Source: Gryphsis Academy
TL;DR
Monolithic blockchain is known for its comprehensive nature, independently handling various aspects of the network, from data storage to transaction verification, and more. Modular blockchain, on the other hand, separates different functions of the blockchain into independent modules, providing performance support and a smooth user experience in specific functionalities, to some extent solving 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 is also exploring the possibilities of modularity, by 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” approach to plug-and-play products, leading to more flexible and customizable blockchain solutions in the future, where various services and functionalities can be easily inserted and removed like LEGO bricks. This flexibility allows developers to quickly build and deploy blockchain solutions based on specific application needs.
1. What is Modular Blockchain?
When discussing modular blockchain, it is essential to understand the concept of Monolithic Blockchain first. Monolithic chains like Bitcoin and Ethereum are known for their comprehensive nature, independently handling various aspects of the network, from data storage to transaction verification, and smart contract execution. In this process, a monolithic chain plays the role of a generalist, being involved in all aspects.
Taking Ethereum as an example, a mature monolithic blockchain can generally be divided into four architectures:
Execution Layer
Settlement Layer
Data Availability Layer (DA Layer)
Consensus Layer
The diagram below, likening accounting on the blockchain to a game, explains the role of each architectural layer in detail:
By using this analogy, we can better understand how the various architectures of the blockchain work together. Monolithic blockchain concentrates all functions on a single chain, whereas modular blockchain is 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 blockchain, like a group of specialists, focuses on deep exploration and technical innovation in their respective fields. This focus allows modular blockchain to provide excellent performance and user experience in specific functionalities, such as offering faster transaction processing at lower costs.
In terms of node architecture, monolithic chains rely on full nodes, which must download and process a complete copy of the blockchain data. This not only demands high storage and computational resources but also limits the speed of network expansion. In contrast, modular blockchain adopts a light node design, only requiring processing of block header information, significantly improving transaction speed and network efficiency.
One significant advantage of modular blockchain is its flexibility and collaboration. It can outsource non-core functions to other experts, creating a synergistic effect that significantly enhances 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 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 yet to undergo comprehensive security testing and market fluctuations, requiring further validation of its long-term stability and security.
2. Why Modular Blockchain is Needed
Why is modular blockchain technology receiving widespread attention and being predicted as a “future trend”? This is closely related to the famous “impossible triangle” theory in the blockchain field.
The “impossible triangle” of blockchain refers to the difficulty in achieving optimal states in security, decentralization, and scalability simultaneously in a blockchain network.
Scalability focuses on the network’s ability to process a large number of transactions and maintain efficient, low-cost operations as users and transaction volume grow. It is usually measured by TPS (transactions per second) and latency (time required for transaction confirmation).
Security involves the cost and difficulty of protecting a 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 over 1/3 of the nodes.
Decentralization describes a network’s operation not depending on a single central node but distributed across numerous nodes. The more nodes and broader geographical distribution, the higher the network’s decentralization level.
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 node numbers.
However, they sacrifice a certain level of scalability, leading to slow transaction speeds and high transaction fees: Bitcoin’s block time is approximately 10 minutes, Ethereum’s TPS is around 13, and during spikes in transaction volume, Ethereum’s transaction fees can reach hundreds of dollars.
In this context, modular blockchain technology has emerged to address the challenges of scalability and transaction costs faced by traditional public chains by allocating different functions to specialized modules. For example, Bitcoin’s Lightning Network and Ethereum’s Rollup technology are manifestations 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 verification, while the execution layer can handle smart contract logic. This separation not only improves performance and efficiency but also promotes interoperability between different blockchains, laying the foundation for building an open and interconnected ecosystem.
In conclusion, modular blockchain technology provides a new approach to overcoming the limitations of traditional public chains. While maintaining decentralization and security, it achieves higher scalability and lower transaction costs, holding 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 blockchain can be divided into different types. In 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 generally also determine the transaction order simultaneously, which is essential for the security and immutability of the blockchain.
Following 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.
3.1 Execution Layer
Layer 2 technology, as an extension of the execution layer in blockchain architecture, is a manifestation of the modular blockchain concept. It aims to enhance 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 and more cost-effective transaction processing while maintaining the security and decentralization characteristics of the underlying blockchain. According to the dune board created by @0xning, it can be seen that the gas consumption for Layer 2 verification and settlement in the Ethereum ecosystem averages less than 10%, significantly saving users’ transaction costs.
Rollup technology is currently the mainstream solution for Layer 2, with the core concept 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, and the underlying blockchain only verifies transaction proofs in smart contracts and stores the original transaction data. This design significantly reduces the computational burden on the main chain, reduces storage requirements, and allows for more efficient transaction processing.
To further reduce costs, Rollup uses transaction batching technology. This can be compared to container shipping in logistics; individually sending each item would incur high shipping costs. Rollup technology, by bundling multiple transactions together, only requires one “shipment,” significantly reducing 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, the two mainstream proof mechanisms are fraud proofs and validity proofs, supporting Optimistic Rollups and ZK Rollups, respectively.
