Source: Gryphsis Academy
TL;DR
Monolithic blockchains are known for their comprehensiveness, independently handling various aspects of the network, from data storage to transaction verification, and more. On the other hand, modular blockchains separate different functions of the blockchain into independent modules, providing performance support and a smooth user experience in specific functionalities, to some extent addressing the “impossible triangle” problem.
Ethereum, as the first blockchain platform to support smart contracts, has provided a fertile ground for modular design. With the development of blockchain technology, the Bitcoin ecosystem has also begun to explore the possibilities of modularity, adding new modules to achieve advanced functionalities such as improved privacy protection, more efficient transaction processing, or enhanced smart contract capabilities.
Modular technology represents a more “soulful” plug-and-play product approach, leading to more flexible and customizable blockchain solutions in the future. Developers can easily insert and remove various services and functionalities like LEGO bricks to quickly build and deploy blockchain solutions based on specific application needs.
1. What is Modular Blockchain?
When we discuss modular blockchains, it is essential to understand the concept of Monolithic Blockchain. Monolithic chains, such as Bitcoin, Ethereum, etc., are known for their comprehensiveness, independently handling various aspects of the network, from data storage to transaction verification, and smart contract execution. In this process, monolithic chains play a generalist role, covering all aspects.
Taking Ethereum as an example, a mature monolithic blockchain is generally divided into four architectures:
– Execution Layer
– Settlement Layer
– Data Availability Layer (DA Layer)
– Consensus Layer
The diagram below explains the role of each architecture layer in a blockchain network, using the analogy of accounting on a blockchain to a soccer game:
By utilizing this analogy, we can better understand how the different architectures of a blockchain work together. Monolithic blockchains concentrate all functions on a single chain, while modular blockchains are a new type of blockchain architecture that decomposes the blockchain system into multiple specialized components or layers, with each component responsible for specific tasks like consensus, data availability, execution, and settlement.
Modular blockchains, like a group of specialists, focus on deep exploration and technological innovation in their respective fields. This focus allows modular blockchains to offer superior performance and user experience in specific functionalities, for example, providing faster transaction processing at a lower cost.
In terms of node architecture, monolithic chains rely on full nodes that must download and process a full copy of the blockchain data. This not only places high demands on storage and computational resources but also limits the speed of network expansion. In contrast, modular blockchains use a lightweight node design that only processes block header information, significantly increasing transaction speed and network efficiency.
A significant advantage of modular blockchains is their flexibility and collaboration. They can outsource non-core functions to other experts, creating a synergistic effect that significantly improves overall performance. This design philosophy is similar to LEGO bricks, allowing developers to freely combine different modules according to project requirements, creating diverse solutions.
While monolithic chains have advantages in global control, security, and stability, they face challenges in scalability, upgrade difficulty, and adapting to new requirements. Modular blockchains stand out for their high flexibility and customizability, simplifying the creation and optimization process of new blockchains.
However, modular blockchains also face their unique challenges. Their complex architecture increases the workload for developers in design, development, and maintenance. As an emerging technology, modular blockchains have yet to undergo comprehensive security testing and market fluctuations, and their long-term stability and security will need further validation.
2. Why Modular Blockchain is Needed
Why is modular blockchain technology widely recognized and 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 a blockchain network achieving optimal states in security, decentralization, and scalability simultaneously.
– Scalability focuses on the network’s ability to handle a large number of transactions and operate efficiently and cost-effectively as users and transaction volumes grow. It is typically measured by TPS (transactions per second) and latency (time required for transaction confirmation).
– Security involves the cost and difficulty of protecting the blockchain network from attacks. For example, Bitcoin’s POW mechanism requires an attacker to control over 51% of the network’s computing power, while Ethereum’s POS mechanism requires collusion of more than 1/3 of the nodes.
– Decentralization describes the operation of the network not depending on a single central node but distributed across numerous nodes, with a higher degree of decentralization achieved with more nodes and broader geographical distribution.
The core idea of the “impossible triangle” is that a blockchain system finds it challenging to optimize all three properties simultaneously. For example, among many public chains, Bitcoin and Ethereum excel in decentralization and security due to their widespread node distribution and sufficient number of nodes.
However, they sacrifice a certain level of scalability, resulting in slow transaction speeds and high transaction fees: Bitcoin’s block time is around 10 minutes, and Ethereum’s TPS is approximately 13, with transaction fees on Ethereum possibly reaching hundreds of dollars during high transaction volumes.
