providers (storage miners) in the market will quote for this storage demand, and users will sign contracts and pay fees with miners if they accept the quote. When users need to use the data, they go to the data retrieval market to make requests, and retrieval miners will provide quotes to meet the data access needs.

The above process may not seem complicated, but there are several difficulties in implementing it.

1. Miners need to provide an unforgeable cryptographic proof that stores user data.

2. During the validity period of the contract, the agreement requires continuous monitoring of whether the miner has kept the data as promised. If there is a breach of contract, the miner will be subject to a fine.

3. In order to encourage miners to store data, rewards for stored data should earn more than rewards for free capacity. At the same time, it is necessary to prevent miners from injecting garbage data to fraudulently earn rewards.

Filecoin has designed Proof of Replication (PoRe) to solve the first problem, and uses Proof of Spacetime (PoST) and a pledge mechanism to solve the second problem. By finely tuning the economic model [1] and introducing authentication of real users, the third problem is solved.

Although Filecoin solves some of the above problems to a certain extent, it inevitably produces some negative consequences. Firstly, the system is highly complex, and miners not only have to pay necessary storage costs, but also bear the high costs of proof and the option costs of pledging Filecoin losses. It should be noted that, relatively speaking, computation is more expensive than storage. According to the recommended configuration for small-scale mining provided by Filecoin [2] [3], an 8TB SSD hard drive only costs $300, but a high-end AMD 3.5Ghz 16-core CPU costs $700, and at least 128GB of memory, which costs over $500 (as a comparison, the recommended minimum memory for Avi mining is 8GB).

The high cost of mining will inevitably lead to high storage service prices in the Filecoin system. In addition, verifying real users is a delicate issue. If the verification is too strict, it will affect the user experience. If it is too loose, it cannot prevent miners from disguising themselves as users, and the verification loses its meaning. It is difficult to strike a balance between the two.

Meanwhile, as a type of cryptocurrency, the price of Filecoin is highly correlated with the overall market trend, meaning it is highly volatile. If the price of Filecoin drops sharply, miners may exit at a loss, resulting in the loss of user data. In addition, significant price fluctuations also increase the implicit option cost of miners pledging Filecoin. The implicit option cost is often overlooked in most PoS economic models, and I believe that at least the option cost of unlocking period losses should be taken into account (some even believe that the option cost of the entire lock-up period should be calculated).

The unlocking period is the period from requesting the unlocking to obtaining the tradable token. During this period, the pledger cannot transfer the token, which is equivalent to giving up a European option at the current price (different from American options, European options can only be exercised at maturity) [4]. Taking Tezos as an example, assuming the current price and exercise price are both $2.53, the annualized volatility is 185% [5], the unlocking period is 14 days (a longer unlocking period means a higher option cost), and the risk-free interest rate is 4% (which does not affect the calculation result), using the B-S option calculator [6], the value of each European option is $0.363 (since the exercise price equals the current price, the value of call and put options is equal), which is equivalent to 14.3% of the principal value. It can be seen that due to the high volatility of cryptocurrency prices, the implicit option cost caused by pledging should not be ignored.

The Filecoin protocol divides storage and retrieval into two markets, which requires the establishment of two sets of incentive and pricing mechanisms, and users' data access rights are not guaranteed. Suppose you store important data through Filecoin and pay a certain amount of storage fee. If you or other users (such as your customers) access the data later, you will also have to pay fees based on the market conditions of the retrieval market. If the retrieval market price is high, it is equivalent to the data being "held hostage" by miners, and users face the dilemma of either paying a high price or migrating data.

In 2017, I read the Filecoin white paper and immediately gave up on researching the project. As a programmer, my intuition tells me that complex extrapolation schemes usually do not succeed. What is an extrapolation scheme? It is a method that naturally comes to mind without deep thinking about the problem, and can also be called a "presumptuous method". Filecoin's extrapolation method is: since miners need to (continuously) prove that they have properly stored user data, the protocol should include a set of cryptographic algorithms to implement these proofs. As for the highly complex proofs inevitably bringing high system complexity and cost issues, they can only be slowly resolved in the future. However, Filecoin's competitor - centralized cloud storage does not require proof and verification. The contract signed between cloud service providers and customers is legally guaranteed to provide customers with access and recourse rights. It can be seen that as long as the proof cost remains high, decentralized storage will be difficult to provide competitive prices.

