What is Modular Blockchain?
When discussing modular blockchain, it is necessary to first understand the concept of monolithic blockchain. Monolithic chains, such as Bitcoin and Ethereum, are known for their comprehensiveness and independently handle various aspects of the network, from data storage to transaction verification, and smart contract execution. In this process, monolithic chains play the role of a generalist, being involved in all aspects.
Using Ethereum as an example, a mature monolithic blockchain can generally be divided into four architectures. The diagram below uses the analogy of accounting on the blockchain to explain the role of each layer in detail:
Through this analogy, we can have a clearer understanding of how each architecture of the blockchain works together. Monolithic blockchain concentrates all functionalities on a single chain, while modular blockchain is a new blockchain architecture that decomposes the blockchain system into multiple specialized components or layers, with each component responsible for specific tasks such as consensus, data availability, execution, and settlement.
Modular blockchain, like a group of specialists, focuses on in-depth exploration and technological innovation in their respective fields. This focus allows modular blockchain to provide excellent performance and user experience in specific functions. For example, they can provide faster transaction processing at lower costs.
In terms of node architecture, monolithic chains rely on full nodes, which need to download and process complete copies of the blockchain data. This not only places high demands on storage and computing resources but also limits the speed of network expansion. In contrast, modular blockchain adopts a lightweight node design that only needs to process block header information, significantly improving transaction speed and network efficiency.
One notable advantage of modular blockchain is its flexibility and collaboration. They can outsource non-core functions to other specialists, forming a synergistic effect and significantly improving overall performance. This design philosophy is similar to Lego bricks, allowing developers to freely combine different modules to create diverse solutions.
Although monolithic chains have advantages in global control, security, and stability, they also face challenges in scalability, upgrade difficulty, and adapting to new requirements. Modular blockchain stands out with its high flexibility and customizability, simplifying the creation and optimization process of new blockchains.
However, modular blockchain also faces its unique challenges. Its complex architecture increases the workload for developers in design, development, and maintenance. As an emerging technology, modular blockchain has not yet undergone comprehensive security testing and market fluctuations, and its long-term stability and security still need further verification.
Why is Modular Blockchain Needed?
Why is modular blockchain technology receiving widespread attention and being predicted as a “future trend”? This is closely related to the well-known “impossible triangle” theory in the blockchain field. The “impossible triangle” of blockchain refers to the difficulty of achieving the optimal state in terms of security, decentralization, and scalability simultaneously.
Scalability focuses on the network’s ability to process a large number of transactions and operate efficiently and cost-effectively as users and transaction volume grow. It is usually measured by transactions per second (TPS) and latency (time required for transaction confirmation).
Security involves the cost and difficulty of protecting the blockchain network from attacks. For example, Bitcoin’s proof-of-work (PoW) mechanism requires attackers to control more than 51% of the network’s computing power, while Ethereum’s proof-of-stake (PoS) mechanism requires collusion of more than one-third of the nodes.
Decentralization describes the operation of the network not relying on a single central node but distributed among many nodes. The higher the number and geographical distribution of nodes, the higher the degree of decentralization.
The core idea of the “impossible triangle” is that it is difficult for a blockchain system to achieve optimization in all three characteristics. For example, among many public chains, Bitcoin and Ethereum stand out in terms of decentralization and security due to their widespread node distribution and sufficient number of nodes.
However, they sacrifice some scalability, resulting in slower transaction speeds and higher transaction costs. Bitcoin has a block time of about 10 minutes, and Ethereum’s TPS is approximately 13. In times of high transaction volume, Ethereum’s transaction fees can reach hundreds of dollars.
It is in this context that modular blockchain technology has emerged, solving the challenges of scalability and transaction costs in traditional public chains by assigning different functions to specialized modules. For example, Bitcoin’s Lightning Network and Ethereum’s Rollup technology are embodiments of modular thinking.
The advantage of modular blockchain lies in its layered architecture, allowing each layer to be optimized for specific needs. The data layer can focus on data storage and validation, while the execution layer can handle smart contract logic. This separation not only improves performance and efficiency but also promotes interoperability between different blockchains, providing a foundation for building an open and interconnected ecosystem.
In summary, modular blockchain technology provides a new approach to address the limitations of traditional public chains. While maintaining decentralization and security, it achieves higher scalability and lower transaction costs, which has profound implications for the widespread application and long-term development of blockchain technology.
