Modular blockchains could be the key to a whole new world of crypto. It is a growing narrative for the next bull run. Additionally, modular blockchain is becoming a category-defining narrative around scalability and blockchain infrastructure. Modular blockchains are an alternative to monolithic blockchains.
So, what makes modular blockchains special, and why should you care?
The Option in Monolithic Blockchains
Bitcoin and Ethereum are the primary examples of monolithic blockchains. In a monolithic blockchain, a single layer handles three major functions:
Consensus- Ensuring agreement on the current state of the blockchain.
Data availability- The availability of transaction data.
Execution- Computations needed to upgrade the blockchain to the new state.
The issue with monolithic blockchains is that nodes must perform all three actions simultaneously. However, it is not easy and may lead to a blockchain trilemma. An example is the Ethereum L1, which sacrifices scalability for decentralization. This results in high gas fees and slow transactions. This is where modular blockchains come in.
What is a Modular Blockchain?
A modular blockchain focuses on only a few functions and offloads the rest to separate layers. It allows for better specialization and optimization of specific tasks. Additionally, modular blockchains have multiple layers, each with its specialized function. For example, one layer may handle the execution; another handles data availability, and a third handle consensus.
For instance, Rollups handle transaction execution by bundling multiple transactions into one single transaction. Consequently, the data is posted to L1, where consensus is reached.
This is an example of how Optimistic Rollups or zkRollups work.
Projects Adopting the Modular Design
1. Ethereum
To further increase scalability and maximize data availability, Ethereum will adopt a sharded design. In short, shards can process transactions in parallel or act as storage depots for different chunks of blockchain data.
This allows nodes to only store the data published on their chain, reducing storage requirements and improving performance.
Thanks to rollups and sharding, Ethereum is becoming a modular blockchain.
2. BitDAO
According to BitDAO, the launching of the modular Ethereum Layer 2 will happen in three layers:
One for transaction execution
One for transaction finality
One for data availability
Gas will be paid in $BIT. Additionally, modular blockchains allow for new blockchains to launch, as they can utilize existing modular blockchains for their offloaded functions. This reduces time to deployment and minimizes costs.
3. Celestia
Celestia claims to be the first modular blockchain network. It specializes in consensus and data availability, offloading execution to separate chains. Besides, it does not have smart contracts.
It sticks to a vision of the ‘marriage of Cosmos’ sovereign interoperable zones and a rollup-centric Ethereum with shared security.
As such, apps/chains can launch fast with their own governance rules while sharing security guarantees.
Final Thoughts
Overall, modular blockchains offer benefits over monolithic designs. Such include increased scalability to solve blockchain trilemma.
It is a major paradigm shift as we expect their network effects to become increasingly apparent over the next few years.
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