Although protocols such as Sia and Storj are technically different from Filecoin/IPFS, they all belong to contract-based decentralized storage protocols. That is, users and miners sign contracts through the protocol, users pay the fees stipulated in the contract, miners undertake the obligations stipulated in the contract, and the protocol (or users) checks (challenges) the performance of miners and punishes breaches of contract. Contract-based decentralized storage protocols face the basic challenges analyzed earlier.

The norm of technological development is that when most people try to solve complex problems with "presumptuous methods", there are always some who can find unconventional and usually much simpler ways to solve the problem. Sure enough, after observing the decentralized storage field for three years, I accidentally learned about "Arweave" - the disruptor of decentralized storage.

Only by understanding the difficulties of Filecoin can we understand the cleverness of Arweave. Arweave is a complete decentralized storage protocol, not based on IPFS, or rather, it is equivalent to Filecoin + IPFS. How does Arweave solve the problem of miner proof? The answer is no need for proof. The Arweave protocol encourages miners to store as much data as possible through mechanism design, and prioritizes storing scarce data with fewer copies. As for how much each miner stores and what they store, it is up to the miners themselves, neither requiring proof nor inspection. It's like a school wanting students to study hard, which can be done in two ways. One is for the teacher to watch each student every day, criticize and punish those who are not attentive or don't complete their homework seriously. The other way is through exams, regardless of how students study on a daily basis, the final exam results speak for themselves, and good results are rewarded. Both methods can improve learning efficiency, but the latter is obviously much simpler.

Contract-based decentralized storage is similar to "monitoring", while the Arweave protocol is like "testing", and this approach is called incentive-based decentralized storage. You can understand its advantages intuitively in this way: Filecoin needs to manage thousands of different storage contracts, check the execution of each contract, and provide rewards or execute punishments separately. The Arweave protocol only deals with one contract - all data is permanently stored. Therefore, the protocol is very concise, with low operating costs, and the price and reliability of the service are better than contract-based systems.

Avi's "Proof of Access" (PoA) is a simple extension of PoW. Each round of PoW puzzles is related to a past block (recall block), and only miners who have stored the recall block are eligible to participate in PoW guessing. Since the recall block is randomly determined and cannot be predicted in advance, the more blocks a miner stores, the greater the chance of participating in PoW guessing and the higher the possibility of obtaining block rewards. If a miner's storage space is limited and cannot save the entire block history, he will prioritize saving blocks with fewer copies in the network. Because each block has an equal chance of being selected as a recall block, when a scarce block is selected as a recall block, only a few miners are eligible to participate in the PoW competition, so storing scarce blocks is more advantageous for miners.

Some friends may ask, what if none of the nodes happen to store a certain block, wouldn't that block be permanently lost? Well, that possibility does exist. However, we can quantify and calculate the risk of a single block being permanently lost [7].

First, it is necessary to introduce the concept of replication rate. The replication rate is the proportion of block history that is stored on average by miners. For example, if there are a total of 100 blocks in the network and each miner stores an average of 60 blocks, then the replication rate is 60%. The replication rate is also the probability that a randomly selected miner has a randomly selected block. Conversely, the probability that a miner does not have a certain block when a certain block and miner are randomly selected is 1-replication rate. When there are N miner nodes in the network, the probability that all miners do not have a certain block is (1-replication rate)^N. The probability of a lost block is (1-replication rate)^N * total number of blocks.

Assuming that Avi Network has 200 mining nodes, with a replication rate of 50%, and a total block volume of 200,000, the probability of losing a block is 6.223*10^-61, which is an extremely small probability event that can be ignored. Currently, Avi Network has about 330 mining nodes, with a replication rate of 97%, and has produced over 510,000 blocks [8]. The probability of losing a block is much lower than the previous calculation, and is comparable in magnitude to the probability of a private key collision. Moreover, the assumption of the above calculation is that the miners store block history randomly, but considering that miners will prioritize storing scarce blocks, the possibility of losing blocks is even lower.