Fraud proofs for Optimistic Rollups
Optimistic Rollups adopt an optimistic assumption that all transactions are valid unless there is clear evidence of an error. This model relies on fraud proofs (dispute proofs) during the challenge period, where any network participant can submit proof to challenge the state of a smart contract, ensuring fairness and transparency of the network.
According to L2B,EAT’s data reveals that there are currently a total of 16 Layer 2 solutions utilizing the Optimistic Rollups mechanism, including 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, demanding that each batch of transactions come with corresponding proofs to ensure that smart contracts on the underlying blockchain can verify and approve state changes. For validating nodes, ZK Rollups offer a zero-error settlement mechanism, as each transaction must pass through rigorous validity checks.
According to L2BEAT’s data, there are currently 11 Layer 2 solutions utilizing the ZK Rollups mechanism, such as Linea, Starknet, zkSync, and others.
Source: l2beat.com
3.2 Data Availability Layer and Consensus Layer
3.2.1 Celestia
Celestia, as a pioneer in the modular blockchain space, serves as a data availability layer, providing a solid foundation for dApps and Rollup development. By deploying on Celestia’s data availability and consensus layers, application developers can focus on optimizing logic execution while leaving data availability and consensus complexity to Celestia.
Celestia’s architecture design offers diverse solutions for modular expansion, primarily comprising three types:
Sovereign Rollup: Celestia provides the data availability and consensus layers, while the settlement and execution layers are independently implemented by their respective sovereign chains.
Settlement Rollup (e.g., Cevmos project): Leveraging Celestia’s DA and consensus layers, Cevmos offers settlement layer services, with the application chain handling the execution layer role.
Celestium: Celestia manages the data availability layer, with the consensus and settlement layers relying on Ethereum’s robust network, allowing application chains to focus solely on the execution layer.
Celestia introduces 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 architectural concept is proposed where full nodes are responsible for block production, while light nodes are in charge of block verification. By introducing redundancy in data transmission through erasure code technology, data blocks can be completely recovered even in scenarios where up to 50% of the data is lost.
This mechanism ensures that to guarantee 100% data availability for block data, block producers only need to publish 50% of the 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 the following key steps:
Random Sampling: Light nodes conduct multiple rounds of random sampling on block data, requesting only a small portion of the data each time.
Gradual Confidence Increase: As light nodes complete more sampling rounds, their confidence in data availability gradually strengthens.
Achieving Confidence Threshold: Once a light node reaches a preset confidence level (e.g., 99%) through sampling, it deems the block data as available.
This mechanism enables 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 status, boosting block production rates, allowing each block to accommodate more sampling data, and significantly increasing TPS (transactions per second).
3.2.2 EigenLayer
EigenDA is a secure, high-throughput, and decentralized data availability service launched on EigenLayer as the first Active Verification Service (AVS). AVS can be understood as node operators, selected from the thousands of node operators on Ethereum, who, in addition to their primary role (validating Ethereum consensus), take on additional tasks (serving networks like rollups with consensus validation needs) to earn extra income.
With the increasing amount of Ethereum re-staked and more AVS joining the EigenLayer ecosystem in the future, Rollups can benefit from lower transaction costs and higher security composability within the EigenLayer ecosystem.
EigenLayer is a re-staking protocol based on Ethereum that utilizes Ethereum’s stakers as validators, leveraging Ethereum’s existing security to avoid trust risks associated with centralized service providers or proprietary tokens, thereby lowering the development threshold for other projects. It also strengthens Ethereum’s trust network, increasing Ethereum’s value and influence.
In terms of architecture, EigenDA uses ZK technology to verify the state data submitted by Layer 2 and relies on Restaking ETH to guarantee consensus security, with EigenDA network responsible for finality, ultimately submitting Layer 2’s state data to the Ethereum mainnet. Therefore, EigenDA serves as a subcontractor for verification and finality in Ethereum’s DA service, rather than a competitor like Celestia.
3.2.3 Avail
Avail is a modular blockchain project announced by the Polygon team in June 2023. It was spun off from Polygon in March of this year and is currently operating on the testnet, having 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 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 assume a majority of nodes are honest, and does not rely on full nodes to obtain data availability. This sets it apart from Celestia’s architecture, which is based on fraud proofs, highlighting the fundamental differences between the two on a technical level.
With the emergence of modular data availability blockchain projects like Celestia and Avail, the modular DA War is intensifying, potentially leading to a competitive landscape where Ethereum’s functionality as a DA layer is distributed among multiple projects, possibly resulting in a “one-strong, many-mighty” competition scenario.
3.3 Settlement Layer
3.3.1 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, utilizing the Rollup Development Kit (RDK) and specialized settlement layers to quickly deploy Rollups tailored for specific applications.
Dymension’s architecture consists of two core components: RollApp and Dymension Hub.
RollApp is a fusion of Rollup and App, serving as 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, NFT marketplaces, etc.