It is in this context that modular blockchain technology has emerged, addressing the scalability and transaction cost challenges of 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 blockchains lies in their 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 enhances performance and efficiency but also promotes interoperability between different blockchains, providing a foundation for building open and interconnected ecosystems.
In conclusion, modular blockchain technology offers a new approach to addressing the limitations of traditional public chains. By maintaining decentralization and security while achieving higher scalability and lower transaction costs, it holds profound significance for the widespread application and long-term development of blockchain technology.
3. Modular Blockchain Race – Project Analysis
Based on its architectural characteristics, modular blockchains 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 typically also determine the transaction order simultaneously, which is essential for blockchain security and immutability.
Following this design principle, we can understand different projects of modular blockchains from three aspects: the execution layer, data availability layer and consensus layer, and settlement layer.
3.1 Execution 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 faster, more cost-effective transaction processing while maintaining the security and decentralization features of the underlying blockchain. According to the Dune board created by @0xning, Layer 2 verification and settlement on the Ethereum ecosystem consume less than 10% of gas on average, significantly saving users’ transaction costs.
Rollup technology is currently the mainstream solution in Layer 2, with the core idea of “off-chain execution, on-chain verification,” executing computations off-chain and then uploading calldata back to the mainnet.
Off-chain Execution
In the Rollup model, transactions are executed off-chain, with the underlying blockchain only responsible for verifying transaction proofs in smart contracts and storing the original transaction data. This design significantly reduces the computational burden on the main chain, reduces storage requirements, and allows more efficient transaction processing.
To further reduce costs, Rollup utilizes transaction batching technology. It can be compared to containerization in logistics, where shipping each item individually would incur high transportation costs. Rollup technology packs multiple transactions together, requiring only one “shipment,” significantly lowering the cost of each transaction.
On-chain Verification
On-chain verification is crucial for the security of Layer 2 networks. Layer 2 networks must provide cryptographic proofs to resolve potential discrepancies on the underlying blockchain. Currently, two mainstream proof mechanisms are fraud proofs and validity proofs, supporting Optimistic Rollups and ZK Rollups, respectively.
Optimistic Rollups’ Fraud Proofs
Optimistic Rollups operate under an optimistic assumption that all transactions are valid unless there is clear evidence of errors. This model relies on fraud proofs during the challenge period, where any network participant can submit proof to challenge the state of the smart contract, ensuring fairness and transparency in the network.
Based on L2B
Source: ChainlinkCurrently, there are a total of 16 Layer 2 solutions utilizing the Optimistic Rollups mechanism, such as Arbitrum, OP, Base, Blast, and more.
Source: l2beat.com
Proof of Validity in ZK Rollups
Unlike Optimistic Rollups, ZK Rollups employ a more cautious approach by requiring all transactions to undergo a proof of validity before being accepted. This proof mechanism acts as a verification process, ensuring that every transaction and computation on the Layer 2 network is accurate and error-free.
In essence, proof of validity is the cornerstone of ZK-Rollups, requiring each batch of transactions to come with corresponding proofs to ensure that smart contracts on the underlying blockchain can verify and approve state changes. For validation nodes, ZK Rollups offer a zero-error settlement mechanism, as each transaction must pass through rigorous validity checks.
According to data from L2BEAT, there are currently 11 Layer 2 solutions utilizing the ZK Rollups mechanism, including Linea, Starknet, zkSync, and others.
Source: l2beat.com
Data Availability Layer and Consensus Layer
Celestia
Celestia, as a pioneer in the modular blockchain space, serves as a data availability layer, providing a solid foundation for dApp 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 complexity to Celestia.
Celestia’s architectural design offers diverse solutions for modular expansion, consisting mainly of three types:
Sovereign Rollup: Celestia provides data availability and consensus layers, while settlement and execution layers are independently implemented by their respective sovereign chains.
Settlement Rollup (e.g., Cevmos project): Building on Celestia’s DA and consensus layers, Cevmos offers settlement layer services, with the application chain taking on the role of the execution layer.
Celestium: While Celestia handles the data availability layer, the consensus and settlement layers rely on Ethereum’s robust network, allowing application chains to focus on the execution layer.
Celestia has implemented innovative technologies that significantly reduce data storage costs and optimize storage efficiency.