The Avi protocol has only one market, and users only need to pay for storage fees. Accessing data later is free. This is possible because the Avi protocol uses a mechanism similar to BT [9]. All nodes in the network are equal (without distinguishing between miner nodes and user nodes), and all nodes respond to other nodes' requests as quickly as possible. Like BT, the more upstream contribution, the faster the downstream speed. Selfish nodes will be downgraded by other nodes and gradually excluded from the network.

To fully understand the design of the Arweave protocol, the best method is to read the Yellow Paper (https://github.com/toliuyi/arweave_notes/blob/master/arweave-yellow-paper-cn.pdf). Although the Yellow Paper is lengthy and contains many formulas, there is no need to worry as it can be understood with a basic understanding of high school mathematics.

Compared with Filecoin, Avi Network has two major advantages. First, it has lower costs. Although the Filecoin mainnet has not yet been launched, I predict that after one year of the Filecoin mainnet being launched (when the economic model enters a stable state), the price of storing a 1MB file permanently with hundreds of copies on the Avi Network will be lower than the price of storing 5 copies for 5 years on the Filecoin/IPFS network, and data access on the Avi Network is permanently free. Second, the incentive mechanism of the Avi protocol makes data storage and access more reliable. By cleverly solving the biggest challenge of decentralized storage, without the need for $200 million in fundraising and three years of development, the Avi mainnet has been online for more than two years.

Avi is not a follower of Filecoin/IPFS, but the most promising encryption protocol to make large-scale decentralized data storage a reality.

Comparison between AVA and Ethereum

Avax is rarely compared to Ethereum, after all, in the Web3.0 protocol stack, they are at different levels and appear to be complementary. However, a deeper study of the Avax protocol reveals more possibilities.

Ethereum (and other smart contract public chains) were created to support decentralized applications (DApps). DApps are internet applications that are executed fairly and transparently, and cannot be controlled by individuals or a small group of people. From a software architecture perspective, network applications (including internet applications and DApps) can be divided into three layers: presentation, business logic, and persistence (data). Let's analyze the development bottlenecks of DApps and the potential application of the Avi protocol from these three layers.

So far, the presentation layer of DApps remains the same as centralized web applications, which are deployed by developers on cloud servers and then downloaded to user clients for execution. Therefore, developers and cloud service providers still have the right to stop and review DApps, and faults and attacks such as network interruption, server downtime, DNS hijacking, etc. still threaten the availability and security of DApps. In addition, the IT infrastructure cost of DApps will increase with the growth of the number of users, forcing developers to adopt some form of monetization to maintain the operation of DApps. Monetization methods are either Web2.0-style, selling traffic, or have the characteristics of encrypted protocols, issuing tokens. Once monetization fails, developers may give up running DApps, and users can only turn to alternatives. Even if there are lucky alternatives, they still face the same problems. DApps that can be maintained and operated often encounter the problem of "forced upgrade", which means that the new version may not be more popular than the old version, but users cannot prevent its upgrade or continue to use the old version.

In summary, the presentation layer of decentralized applications is still centralized and can still be controlled by individuals or a small group of people.

The application layer of the Arweave protocol is called the Permaweb. Its primary (but not only) application architecture is serverless. Developing a serverless DApp is similar to developing the front-end of a traditional web application, using HTML, Javascript, and CSS. The difference is that the front-end is not deployed to a cloud server, but packaged and stored on the Arweave network. The cost of storage is low and is a one-time payment for permanent service. Users can still access the DApp in the same way as before, and Arweave DNS and TLS are compatible with standard browsers, so there is no need for users to install and learn to use a new client. No matter how much the DApp grows, it will not bring any additional costs to the developers.

As a decentralized network, AVA allows users to use DApps without interference or censorship from developers or AVA miners. Developers can create new versions of DApps, but they cannot overwrite old versions, leaving the choice of which version to use in the hands of the users. This decentralization of the DApp presentation layer is evident in the increasing number of DApps that have been ported to AVA, including Synthetix Exchange, Tokenlon, KyberSwap, UniSwap, Oasis App, Curve.fi, and more [10].

