First principles analysis of Swarm's economic incentives

1 Introduction to Swarm

Swarm is a distributed storage platform and content distribution service whose main goal is to provide decentralized and redundant storage for DApp code and data as well as blockchain and state data. Swarm also provides native base layer services for Web3, including peer-to-peer messaging, media streaming, decentralized database services, and scalable state channel infrastructure for decentralized service economy.

In simple terms, Swarm provides a decentralized, permissionless, economically incentivized communication and storage model for blockchain. In the context of the original congested network and the increasing amount of on-chain data, providing free infrastructure will eventually face commercial difficulties, and the service mode native to the blockchain will gradually evolve into a reliable and stable infrastructure like Bitcoin and Ethereum.

Of course, in the field of distributed storage, Filecoin, Arweave, Storj, Crust and other projects are all important competitors. They have jointly promoted the early development of this field from different angles and different ecosystems. So, what are the characteristics of Swarm? With this question, I started to study the Swarm economic incentive model.

2 Swarm’s Economic Incentive Design

The core goal of Swarm is to enable users to quickly upload and download data through economic incentives. Therefore, for the system design of Swarm, better providing complete, available, and confidential storage and retrieval services is the first priority. Among them, the integrity and confidentiality of data are achieved by Swarm technology. This section will focus on the economic incentive design around availability, including the three main scenarios of bandwidth resources required for storage and retrieval processes, peer node discovery, and data storage.

2.1 Incentives for Sharing Bandwidth

‍‍‍‍‍‍Swarm uses bandwidth incentives to speed up data upload and download. Through Swarm's client Bee software, users can easily communicate with other nodes, upload content privately and securely, and build a trust relationship of bandwidth exchange.

First of all, both data uploading and downloading involve three types of participating roles: sender, forwarder and receiver.

In the data upload scenario (as shown below), the sender sends the uploaded data, which then reaches the receiver via the forwarder. The receiver replies with a confirmation message after receiving it, which then passes through the forwarder and finally reaches the sender, and the upload operation is completed.

In the data downloading scenario (as shown below), the sender sends a data download request, which reaches the receiver via the forwarder. The receiver replies with the data corresponding to the request, which then passes through the forwarder and finally reaches the sender, completing the download operation.

For both the forwarders and receivers of the above two operations, both parties can receive incentive payments from the sender during the operation. However, the payment is not immediate, but recorded by the amount of funds agreed upon by both parties. When the amount owed by one party reaches the agreed amount, a check will be paid, just like when we pay on credit at a bar opened by a friend.

Here, the actual payment is made through a smart contract on the blockchain:

1. Before the event starts, everyone deposits a certain amount of bzz into the checkbook contract.

2. When paying, a check allows the other party to cash the corresponding amount.

3. The person who gets the check can cash it at the checkbook contract.

Peer-to-peer services and payments between supply and demand parties are the main form of incentives for Swarm network nodes. It seems that the digital society is a reflection of the real society.

2.2 Incentives for Node Discovery

Node discovery refers to the process of adding new nodes to a P2P network or connecting nodes in the network to nodes that are not connected. For a distributed network, the more nodes that work properly, the more robust the network will be.

From the perspective of the interests of a single node, providing node discovery message forwarding for other nodes can maintain better connection quality when its own connection is reduced. Similar to the social scene in reality: Satoshi Nakamoto and Xiao V are friends, Xiao V and Jia Wen are also friends, and Jia Wen wants to introduce Satoshi Nakamoto through Xiao V. Xiao V would think like this, "If Jia Wen knows Satoshi Nakamoto, one day I have an urgent matter but cannot contact Satoshi Nakamoto, there is still a chance to contact him through Jia Wen, so I should take the initiative to help introduce Jia Wen and Satoshi Nakamoto to each other." There is a saying that "the more friends you have, the easier it is to walk", and this sentence also applies to the connection of machines.

Therefore, the designers of Swarm believe that the node discovery protocol itself is of positive significance to the macro-interests of the network or the interests of the nodes themselves, so by default, there is no need to provide additional economic incentives for node discovery.

2.3 Incentives for Data Storage

The result of bandwidth sharing incentives is that Swarm nodes have a strong desire to serve data that may be uploaded or downloaded multiple times, that is, hot data. So, for cold data that is accessed infrequently, such as user-private encrypted data, how can it be stored on the Swarm network?

