I. Introduction
When you store data on Arweave, you’re not just making a one-time payment for storage you’re contributing to a long-term storage endowment. This mechanism operates similarly to a “buyback and burn” model, ensuring data permanence through a unique economic design. Here’s how it works:
- Upfront Payment: Users pay for 200 years of storage at current prices when they upload data.
- Endowment Fund: These payments are pooled into a decentralized storage endowment, which compensates miners over time for maintaining data.
- Token Supply Reduction: The tokens in the endowment are effectively removed from circulation unless they need to be reissued to cover storage costs in the future.
Since Arweave’s launch nearly seven years ago, not a single token has been reissued from the endowment. This means the token supply continues to shrink as usage increases, reinforcing the economic sustainability of the network.
II. The power of declining storage costs
The key to Arweave’s long term storage is the historical trend of declining storage costs, a principle known as Kryder’s law. Over the past 50 years, storage costs have decreased by an average of 38% per year. If this trend continues, the purchasing power of the endowment will grow faster than the storage costs it needs to cover, ensuring the network never runs out of funds.
- If storage costs never decline again, the last token used for today’s storage would be reissued in 200 years.
- If storage costs decline at just 0.5% per year, the endowment would never run out of funds.
- At historical decline rates (~38% per year), the vast majority of tokens will never need to be reissued, permanently reducing supply.
III. Why users don’t want “cheap” permanent storage
Unlike traditional cloud storage, where you pay an ongoing fee, Arweave users pay once for permanent storage. But why is this price set conservatively?
- If storage was too cheap, the endowment might run out of funds, jeopardizing data permanence.
- Users prioritize reliability over cost, they’re paying for guaranteed permanence, not just low fees.
- The endowment acts as a risk model, ensuring that stored data remains accessible indefinitely, even in worst-case scenarios.
See the current cost to store data on Arweave here.
IV. Arweave is a self-sustaining storage network
Arweave’s approach creates a unique economic advantage. The network becomes more secure as usage increases since more tokens are absorbed into the endowment. And unlike other storage models, Arweave doesn’t rely on external revenue or subsidies as its design naturally sustains itself.
V. Conclusion
Arweave’s storage endowment is an often misunderstand but cleverly developed aspect of the protocol. By leveraging declining storage costs and a long-term endowment, Arweave provides truly permanent data storage, ensuring that what’s stored today will still be accessible hundreds of years from now.
For a deeper dive, including detailed mathematical models and a storage endowment simulator, check out this wiki here.
Article is inspired by this tweet.
Further reading
This is not financial advice. Please do your own research.