It should be noted that the concept of using decentralized storage to achieve decentralization in the presentation layer of DApps was not created by the Aave protocol. As early as 2014, Dr. Gavin Wood listed "static content publishing" as one of the four basic components of Web3.0 in his paper [11] describing the network form of Web3.0. The practical result of this thinking is the Swarm project [12]. Swarm and IPFS were both expected to solve the problem of decentralization in the presentation layer of DApps. However, for various reasons, this wish has not been realized until the emergence of the Aave protocol, which provides a feasible solution for the decentralization of the presentation layer of DApps.

Ethereum and other smart contract public chains have achieved decentralization of the DApp business logic layer and data layer, but it is well known that there are scalability bottlenecks. Scalability and price are two sides of the same coin, and scalability limitations stem from scarce computing and storage resources. In a decentralized network, the result of competition for scarce resources is high prices. Because prices are more easily quantifiable, this article chooses to analyze from a price perspective.

First, let's look at the data layer. Storing a 256-bit integer on Ethereum consumes 20,000 gas [13], and storing 1MB of data requires 625 million gas. Assuming a gas price of 20 gwei (at the time of writing this article, during the DeFi boom, gas prices often exceed 100 gwei), and an ETH price of $400, the cost of storing 1MB of data on the Ethereum chain is as high as $5,000, which is clearly an unaffordable price. Most DApps with data storage needs adopt a hybrid storage scheme, where the hash of high-value data such as encrypted assets and attachments is stored on the chain, while detailed data and multimedia data are stored off-chain. If a centralized off-chain data storage solution, such as a relational database or NoSQL database, is used, the DApp is still partially centralized and will still be controlled by a few individuals or entities (cloud service providers and developers). Therefore, many DApps tend to choose decentralized storage solutions, such as IPFS.

At this stage, Avi provides completely decentralized, low-cost, and highly reliable permanent data storage, becoming a powerful assistant to Ethereum. Without sacrificing decentralization, Avi currently only needs 0.1 cents to store 1MB of data. You read that right, one five-millionth of Ethereum's price. Based on current prices, the cost of storing 1MB of data on Alibaba Cloud for 100 years is 2.6 cents. In addition, only intra-city redundant replication is supported, and network expenses for data synchronization and access are charged separately. Avi's network, on the other hand, is redundantly replicated across hundreds of nodes in five continents around the world, and data synchronization and access are completely free. You read that right, Avi's decentralized network is already cheaper than centralized cloud storage. No wonder Layer 1, Layer 2, and DApp protocols such as Solana [14], SKALE [15], and Prometeus [16] choose Avi as their data storage layer. In addition, NFT projects such as InfiNFT, Mintbase.io, and Machi X use Avi to store NFT media resources, metadata, and code [17].

Smart contracts are the business logic layer of DApps. Similar to the data layer, the bottleneck of smart contracts is scalability/computational cost. According to Vitalik Buterin's estimation, the computational and storage cost of Ethereum is approximately one million times that of Amazon Web Services [18], which is consistent with the estimation of DApp data layer cost mentioned earlier. The fundamental reason for the high computational and storage cost of public chains is their fully redundant architecture, where all on-chain data is stored by every full node and all computations are executed by every full node. There are three approaches to achieving public chain scalability: governance, layering, and sharding. For a more in-depth discussion, please refer to my article "Polkadot Architecture Analysis" (https://www.chainnews.com/articles/346896273320.htm).

Avi's Smartweave smart contract [19] takes a completely different approach. Smartweave smart contracts are programs developed in JavaScript and stored on the Avi network, making them immutable. Along with the contract code, the contract's genesis state is also submitted to the network for storage. Unlike smart contracts on Ethereum (and other public chains), Smartweave is not executed by miner nodes, but rather downloaded and executed on the computer of the contract caller. The execution process starts from the genesis state of the contract and executes all transactions in the contract's history in a predetermined order, finally executing the transaction of the contract caller. After completion, the contract caller submits their transaction input and the executed contract state to the Avi network for permanent storage. Subsequent contract calls repeat the above process.

That is to say, for a smart contract transaction, the Arweave network only needs one node - the caller's own node - to execute (note that Arweave does not distinguish between full nodes and light clients). Since the caller's node executes (and verifies) all transactions in the contract history, he does not need to trust or rely on any other node to obtain a trusted computation result (i.e., the new state of the smart contract). Therefore, each Smartweave contract can be viewed as a second-layer chain of Arweave, and executing a smart contract is a full synchronization and verification of the second-layer chain. This design solves the scalability / computational cost problem of the DApp business logic layer. Smart contracts can almost include any complex computation without restriction, with very low marginal cost, because the caller's computing device is usually already purchased or rented for a long time.