In RollApp, the Sequencer plays a crucial role, responsible for verifying, sorting, and processing local transactions. Once block packaging is complete, 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 RollApp to provide final transaction confirmation and settlement services for RollApps.
With this design, Rollups can delegate consensus and settlement tasks to Dymension Hub while entrusting data storage and verification tasks to DA networks like Celestia. This allows Rollups to share economic security guarantees from these two networks while focusing on improving the execution efficiency and user experience of their applications.
3.3.2 Cevmos
Cevmos combines Celestia, EVMos, and CosmOS 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 the Cevmos rollup, reducing migration efforts. Rollups on Cevmos publish data to Cevmos, which then processes the data in batches before publishing it to Celestia. Similar to Ethereum, Cevmos executes rollup proofs as the settlement layer.
4. Modular Blockchain in the Bitcoin Ecosystem
With the wealth 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, showcasing confidence and anticipation for the future development of the Bitcoin ecosystem.
Against this backdrop, Bitcoin Layer 2 technology is flourishing, with numerous technical solutions emerging, creating a diverse and vibrant technical ecosystem. Various innovative solutions are being introduced, collectively driving the expansion and optimization of the Bitcoin network.
Although the industry has not yet reached a unified consensus on the precise definition of Bitcoin Layer 2, this article will draw inspiration from the modular blockchain concept of Ethereum. From a modular perspective, it will explore the possibilities and methods of constructing Bitcoin Layer 2.
**Why Does Bitcoin Need Modularity?**
The Ethereum network is renowned for its Turing-complete smart contract functionality, capable of storing and verifying historical states to support complex decentralized applications (DApps). In contrast, the Bitcoin network is a stateless, non-smart contract network with imperfect system design primarily stemming from two aspects:
1. Limitations of the UTXO account system
2. Non-Turing complete script language
Due to these imperfections in the Bitcoin system design, 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. Functions in its ecosystem like the execution layer, data availability layer, consensus layer, and cross-chain interoperability layer all require encapsulation and extension through modular means.
**Analysis of Bitcoin Ecosystem’s Modular Projects**
**Execution Layer – Bitcoin Layer 2**
Merlin
Merlin Chain has the highest TVL in the Bitcoin Layer 2 space, 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 various native Bitcoin assets while also being compatible with EVM, showcasing a dual focus on the Bitcoin and Ethereum ecosystems.
Merlin’s features revolve around the ZK-Rollup network, decentralized oracle network, and on-chain anti-fraud measures.
**ZK-Rollup Network:**
The core of ZK-Rollups lies in using zero-knowledge proofs. Merlin Chain processes and computes transactions off-chain to avoid high transaction fees and network congestion on the Bitcoin network. Additionally, ZK-Rollup can compress multiple transaction proofs into batches, requiring the Bitcoin main chain to verify a single proof for multiple transactions, significantly reducing the main chain’s workload and improving transaction efficiency.
**Decentralized Oracle Network:**
Merlin’s decentralized oracle network acts as a Data Availability Committee role, ensuring that sequencers have truthfully published complete DA data off-chain. The decentralized nature of the oracle network utilizes a POS form, allowing anyone to run an oracle node by staking sufficient assets. This flexible staking mechanism supports assets like BTC, MERL, and proxy staking similar to Lido.
**On-Chain Anti-Fraud:**
Merlin adopts BitVM’s approach and utilizes an “optimistic ZK-Rollup” mechanism, assuming all ZK Proofs are trustworthy by default and punishing operators only in case of errors. Verification on the Bitcoin mainnet is limited due to technical constraints, allowing challenges only for specific steps in the ZK Proof verification process off-chain.
**Data Availability Layer & Consensus Layer**
B2 Network
B2 Network employs 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 user transactions, while the DA layer stores copies of aggregated data and verifies related zero-knowledge proofs.
B2 Hub is an off-chain built DA network supporting data sampling functionality, considered a pioneer in modular Bitcoin extension solutions. Inspired by Celestia’s design, B2 Hub incorporates data sampling and erasure coding technology 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 mainnet 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 under the Bitcoin chain. Given Bitcoin’s inability to support many use cases, building functional extension layers off-chain will become increasingly common in the Layer 2 ecosystem.
In conclusion, the rise of modular blockchain technology represents a shift towards a more “soulful” plug-and-play product approach. This flexibility allows developers to swiftly build and deploy blockchain solutions based on specific requirements, fostering more efficient, secure, and maintainable blockchain solutions.
Originating from the Ethereum ecosystem and now making waves in the Bitcoin ecosystem, modular technology has showcased its prowess in various sectors of the cryptocurrency industry. As modular blockchain technology continues to mature and expand into new application areas, it is believed that this technology will bring forth more innovative possibilities across industries. From the birth of Bitcoin to the widespread application of modular blockchain today, we have witnessed how blockchain technology has evolved from a singular digital currency application into an ecosystem supporting complex and diverse applications. In the future, modular blockchain will continue to drive technological advancements, laying the foundation for a more open, flexible, and secure digital world.