Erasure Code Technology
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 architecture concept is introduced where full nodes are responsible for block production, while light nodes verify blocks. Erasure code technology introduces redundancy in data transmission, ensuring that even in the case of up to 50% data loss, the original data block can be fully recovered.
This mechanism means that to ensure 100% block data availability, block producers only need to publish 50% of the block data to the network. If malicious producers attempt to tamper with just 1% of the block data, they would need to alter the entire 50% of data, significantly increasing the cost of malfeasance.
Data Availability Sampling
Celestia addresses blockchain scalability issues by introducing Data Availability Sampling (DAS) technology. The workflow of DAS includes several key steps:
Random Sampling: Light nodes perform multiple rounds of random sampling on block data, requesting only a small portion of the data each time.
Increasing Confidence Gradually: As light nodes complete more rounds of sampling, their confidence in data availability gradually increases.
Reaching Confidence Threshold: Once a light node reaches a preset confidence level (e.g., 99%) through sampling, it deems the block data available.
This mechanism allows light nodes to verify block data availability without downloading the entire block data, ensuring the integrity and availability of blockchain data. Celestia focuses on providing data availability rather than execution state, enabling increased block production rates and improved TPS (transactions per second) by allowing more sampling data per block.
EigenLayer
EigenDA is a secure, high-throughput, decentralized data availability service launched on EigenLayer as the first Active Verification Service (AVS). AVS can be likened to node operators selected from thousands on Ethereum, who, in addition to their primary duties (consensus validation on Ethereum), take on additional tasks (serving networks like rollups with consensus validation requirements) to earn extra income.
With increasing staking on Ethereum and more AVS joining the EigenLayer ecosystem in the future, Rollups can benefit from lower transaction costs and enhanced security composability within the EigenLayer ecosystem.
EigenLayer operates as a re-staking protocol based on Ethereum, utilizing Ethereum’s stakers as validators to leverage some of Ethereum’s security, mitigating trust risks associated with centralized service providers or proprietary tokens and lowering the development barriers for other projects. It also strengthens Ethereum’s trust network, enhancing Ethereum’s value and influence.
In terms of architecture, EigenDA uses ZK technology to verify the state data submitted by Layer 2 and ensures consensus security through Restaking ETH, with EigenDA network responsible for finality, ultimately submitting Layer 2 state data to the Ethereum mainnet. Therefore, EigenDA acts as a subcontractor in the verification and finality process of Ethereum’s mainnet DA service, rather than a direct competitor like Celestia.
Avail
Avail is a modular blockchain project launched by the Polygon team in June 2023, split from Polygon in March this year to operate as an independent entity. Currently running on the testnet, Avail recently completed a $43 million Series A funding round led by Dragonfly and Cyber Fund.
Avail’s core architecture consists of Avail DA, Avail Nexus, and Avail Fusion. Avail DA is a modular data availability layer similar to Celestia, providing DA services for various blockchains. Avail Nexus is a standardized cross-chain messaging protocol, akin to Cosmos’ IBC protocol, facilitating interoperability between different chains. Avail Fusion introduces a multi-asset staking POS consensus to provide secure consensus for the entire Avail network.
Technically, Avail DA uses Kate polynomial commitments to avoid fraud proofs, does not require assuming the majority of nodes are honest, and does not depend on full nodes for data availability. This differs from Celestia’s architecture, which is based on fraud proofs, highlighting a fundamental difference between the two on a technical level.
With the emergence of modular data availability blockchain projects like Celestia and Avail, the competition in the modular DA war is set to intensify, potentially leading to a “one dominant, many strong” competitive landscape in Ethereum’s DA layer functionality.
Settlement Layer
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 Dymension’s architecture, developers can focus on implementing business logic using the Rollup Development Kit (RDK) and dedicated settlement layers to quickly deploy Rollups tailored to specific applications.
Dymension’s architecture comprises two core components: RollApp and Dymension Hub.
RollApp combines Rollup and App, serving as a high-performance modular blockchain dedicated to specific applications on Dymension. RollApps can take various forms, including but not limited to dedicated Layer 2 solutions for decentralized applications like DeFi platforms, Web3 games, and NFT trading markets.
Within RollApp, the Sequencer plays a crucial role, responsible for verifying, sorting, and processing local transactions. Once blocks are packaged, this data is passed to peer full nodes and published on the data availability network chosen by RollApp, such as Celestia. After receiving a response from Celestia, the Sequencer sends its state root to Dymension Hub for consensus formation and settlement.