Some friends may ask: as the number of transactions increases, won't the execution of smart contracts become slower and slower? Indeed, this is the case, but there is a solution. For example, the caller can name the result state of the contract, thus forming a contract state snapshot. If the caller is trustworthy (for example, if the caller is the developer of the smart contract), subsequent callers can specify the snapshot as the initial state, and only need to execute transactions after the snapshot. The state snapshot does not necessarily lead to an expansion of the trust set, after all, the premise of reliable smart contracts already includes trust in the initial state.

Of course, Smartweave is still under development, with the current version being V0.3. The above content should be regarded as a discussion of the potential of Smartweave. To achieve commercial use, Smartweave still needs to solve many problems, such as composability.

From my understanding of the Smartweave operating mechanism, there are no particular technical barriers to achieving composability. However, I have always believed that the composability of Ethereum smart contracts is "too powerful", making it difficult to limit the exponential growth of contract system complexity. I look forward to the Smartweave team having more exciting innovations and making good use of this double-edged sword of composability.

In summary, the AVA protocol supports DApps to truly achieve comprehensive decentralization and solves the scalability/cost issues that have plagued the public chain field for many years. In this sense, AVA should be classified as a "Web3.0 full-stack protocol" advocated by Blockstack [20], not just decentralized storage.

Comparison between Avi and Bitcoin

Bitcoin is the creator of the encryption protocol and the king of cryptocurrencies. There has always been a controversial topic in the industry: whether Bitcoin's dominant position can be replaced. Even the Bitcoin royalists admit that after 10 years of development, Bitcoin is no longer the most advanced cryptocurrency in terms of technology. However, they believe that a super-sovereign value storage currency is the biggest use case for cryptocurrencies. Bitcoin has the longest running time, the highest visibility, and the best security of any cryptocurrency. Moreover, the competitive barrier for cryptocurrencies is not technology, but liquidity. Liquidity has a network effect, which is a mechanism whereby the utility of a product or service increases as users grow. The Bitcoin protocol has established a liquidity advantage, which will only continue to increase as cryptocurrencies become more widespread. Therefore, Bitcoin's dominant position is unshakable.

Is it possible to break the advantage of network effects in liquidity networks? Answering this question requires a quantitative study of network effects. Many people immediately think of Metcalfe's Law, which states that the value of a network is proportional to the square of the number of users. Metcalfe's Law is the first quantitative model of network effects, but recent research has shown that no network's value grows according to Metcalfe's Law, at least not when the number of users is large, and the growth curve of network value becomes flat [21].

Research has shown that some network effects of certain internet businesses follow an n*log(n) curve, while others follow an S-curve. The S-curve represents exponential growth that starts slow and then accelerates as network value increases with user growth, eventually reaching saturation and slowing down. The important implication of the S-curve is that the strong get stronger, but not all winners take all. If all internet platforms follow Metcalfe's Law, then each segment of the internet industry will form a single dominant player. However, in reality, there are more than one platform that exist in most segments of the internet industry, both globally and in China.

So what is the curve (formula) for the growth of liquidity network effects? Assuming that the average daily trading volume of a certain encrypted asset accounts for one ten-thousandth of the total market value of the asset for each participant. If there are 10,000 investors, the turnover rate is 100% per day, and if there are 20,000 investors, the turnover rate is 200%. That is, adding 10,000 investors doubles the turnover rate. If the number of investors increases from 100,000 to 110,000, the turnover rate increases from 1000% to 1100%, which is only a tenth of the increase. Therefore, the more investors there are, the smaller the contribution of new investors to liquidity, and the network effect is logarithmically related to the number of participants.

The quantitative models and images regarding the liquidity network effect mentioned above are all from the research conducted by Multicoin Capital [23]. The conclusion of this study is very important. For example, in the competition among exchanges, liquidity is the key factor. After the leading exchanges reach a certain scale, the value growth brought by the liquidity network effect will slow down, providing opportunities for latecomers to catch up. If the liquidity network effect follows a n*log(n) or even n square relationship, it would be impossible for exchanges like Binance, Kucoin, and MXC to emerge and surpass others, and there would not be tens of thousands of exchanges in existence. The quantity relationship of log(n) indicates that the larger the liquidity, the stronger it is, but it does not guarantee that the strong will always be strong.