Analysis of Modular Blockchain Projects
3.1 Execution Layer
Based on its architectural characteristics, modular blockchain can be divided into different types. Among these types, the data availability layer and consensus layer are often designed as a unified whole due to their close interdependence. This is because when nodes receive transaction data, they usually also determine the order of transactions, which is the core of blockchain security and immutability.
Based on this design principle, we can understand different projects of modular blockchain from three aspects: the execution layer, data availability layer and consensus layer, and settlement layer.
Layer 2 technology, as an extension of the execution layer in blockchain architecture, is a manifestation of the concept of modular blockchain. It aims to improve the scalability of the main chain by building off-chain networks, systems, or technologies on top of the underlying blockchain.
Layer 2 solutions allow for faster and more cost-effective transaction processing while maintaining the security and decentralization of the underlying blockchain. According to the dune board created by @0x ning, the proportion of gas consumed by Layer 2 validation and settlement on the Ethereum ecosystem is on average less than 10%, significantly reducing transaction costs for users.
Rollup technology is currently the most mainstream solution for Layer 2, with its core concept of “off-chain execution, on-chain verification.” It executes computations and other work off-chain and then uploads the calldata back to the mainnet.
Off-chain execution: In the Rollup model, transactions are executed off-chain, and the underlying blockchain is only responsible for verifying transaction proofs in smart contracts and storing original transaction data. This design significantly reduces the computational burden on the main chain and reduces storage requirements, allowing for more efficient transaction processing. To further reduce costs, Rollup adopts transaction batching technology. It can be compared to the consolidation of goods in logistics, where sending each item individually would incur high shipping costs. Rollup technology significantly reduces the cost of each transaction by bundling multiple transactions together and requiring only one “shipment.”
On-chain verification: On-chain verification is the key to the security of Layer 2 networks. Layer 2 networks must provide cryptographic proofs to resolve potential disagreements on the underlying blockchain. Currently, two mainstream proof mechanisms are fraud proofs and validity proofs, which support Optimistic Rollups and ZK Rollups, respectively.
Optimistic Rollups’ fraud proofs: Optimistic Rollups adopt an optimistic assumption that all transactions are considered valid by default unless there is explicit evidence of an error. This model relies on fraud proofs (proof of fraud) during the challenge period, where any network participant can submit proof to challenge the state of a smart contract, ensuring fairness and transparency in the network.
According to data from L2 BEAT, there are currently 16 Layer 2 networks that use the Optimistic Rollups mechanism, such as Arbitrum, OP, Base, Blast, and others.
ZK Rollups’ validity proofs: In contrast to Optimistic Rollups, ZK Rollups take a more cautious approach, requiring all transactions to undergo validity proofs before being accepted. This proof mechanism is similar to a verification process, ensuring that each transaction and computation in the Layer 2 network is accurate and error-free.
According to data from L2 BEAT, there are currently 11 Layer 2 networks that use the ZK Rollups mechanism, such as Linea, Starknet, zkSync, and others.
3.2 Celestia
Celestia, as a pioneer in the field of modular blockchain, is essentially a data availability layer that provides a solid foundation for dApps and Rollup development. By deploying on Celestia’s data availability layer and consensus layer, application developers can focus on optimizing execution logic while leaving data availability and consensus mechanism complexity to Celestia. Celestia’s architectural design provides diverse solutions for modular expansion, and its architecture mainly includes the following three types:
Sovereign Rollup: Celestia provides the data availability layer and consensus layer, while the settlement layer and execution layer are independently implemented by their respective sovereign chains.
Settlement Rollup (e.g., Cevmos project): Based on Celestia’s data availability and consensus layer, Cevmos provides settlement layer services, while the application chain takes on the role of the execution layer.
Celestium: The data availability layer is handled by Celestia, while the consensus layer and settlement layer rely on Ethereum’s powerful network, allowing the application chain to continue focusing on the execution layer.
Celestia adopts several innovative technologies that significantly lower the cost of data storage and optimize storage efficiency.
Erasure codes: One of Celestia’s innovations is the application of erasure codes. In a paper co-authored by Mustafa Albasan (one of Celestia’s founders) and Vitalik Buterin, titled “Data Availability Sampling and Fraud Proofs,” a new architectural concept is proposed, where full nodes are responsible for block production, and lightweight nodes are responsible for verifying transaction proofs in smart contracts and storing original transaction data. Erasure code technology ensures the complete recovery of original data blocks even in the case of up to 50% data loss through the introduction of redundancy during data transmission.
This mechanism means that to ensure 100% data availability of block data, block producers only need to publish 50% of the block data to the network. If malicious producers try to tamper with 1% of the block data, they actually need to tamper with the entire 50% of the data, greatly increasing the cost of malicious behavior.