Dymension Hub serves as the central component of the ecosystem, handling the functions of the consensus and settlement layers. It receives state roots from RollApps to provide final transaction confirmation and settlement services.
With this design, Rollups can delegate consensus and settlement tasks to Dymension Hub while entrusting data storage and validation tasks to DA networks like Celestia. This allows Rollups to share the economic security of these two networks while focusing on improving the execution efficiency and user experience of their applications.
Cevmos
Combining Celestia, EVMos, and CosmOS, Cevmos aims to provide 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 on Cevmos achieves redeployment of existing rollup contracts and applications on Ethereum through minimal bidirectional trust bridges with Cevmos rollup, reducing migration efforts. Rollups on Cevmos publish data to Cevmos, which then batch processes the data before publishing it to Celestia. Similar to Ethereum, Cevmos acts as the settlement layer executing rollup proofs.
Modular Blockchain in the Bitcoin Ecosystem
With the wealth creation effect brought by the Ordinals protocol and the approval of a Bitcoin ETF, multiple positive factors converge to inject new vitality into the Bitcoin ecosystem.The market’s attention has swiftly turned to the Bitcoin ecosystem, with institutional investors pouring funds into this area, demonstrating confidence and anticipation for the future development of the Bitcoin ecosystem.
In this context, Bitcoin Layer 2 technology is flourishing, with numerous technical solutions emerging, creating a diverse and vibrant technological ecosystem. Various innovative solutions are being introduced, collectively driving the expansion and optimization of the Bitcoin network.
Although a unified consensus on the exact definition of Bitcoin Layer 2 has not been reached in the industry, this article will draw inspiration from the modular blockchain concept of Ethereum and explore the possibilities and methods of building Bitcoin Layer 2 from a modular perspective.
Why does Bitcoin need modularity?
The Ethereum network is renowned for its Turing-complete smart contract capabilities, which can store and verify historical states to support complex decentralized applications (DApps). In contrast, the Bitcoin network is a stateless non-smart contract network, with its imperfect system design primarily stemming from two aspects:
1. Limitations of the UTXO account system
In the blockchain world, there are mainly two ways of recording: account/balance model and UTXO model. Bitcoin adopts the UTXO model, which sharply contrasts with Ethereum’s account/balance model.
In the Bitcoin system, although users see account balances in their wallets, Satoshi Nakamoto’s designed Bitcoin system does not actually include the concept of balances. The so-called “Bitcoin balance” is actually a concept derived from UTXOs by wallet applications. UTXO represents unspent transaction outputs, which are essential for Bitcoin transaction generation and verification.
Each Bitcoin transaction consists of inputs and outputs, with each transaction consuming one or more inputs and generating new outputs. These newly generated outputs then become new UTXOs, awaiting consumption in future transactions.
As a minimalist asset transfer and settlement technology architecture, the UTXO model struggles to scale to support complex functions like smart contracts.
2. Non-Turing complete script language
Bitcoin’s script language does not support all types of computing due to the lack of loop and conditional control statements, making it non-Turing complete. While this feature helps reduce hacker attacks and improve network security, it also limits Bitcoin’s ability to execute complex smart contracts.
Due to the imperfect design of the Bitcoin system, it relies on external modular extensions for more complex functionalities. In this regard, Bitcoin’s need for modularity is undoubtedly more urgent than Ethereum’s. Features like execution layer, data availability layer, consensus layer, and cross-chain interoperability layer in its ecosystem all require encapsulation and extension through a modular approach.
Bitcoin ecosystem’s modular projects analysis
Execution layer – Bitcoin Layer 2
Merlin
Currently leading in the Bitcoin Layer 2 race, Merlin Chain boasts the highest TVL, reaching billions of dollars, making it one of the most attention-grabbing projects in the Bitcoin ecosystem. As a Bitcoin Layer 2 network, Merlin Chain supports a variety of native Bitcoin assets while also being compatible with EVM, showcasing a dual focus on the Bitcoin and Ethereum ecosystems.
Source: https://defillama.com/chain/Merlin
Merlin’s features revolve around ZK-Rollup network, decentralized oracle network, and on-chain anti-fraud mechanisms.