There is another factor that makes Bitcoin's liquidity advantage easier to break, which I call "liquidity transmission". That is, new cryptocurrencies can use the established global trading network to share liquidity with existing cryptocurrencies. For example, when Ethereum was born, the industry infrastructure, including exchanges and payment platforms, had been developed for 6 years, making it easy to integrate ETH. As long as ETH forms a high-liquidity trading pair with Bitcoin, it indirectly has liquidity with major fiat currencies. Therefore, Ethereum no longer needs to go through a long market introduction and infrastructure construction phase, and becomes a cryptocurrency with high liquidity in one fell swoop.

Under the state of free competition, the comparison between currencies is based on their monetary properties. Monetary properties include scarcity, interchangeability, verifiability (difficult to counterfeit, easy to identify), accessibility, divisibility, as well as the cost of preservation, carrying, and transfer. All cryptocurrencies are direct descendants of Bitcoin and inherit its strong monetary properties. Before Ethereum, the main theme of cryptocurrency innovation was "better Bitcoin", which means creating cryptocurrencies with stronger monetary properties. For example, Litecoin, Dash, and Stellar have faster transfer speeds and lower transaction fees. ZCash and Monero have better privacy and more guaranteed interchangeability, but they have not threatened the status of Bitcoin. Because quantitative improvements are not enough to challenge the network effect advantage, there must be qualitative innovation to achieve "paradigm shift". For example, Microsoft did not invent a better mainframe to defeat IBM, and Apple did not use a better PC to defeat Microsoft. Revolutionary innovators all implement a reductionist attack on the old hegemon to become the new king.

The industry generally recognizes Ethereum as the representative of blockchain 2.0, because Ethereum is an innovation at a completely new level, which introduces EVM and gives cryptocurrencies powerful programmability. Revolutionary innovation is not about doing what you do better, but about doing what you cannot do.

Ethereum smart contracts can achieve decentralized asset issuance, fundraising, and asset trading. In the previous wave of ICOs, ETH was used as the main currency and value storage, leading to a surge in demand for ETH and pushing its market value to a maximum of 60% of BTC. Of course, ICOs have serious information asymmetry, inevitably leading to widespread adverse selection and moral hazard issues, and the bursting of the bubble is an inevitable result. Highly programmable cryptocurrencies have infinite innovation space, and the rise of DeFi will be a new challenge for Ethereum compared to Bitcoin. Unfortunately, ETH's value capture mechanism is not sound. If EIP1559 had been implemented a few years ago, ETH should have entered the deflationary phase, and the DeFi boom could have pushed its market value beyond BTC.

The encrypted asset market has two main investment themes: sound currency and Web3.0. Sound currency refers to decentralized and super-sovereign cryptocurrencies, represented by Bitcoin. Web3.0 applies blockchain technology to reconstruct social production relations, represented by Ethereum. I believe that the two investment themes of sound currency and Web3.0 can be achieved simultaneously through decentralized and highly programmable blockchain platforms that support Web3.0 and have the properties of sound currency for their native encrypted assets. This way, we can have the best of both worlds and create the future king of cryptocurrencies. The new king should have the following characteristics: highly decentralized (implying super-sovereignty), widely applicable, low consensus protocol externality, good scarcity, highly programmable, and compliant.

Given the scalability issues of Ethereum 1.0, it is difficult to maintain its position as the leader in the long run. Which project represents Blockchain 3.0? Ethereum 2.0, Polkadot, Cosmos, and AVA Protocol are all strong competitors. AVA Protocol also has the potential to become the king of cryptocurrencies:

· High degree of decentralization, the network will not be controlled by individuals, institutions or governments;

· Widely used, as a Web3.0 full-stack protocol, it is an ideal platform for innovation of various decentralized applications;

· PoA consensus will not consume a significant amount of additional electricity. For detailed discussion, please refer to the next chapter.

· The AR native token of the Avi protocol has a low issuance rate and good scarcity. For detailed discussion, please refer to the next chapter.