Data Availability Sampling: Celestia addresses the scalability issue of blockchains by introducing Data Availability Sampling (DAS) technology. The workflow of DAS includes several key steps:
Random sampling: Lightweight nodes perform multiple rounds of random sampling of block data, requesting only a small portion of the block data each time.
Progressive confidence increase: As lightweight nodes complete more rounds of sampling, their confidence in data availability gradually increases.
Achieving confidence threshold: Once lightweight nodes reach a predefined confidence level, such as 99%, they consider the block’s data to be available.
This mechanism allows lightweight nodes to verify the availability of block data without downloading the entire block data, ensuring the integrity and availability of blockchain data. Celestia focuses on providing data availability rather than execution state, which increases block production capacity, allowing each block to accommodate more sampled data, significantly improving TPS (transactions per second).
3.3 EigenDA
EigenDA is a secure, high-throughput, and decentralized data availability service, which is the first Active Verification Service (AVS) launched on EigenLayer. AVS can be understood as node operators, a subset of the thousands of node operators on Ethereum, who, in addition to their primary role of Ethereum consensus verification, take on additional private work (serving networks with consensus verification needs, such as rollup networks) to earn additional income.
With the increase in re-staked Ethereum and more AVS joining the EigenLayer ecosystem in the future, Rollups can achieve lower transaction costs and higher security composability in the EigenLayer ecosystem.
EigenLayer is a re-staking protocol based on Ethereum, which utilizes Ethereum’s consensus layer stakers as validators, leveraging Ethereum’s partial security to avoid trust risks associated with centralized service providers or proprietary tokens, thus reducing thePlease rewrite this article completely. It requires a creative re-expression. The general semantics should remain unchanged. It must be accurate and fluent. There should be no grammatical errors. Proper nouns and all 
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Return to English content: In addition to other projects, EigenDA has increased the development threshold for Ethereum. At the same time, it strengthens Ethereum’s trust network, increases Ethereum’s value and influence.
In terms of architecture, EigenDA uses ZK technology to verify the state data submitted by Layer 2 and is responsible for the final determinism of the EigenDA network secured by Restaking ETH. Finally, the state data of Layer 2 is submitted and saved to the Ethereum mainnet. Therefore, EigenDA is equivalent to a subcontractor in the DA service of the Ethereum mainnet for the validation and final determinism process, rather than a competitor like Celestia.
3.4 Avail
Avail is a modular blockchain project announced by the Polygon team in June 2023. It was split from Polygon in March this year and operates as an independent entity. Currently, Avail is running on the testnet and has just completed a $43 million Series A financing round led by Dragonfly and Cyber Fund.
The core architecture of Avail consists of Avail DA, Avail Nexus, and Avail Fusion. Avail DA is a modular data availability layer that provides DA services to various blockchains, similar to Celestia. Avail Nexus is a standardized cross-chain messaging protocol, similar to Cosmos’ IBC protocol, which enables interoperability between different chains. Avail Fusion introduces a multi-asset staking POS consensus to provide security for the entire Avail network.
In terms of technology, Avail DA uses Kate polynomial commitment to avoid fraud proofs and does not require the assumption that the majority of nodes are honest, nor does it rely on full nodes to obtain data availability. This is different from Celestia’s architecture, which is based on fraud proofs, resulting in fundamental differences between the two at the technical level.
With the emergence of modular data availability blockchain projects such as Celestia and Avail, the modular DA War will become more intense, and the functionality of Ethereum as the DA layer will be diverted, which may lead to a “one super, multiple strong” competition pattern in the future.
3.5 Dymension
Dymension is a modular blockchain platform based on Cosmos that provides a concise framework for RollApp development through built-in scalability aggregation technology. In the architecture of Dymension, developers can focus on implementing business logic and quickly deploy Rollups for specific applications using the Rollup Development Kit (RDK) and dedicated settlement layer.
The architecture of Dymension consists of two core components: RollApp and Dymension Hub.
RollApp is the fusion of Rollup and App and is a high-performance modular blockchain dedicated to specific applications on Dymension. RollApp can take various forms, including but not limited to dedicated Layer 2 solutions for decentralized applications such as DeFi platforms, Web3 games, and NFT marketplaces.
In RollApp, the sequencer plays a crucial role in verifying, ordering, and processing local transactions. After the blocks are packed, the data is passed to the peer full nodes and published on the chain to the data availability network selected by RollApp, such as Celestia. After receiving a response from Celestia, the sequencer sends its state root to the Dymension Hub to achieve consensus formation and settlement.