Swarm mainly provides two-tier solutions for stamps and postage lotteries:

• For the storage provided by the Swarm network, it can be abstracted as providing many nodes with many hard disks. The first thing to consider is who has the authority to perform hard disk write operations, and this authority allocation must also be non-permissioned. The idea to solve this demand is: pay a fee for each data, and then the network retains the higher-value content. This fee is reflected in the form of stamps in the swarm network. When the value drops, stamps can continue to be posted.

• The face value of the stamps is gradually released through lottery to subsidize the nodes storing data, which is the postage lottery.

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In addition, Swarm has designed a data insurance method to provide secondary incentives for data with higher security requirements, prompting some responsible nodes to store data as required and prepare for data spot checks.

The main purpose of Swarm's storage incentives is to fairly compensate honest storage nodes and encourage them to provide data storage services to users in accordance with the system's design.

3 Analysis of the development direction of Swarm

After understanding the basic concepts and economic design of Swarm, we can think about the development trend of the Swarm network from a perspective closer to the core team of the project. So how should Swarm be planned next?

First of all, from the perspective of mining income, the official will not over-encourage users to participate in early mining. Let's first look at the distribution of the Swarm network token BZZ. The supply of BZZ is 62.5 million, of which fundraising: 50%, team: 20%, foundation: 7%, infrastructure fund: 10%, DApp fund: 10%, donation: 3%. Unlike most storage mining projects in the market, Swarm did not allocate a large number of early mining rewards. Only the 10% infrastructure fund may be related to the incentive for early participation. It can be seen that Swarm officials are more willing to see the real results of this social experiment, allowing the network scale to gradually expand according to the wishes of both supply and demand. Of course, if the official adjusts the economic model before going online, it will be another matter (a certain P-headed laboratory suddenly sneezed).

Secondly, from the first principle point of view, Swarm pays more attention to the actual needs of the application layer. The market for shared bandwidth is a two-sided market. Swarm needs to consider the needs of consumers while considering the benefits of service providers. The biggest advantage of Swarm at present is that there is a certain amount of hot data in the Ethereum network. For example, for light nodes that do not have full data, it is necessary to obtain data from full nodes. In the remix editor, users can deploy solidity source code in the Swarm network for public verification. It can be seen from the distribution of BZZ tokens that 10% will be used for the DApp fund. It is a good strategy to use this part of the funds to support the application of the Ethereum ecosystem to provide Swarm-compatible storage solutions.

Looking further, Swarm can form a complementary relationship with the existing decentralized storage market. Content-addressed technologies represented by Swarm and IPFS not only solve the problem of information transmission, but also provide new options for the security, trust and adaptive network construction of underlying data. Just like the emergence of shared bicycles has not only changed the public bicycle system in the city, but also changed people's travel habits. At present, the solution of Filecoin, the incentive layer of IPFS, is to start from the storage market, attract a large number of service providers through the "first come, first served" head mine, and then guide web applications to be compatible with the IPFS protocol, but it is currently in a state of high investment and low efficiency. The solution of Swarm is to start from the retrieval market, through flexible network protocols and stable economic incentives, let both parties in the market join on demand, and gradually build a self-organizing network system. Swarm and IPFS have different strategies in the two markets of retrieval and storage, which is a competitive relationship as well as a complementary relationship.

Everything has two sides. Swarm's relatively loose economic incentive design has obvious advantages, namely flexibility. At the same time, it may also lead to many unknown challenges after the main network is launched. Here we only state the conclusion without further discussion.

4 Conclusion

Self-organizing distributed networks are complex systems engineering. Swarm has done very in-depth research and design from the economic and technical aspects. Whether it succeeds or fails, it will be a meaningful attempt. For traditional network operators, Swarm may still be a trivial competitor, but distributed networks will occupy more markets after they move towards scale and standardization. For individuals and companies that pay attention to blockchain, Swarm is a valuable case. Distributed networks are just the beginning. Energy, big data, and other heavy asset industries with trust requirements can also learn from and emulate them to challenge the increasingly solidified industry structure. The author will continue to pay attention to Swarm's subsequent network construction and testing of various versions, and will bring more interpretations of the Swarm project in the future. Please like and follow.