· Highly programmable, Turing-complete smart contract. DApps and smart contracts both use mature web technologies such as Javascript, which is conducive to forming a wide and diverse developer community;

· AVA is very similar to Ethereum and conducted an ICO before going live on the mainnet. After going live, functional tokens were distributed. The function of ETH is to pay for Ethereum's computing and storage fees, while the function of AR is to pay for AVA Network's storage fees. As time goes on, more and more people are using AR, and the distribution of holdings is becoming more and more decentralized, which conforms to the legal definition of bulk (virtual) commodities.

Explanation of the AVI Economic Model

The economic model of encryption protocols is how to coordinate the interests of service providers (miners), service users (users), and coin holders. Miners provide computing, bandwidth, and storage resources for the encryption protocol network to ensure protocol security and availability, and users need to pay miners for using the protocol. Miners' revenue is divided into two parts: one is the transaction fee paid directly by users; the other is the newly minted tokens distributed by the protocol to miners, which is the issuance reward. The issuance reward is a coinage tax shared by all coin holders according to the amount of coins held. In almost all encryption protocol economic models, the main revenue of miners is the issuance reward (coinage tax). For example, although Bitcoin has undergone three halvings of issuance rewards, the issuance reward still accounts for 95% of the total revenue of miners, and transaction fees only account for 5%. This is actually a mechanism for coin holders to subsidize users' use of the protocol.

Of all the economic models of encryption protocols I have studied, the economic model of the Ave protocol is the most friendly to holders. In the genesis block, the protocol generated 55 million AR, and then AR is issued with each block. The formula for calculating the amount of issuance is as follows:

In Chinese, this phrase means "among which".

Substituting constants, the formula simplifies to:

At the time of writing this article, AVA Network is facing its second halving (expected to be around September 10, 2020). The issuance rate in the third year after the second halving is 2.17%, calculated as 137.5/(5500+550+275). By the fourth year, the issuance rate of AVA will be lower than that of Bitcoin during the same period.

The principles of the AVA economic model can be roughly summarized as follows: users pay enough fees for storage services; miners' profits exceed costs, maintaining a roughly fixed profit margin; and holders of AR tokens receive almost all the benefits of AR token appreciation. Based on the long-term consolidation of AR's coin price at $4, AVA miners will receive $5.5 million in profits from issuance this year, which will be shared among hundreds of mining nodes worldwide. In comparison, Bitcoin miners receive over $10 million in daily issuance profits, totaling over $3.6 billion annually.

Avi PoW (as part of PoA) uses the RandomX algorithm [24]. RandomX is a CPU-friendly algorithm that requires a large amount of memory to execute, with little advantage for specialized hardware. Following the Avi protocol, Monero upgraded its PoW algorithm to RandomX in November 2019 [25], as the latest (and perhaps final) resistance to ASIC mining. Given that Avi mining is not simply a competition of computing power and the overall mining revenue is limited, Avi is unlikely to form a specialized mining industry chain, but rather maintain hundreds of mining nodes (some of which will become mining pools) and a high level of replication, with low network power consumption. Mainstream mining hardware is likely to be ordinary commercial computers rather than ASIC miners.

Of course, it is not ruled out that someone will promote AVA mining machines after the AR heat increases. At that time, you should understand that buying AVA mining machines is almost impossible to bring decent returns. In the long run, AVA may become a decentralized CDN network for Web3.0, and enterprise-oriented CDN services will be the core business model of AVA miners.

Avi and Cryptocurrency Investment

Since the beginning of 2013, I have been investing in Bitcoin. Over the past 7 years, I have heard many people talk about how they first learned about Bitcoin, their initial impressions of it, and how they missed out on huge fortunes. One question that has always troubled me is: what determined our perception of Bitcoin at that time? Most people didn't care, some believed that Bitcoin was a high-tech Ponzi scheme, and a few invested in or started mining Bitcoin for various reasons. Among them, a very small number persisted and had their lives changed by Bitcoin.

These few individuals are often regarded as geniuses who have foreseen the future. However, it should be noted that for any novel matter, there is a group of early participants, but only a few have a wide-ranging impact on society. Rather than considering those who participated in Bitcoin early and became big shots as geniuses, it is more accurate to say that they were lucky. But the question is, does such good fortune randomly fall on everyone's head with roughly equal probability? Based on my years of thinking about this issue, it may not be entirely true.