Dymension Hub serves as the central component of the entire ecosystem, fulfilling the functions of the consensus layer and settlement layer. It receives state roots from RollApps and provides final transaction confirmation and settlement services for RollApps.
With this design, Rollups can delegate the tasks of consensus and settlement to Dymension Hub, while delegating the tasks of data storage and verification to DA networks like Celestia. This allows Rollups to share the economic security guarantees of these two networks while focusing on improving the efficiency and user experience of their applications.
3.6 Cevmos
Cevmos combines the names Celestia, EVMos, and CosmOS with the aim of providing a settlement layer for EVM-compatible rollups. As Cevmos itself is a rollup, all rollups built on it are collectively referred to as settlement rollups. Each rollup is connected to Cevmos rollup through a minimal bidirectional trust bridge, enabling the redeployment of existing rollup contracts and applications on the Ethereum mainnet, reducing migration efforts. Rollups on Cevmos publish data to Cevmos, which then processes the data in batches and publishes it to Celestia. Similar to Ethereum, Cevmos acts as the settlement layer for rollups.
4. Modular Blockchain in the Bitcoin Ecosystem
With the wealth effect brought by the Ordinals protocol and the approval of Bitcoin ETF, multiple positive factors have injected new vitality into the Bitcoin ecosystem. The market’s attention has quickly shifted to the Bitcoin ecosystem, and institutional investors have poured funds into this field, demonstrating confidence and expectations for the future development of the Bitcoin ecosystem.
In this context, Bitcoin Layer 2 technologies have flourished, with numerous technical solutions emerging, forming a diverse and vibrant technical ecosystem. Various innovative solutions have emerged, collectively driving the expansion and optimization of the Bitcoin network. Although there is currently no unified consensus on the precise definition of Bitcoin Layer 2 in the industry, this article will draw on the concept of modular blockchain from Ethereum and explore the possibilities and methods of building Bitcoin Layer 2 from a modular perspective. Ethereum is known for its Turing-complete smart contract functionality, which allows for the storage and verification of historical states, supporting complex decentralized applications (DApps). In contrast, the Bitcoin network is a stateless non-smart contract network, and its imperfect system design mainly stems from two aspects:
1. Limitations of the UTXO account system
In the blockchain world, there are two main ways of recording: the account/balance model and the UTXO model. Bitcoin adopts the UTXO model, which is in stark contrast to Ethereum’s account/balance model.
In the Bitcoin system, although users see the account balance in their wallets, Satoshi Nakamoto’s Bitcoin system does not actually include the concept of balance. The so-called “Bitcoin balance” is actually a concept derived by wallet applications based on UTXOs. UTXOs represent unspent transaction outputs, and they are the core of Bitcoin transaction generation and verification.
Each Bitcoin transaction consists of inputs and outputs. Each transaction consumes one or more inputs and generates new outputs. These newly generated outputs become new UTXOs waiting to be consumed by future transactions.
As a minimalist asset transfer and settlement technology architecture, the UTXO model is difficult to scale to support complex features such as smart contracts.
2. Non-Turing complete scripting language
Bitcoin’s scripting language does not support all types of computation due to the lack of looping and conditional control statements, making it not Turing complete. This feature helps reduce hacking attacks and enhance network security but also limits the ability of Bitcoin to execute complex smart contracts.
Due to the imperfect design of the Bitcoin system, it needs to rely on external modular extensions for more complex functionalities. In this regard, Bitcoin has a more urgent need for modularity than Ethereum. The execution layer, data availability layer, consensus layer, and cross-chain interoperability layer in its ecosystem all need to be encapsulated and extended in a modular way.
4.1 Merlin Chain
Currently, in the Bitcoin Layer 2 race, Merlin Chain has the highest TVL, reaching billions of dollars, making it the most attention-grabbing project in the Bitcoin ecosystem. As a Bitcoin Layer 2 network, Merlin Chain supports multiple native Bitcoin assets and is also compatible with EVM, demonstrating its dual focus on the Bitcoin and Ethereum ecosystems.
Merlin’s features revolve around ZK-Rollup networks, decentralized oracle networks, and on-chain anti-fraud measures.
ZK-Rollup networks: The core of ZK-Rollups lies in the use of zero-knowledge proofs. Zero-knowledge proofs, as a cryptographic method, allow one party (the prover) to prove to another party (the verifier) that a certain statement is true without revealing any information other than the fact that the statement is true.