ZK-Rollup network
ZK-Rollups utilize zero-knowledge proofs at their core. Zero-knowledge proofs, as an encryption method in cryptography, allow one party (prover) to prove a statement to another party (verifier) without revealing any information other than the correctness of the statement being proven.
Merlin Chain processes and computes transactions off-chain, avoiding high transaction fees and network congestion on the Bitcoin network. Additionally, ZK-Rollup can compress multiple transaction proofs into batches, with the Bitcoin main chain only needing to verify a single proof containing multiple transactions, significantly reducing the main chain’s workload and enhancing transaction efficiency.
Decentralized Oracle Network
Merlin’s decentralized oracle network acts as a Data Availability Committee (DAC) to check and ensure that sequencers truthfully publish complete DA data off-chain. The decentralized nature of the oracle network lies in its proof-of-stake (POS) form, where anyone can run an oracle node by pledging sufficient assets. This staking mechanism is highly flexible, supporting assets like BTC, MERL, and similar to Lido’s proxy staking.
On-chain Anti-fraud
Merlin introduces the BitVM concept, employing an “optimistic ZK-Rollup” mechanism, which assumes all ZK Proofs are trustworthy by default and only penalizes operators in the event of errors. Due to technical constraints, verification is done on the Bitcoin mainnet, where ZK Proofs cannot be fully verified. Instead, in special cases, a challenge can be made by pointing out an error in a specific calculation step of the ZK Proof during off-chain verification.
Data Availability Layer & Consensus Layer
B2 Network
B2 Network adopts a modular design, with the Rollup layer (ZK-Rollup) handling execution, the data availability layer (B2 Hub) storing data, B2 Nodes performing off-chain verification, and the settlement layer being the Bitcoin mainnet.
The ZK-Rollup layer of B2 Network utilizes the zkEVM solution to execute user transactions within the second-layer network and output relevant proofs. The Rollup layer manages the submission and processing of user transactions, while the DA layer stores copies of aggregated data and verifies related zero-knowledge proofs.
Source: https://docs.bsquared.network
B2 Hub is a DA network built off-chain with data sampling capabilities, considered a pioneer in modular Bitcoin extension solutions. Drawing inspiration from Celestia’s design philosophy, B2 Hub incorporates data sampling and erasure coding technologies to ensure rapid distribution of new data to external nodes and minimize data withholding risks. Additionally, the Committer in B2 Hub uploads storage indexes and data hashes of DA data to the Bitcoin blockchain for public access.
According to B2 Network’s future plans, the EVM-compatible B2 Hub is poised to become the off-chain verification and DA layer for multiple Bitcoin Layer 2 solutions, forming a functional extension layer for Bitcoin off-chain. Given Bitcoin’s inability to support many use cases, constructing functional extension layers off-chain is becoming increasingly common in the Layer 2 ecosystem.
As the first third-party DA layer modularization for Bitcoin, B2 Hub can assist other Bitcoin Layer 2 solutions in utilizing the Bitcoin mainnet as the final settlement layer, inheriting Bitcoin’s security and promoting the expansion of the Bitcoin network and enhancing the diversity of its applications.
Conclusion
“Modular is the future” – this slogan is gradually transitioning from ideology to reality. Modular blockchain technology provides a solid foundation for building the next generation of decentralized applications with its flexibility and scalability. This technology allows developers to select and combine different modules based on specific requirements to create more efficient, secure, and easily maintainable blockchain solutions.
The rise of modular blockchain represents a more “soulful” plug-and-play product concept. In this approach, blockchain is no longer seen as a closed system but as an open, scalable platform where various services and functionalities can be easily inserted and removed like LEGO blocks. This flexibility enables developers to quickly build and deploy blockchain solutions according to specific application needs.
From its origins in the Ethereum ecosystem to its emergence in the Bitcoin ecosystem, modular technology has showcased its prowess in various sectors of the cryptocurrency industry.
For example, Chromia, a modular public chain utilizing “relational database” technology, has partnered with multiple games in the gaming sector like My Neighbor Alice and Chain of Alliance. In the RWA sector, Chromia has created the Ledger Digital Asset Protocol (Ledger DAP), which several projects have adopted.
In the AI field, CARV focuses on building modular data layers for AI and Web3 games, ensuring privacy and security in data processing through technologies like 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 Bitcoin’s inception to the widespread application of modular blockchain today, we have witnessed how blockchain technology has evolved from a singular digital currency application to an ecosystem supporting 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.