For most people, the cryptocurrency market is nothing more than a casino. The returns earned during a bull market, which can be several times higher, are easily lost during a bear market, often resulting in a loss of principal. The fundamental reason for this is that the failure rate of cryptocurrency protocols is very high. Direct evidence of this is that many cryptocurrencies that were in the top ten by market capitalization five years ago have either gone to zero or are close to it today.

Encryption protocols are not a panacea for all problems. There are thousands of encryption protocols on the market today, attempting to establish various untrusted internet platforms. However, in five to ten years, a considerable portion of the starting points of these encryption protocols will be proven wrong, meaning that they are not suitable for these fields. In those areas where encryption protocols are applicable, due to the network effect and the lack of geographical restrictions, the number of successful encryption protocols in the same field should be few and far between. Therefore, in the next five to ten years, the vast majority of the thousands of encryption assets on the existing market will either be reduced to zero or close to zero.

Why are rational investors willing to take the risk of investing in cryptocurrency assets? In 2014, when Bitcoin was at the bottom of the previous bear market, the US Department of Justice auctioned off 100,000 Bitcoins in four separate auctions. Tim Draper, a well-known venture capitalist in Silicon Valley and the head of DFJ, bought most of them. After the auction, Tim Draper explained his logic for buying Bitcoin in an interview with the media. He said that Bitcoin could very well go to zero, but there was also a chance it could increase by hundreds of times, making it a good investment. Assuming that 80% of Bitcoin would go to zero and 20% would increase by 100 times after five years of his purchase, the expected return on investment would be 82% per year, which is obviously higher than the risk-free return rate of long-term government bonds.

I saw news about auctions and also heard Tim Draper's interpretation of his investment logic. I agree with his logic, so I added more funds that I can afford to lose and bought more Bitcoin. The fact proves that this investment logic is valid.

Those who have achieved great success in the cryptocurrency market are optimistic, long-term thinkers who focus on big issues. The so-called big issues are the fundamental problems that affect the development of the Internet and even human society. In 2011, 2013, and even 2015, you could list hundreds of reasons why Bitcoin would fail, and these reasons were all valid. However, if you focus on the following big issues (or one of them) - the Internet needs a native, value transmission system that does not rely on specific institutions; Internet platforms and financial intermediaries have already captured most of the profits from social and economic activities; central banks are constantly increasing the issuance of currency to promote economic development, but this cannot continue indefinitely - you will realize the epoch-making significance of Bitcoin. Moreover, an optimist must believe that although there are hundreds of reasons why Bitcoin may fail, it may also succeed. As for long-term thinking, it is two sides of the same coin as focusing on big issues. If someone sells all their Bitcoin for several times the profit, it is hard to believe that they truly care about the big issues.

Permanently preserving human knowledge and history is certainly a major issue, and its importance to humanity is likely unparalleled. After all, modern humans are not much different from our intellectual and physical ancestors tens of thousands of years ago. We live lives that are vastly different from those of our predecessors solely because we have inherited and utilized the knowledge and experience accumulated by humanity over tens of thousands of years of history.

For the rulers of the Ptolemaic dynasty, the Library of Alexandria may have been nothing more than a decoration of their wealthy nation. But for future generations, the Library of Alexandria is much more important than the Ptolemaic dynasty. Although Caesar was called by the historian Mommsen as the only creative genius of the Roman Empire, Caesar's achievements cannot make up for the loss of the Library of Alexandria. Has today's technology reached a critical point where the world no longer needs individuals, institutions, or countries, no matter how powerful they are, to permanently preserve the knowledge and history of all mankind? If this unprecedented great achievement can be realized in this generation, how lucky we are to be able to participate in it!

Therefore, Avi is not a substitute or competitor for Filecoin/IPFS. The goal of Filecoin/IPFS is to disrupt the monopoly of centralized cloud service providers in the storage market, which is certainly an important issue in the internet industry, but compared to the goal of Avi, it is still far from being a "big problem". When I finished reading the Avi whitepaper, I felt like I had traveled back in time to when I first learned about Bitcoin. Will the miracle happen again this time?

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