Merlin Chain processes and computes transactions off-chain to avoid high transaction fees and network congestion on the Bitcoin network. At the same time, ZK-Rollup compresses multiple transaction proofs into batches, and the Bitcoin main chain only needs to verify a single proof that encompasses multiple transactions, greatly reducing the workload on the main chain and improving transaction efficiency.
Decentralized oracle network: Merlin’s decentralized oracle network functions as a Data Availability Committee (DAC) to check and ensure that the sequencer faithfully publishes complete DA data off-chain. The decentralization of the oracle network is achieved through a Proof of Stake (POS) mechanism, where anyone can run an oracle node by staking sufficient assets. This staking mechanism is flexible, supporting assets such as BTC and MERL, as well as proxy staking similar to Lido.
On-chain anti-fraud measures: Merlin adopts the BitVM approach and uses an “optimistic ZK-Rollup” mechanism, which can be simply understood as defaulting all ZK proofs to be trustworthy and only punishing operators in case of errors. Verification is done on the Bitcoin mainnet, where due to technical limitations, it is not possible to fully verify ZK proofs. It can only selectively verify a specific step of the ZK proof’s calculation process under special circumstances. Therefore, people can only point out that there is an error in a certain calculation step of the ZKP during off-chain verification and challenge it through fraud proofs.
4.2 B2 Network
B2 Network adopts a modular design, with the Rollup layer (ZK-Rollup) responsible for execution, the data availability layer (B2 Hub) for data storage, B2 Nodes for off-chain verification, and the Bitcoin mainnet as the final settlement layer. The ZK-Rollup layer of B2 Network uses the zkEVM solution to execute user transactions within the Layer 2 network and output relevant proofs. The Rollup layer is responsible for submitting and processing user transactions, while the DA layer stores copies of aggregated data and verifies relevant zero-knowledge proofs.
B2 Hub is a DA network built off-chain with data sampling capabilities and is considered a pioneer in modular Bitcoin extension solutions. B2 Hub draws inspiration from Celestia’s design approach and introduces data sampling and erasure coding technologies to ensure that new data can be quickly distributed to numerous external nodes and minimize the risk of data withholding. In addition, the Committer in B2 Hub uploads storage indexes and data hashes of DA data to the Bitcoin chain for public access.
According to B2 Network’s future plans, the EVM-compatible B2 Hub is expected to serve as the off-chain verification layer and DA layer for multiple Bitcoin Layer 2 solutions, forming a functional extension layer for Bitcoin off-chain. Given that Bitcoin itself cannot support many use cases, constructing a functional extension layer off-chain is becoming increasingly common in the Layer 2 ecosystem.
As the first third-party DA layer in the Bitcoin ecosystem, B2 Hub can help other Bitcoin Layer 2 solutions utilize the Bitcoin mainnet as the final settlement layer and inherit Bitcoin’s security, thereby promoting the expansion of the Bitcoin network and enhancing the diversity of its applications.
5 Conclusion
“Modular is the future” is a slogan that is gradually turning from an idea into reality. Modular blockchain technology, with its flexibility and scalability, provides a solid foundation for building the next generation of decentralized applications. This technology allows developers to choose and combine different modules according to specific needs, creating more efficient, secure, and maintainable blockchain solutions.
The rise of modular blockchain represents a more “plug-and-play” approach to products. In this approach, blockchain is no longer seen as a closed system but as an open and scalable platform where various services and functionalities can be easily inserted and removed like LEGO bricks. This flexibility enables developers to quickly build and deploy blockchain solutions based on specific application requirements. Originating from the Ethereum ecosystem and now emerging in the Bitcoin ecosystem, modular technology has demonstrated its capabilities in various tracks of the cryptocurrency industry. For example, Chromia, a modular public chain using “relational database” technology, has collaborated with multiple games such as My Neighbor Alice and Chain of Alliance in the gaming industry. In the RWA track, Chromia has created the Ledger Digital Asset Protocol (Ledger DAP), which has been adopted by several projects.
In the AI field, CARV focuses on building a modular data layer for AI and Web3 games, ensuring privacy and security in data processing through technologies such as Trusted Execution Environment (TEE) and zero-knowledge proofs.
With the continuous maturity of modular blockchain technology and the expansion of application areas, we have reason to believe that this technology will bring more possibilities for innovation to various industries. From the birth of Bitcoin to the widespread adoption of modular blockchain technology today, we have witnessed how blockchain technology has evolved from a single digital currency application to an ecosystem that supports complex and diverse applications. In the future, modular blockchain will continue to drive technological progress and lay the foundation for building a more open, flexible, and secure digital world.
