WHAT IS MODULAR BLOCKCHAIN?

Blockchains like Bitcoin and Ethereum perform various functions, such as conducting transactions, ensuring transaction certainty, maintaining consensus, and making transaction data available. But what if a blockchain was only responsible for one function, not all four? This is the premise for the creation of the modular blockchain concept.

What is a Modular Blockchain?

A modular blockchain is a blockchain specialized in a specific function, delegating the remaining tasks to other blockchains. It can specialize as an execution layer, consensus layer, data layer, or payment layer.

The concept of modular blockchain has become popular over the years as first-layer (L1) blockchains struggle to scale. Single-block blockchains like Ethereum are expanding with modular solutions, such as RollUp.

Rollups are execution layers - where transactions are processed away from the main L1 chain. The L1 chain is used as a data layer by rollups to submit transaction data, which can be used by anyone to verify the validity of transactions made on the rollup chain.

The Concept of a Monolithic Blockchain

A monolithic blockchain is a single-block blockchain that performs all the main functions (consensus, data provision, execution, and payment) necessary for a blockchain. The first generation of public cryptocurrency blockchains, including Bitcoin and Ethereum, are monolithic blockchains.

Here is an example of how a monolithic L1 blockchain works:

The block creator, called a “miner” in Proof of Work (PoW) blockchains or a “validator” in Proof of Stake (PoS) blockchains, takes transactions from a mempool to create a new block. The new block is broadcasted to the entire network for approval.

Nodes download transaction data from the proposed block and validate it until consensus is reached. Once the block is accepted, transactions within the block are declared certain.

In the above example, the block creator and nodes of the L1 blockchain do all the necessary work to execute, confirm, accept, and protect the transaction.

Types of Modular Blockchains

Modular blockchains differ based on their functions. Below are the four types of modular blockchains:

Execution: These blockchains are designed to process and execute transactions. Users can deploy and interact with smart contracts.

Data Provision: The main function of these modular blockchains is to store transaction data for other blockchains and ensure the availability of historical data when requested.

Consensus: The consensus layer includes a network of full nodes that load and verify transaction data from blocks to achieve consensus on the validity of the block state.

Payment: A modular blockchain specializing in payments will verify transactions, arrange blocks, confirm transactions, and resolve disputes.

Examples of Modular Blockchains

Rollup

Rollups are blockchains that process and execute transactions off-chain before submitting transaction data along with fraud or validity proofs to the parent chain. Ethereum is undergoing a roadmap focused on rollups, using them to achieve higher scalability. In the future, Ethereum will become a semi-modular blockchain.

Examples: Optimism and Arbitrum.

Validium

Validium is similar to rollups. They process transactions off-chain but only submit validity proofs to the parent chain. Unlike rollups, Validium does not store transaction data on the parent chain. Instead, Validium uses a network of proof-of-stake validators to store data off-chain. Because data is not stored on the parent chain, gas fees on Validium are lower than on rollups.

Example: StarkEx.

Sovereign Rollup

A sovereign rollup is a rollup that does not rely on its parent L1 chain for transaction settlement. This blockchain publishes its transactions to another chain for sequencing and data availability but relies on its own nodes to determine if transactions are correct. Sovereign rollups can upgrade through forks similar to L1 blockchains. A disagreement among nodes can lead to a chain split.

Example: Celestia.

Modular Blockchain is a relatively new concept in the cryptocurrency space, but it has quickly become a promising trend, not only in the cryptocurrency market but in the entire blockchain industry. Although still facing many challenges, pioneering projects like Celestia are focusing on developing the first and most complete Modular Blockchain in the cryptocurrency market.