What Are Modular Blockchains?

As the blockchain ecosystem expands, many developers and researchers have committed countless hours to creating an ideal framework for their native networks. Many of these networks are based on the original blockchain design approach where one chain handles everything, otherwise known as a monolithic blockchain.

While monolithic chains have been the norm, performance and decentralization are often sacrificed for the sake of completion. Monolithic chains are limited in scalability and upgradability, can have higher requirements for validator node hardware which limits decentralization, and dApp versatility may be hindered.

This concept that blockchains cannot simultaneously achieve decentralization, security, and scalability is commonly referred to as the scalability trilemma.

In an attempt to solve this, the idea of the modular blockchain was born. Modular blockchains comprise a multi-layered architecture in which primary tasks are separated by their specific function. By delegating tasks to multiple specialized blockchains, a modular design presents a more scalable and customizable system without sacrificing decentralization or security.

Modular Networks Explained

Modular blockchains can specialize in four different functions: execution, settlement, consensus, and data availability. Execution processes transactions, settlement secures the transaction destination, consensus validates a transaction’s authenticity, and data availability is the public storage of a transaction's data.

There are multiple approaches to the implementation and priority of each of these functions, but three of the most commonly referenced modular methods are rollups, validium, and sovereign rollups.

Rollups host applications and process user transactions, then publish the data to a layer one (L1) network and act as an execution layer. A validium is a variation of a rollup that processes transactions off-chain prior to submission to the L1, and uses a network of proof-of-stake validators to store data off-chain.

Lastly, sovereign rollups differ from traditional rollups as they do not rely on an L1’s smart contracts for validation. Data blocks are published directly onto the rollup, and then the rollup's sovereign nodes are responsible for determining the chain the transaction is published to. This means sovereign rollups act as both an execution and settlement layer.

Pros and Cons Of Modular Structure

Modular blockchain architecture theoretically provides some major advantages when compared to monolithic designs.

Scalability is improved upon greatly with a modular design. The offloading of resource-intensive tasks to separate layers allows for greater overall throughput with no cost to decentralization. This high throughput is especially noticeable on Ethereum-based solutions, where transaction costs can get quite high during periods of network congestion.

Modular base layers are also designed to be highly flexible and promote interoperability amongst other layer one and layer two chains. This allows developers to run the EVM or other virtual machines of their choosing. Through modularity, blockchains and wallets become more interoperable due to layer flexibility, which can allow for the development of universal applications and reduce overall friction for users.

Naturally, this does not come without any drawbacks. Modular blockchains can be more challenging to build on compared to the monolithic blockchains that many developers are used to. The learning curve can be rather steep for users and developers alike.

Modular networks are also not nearly as battle-tested as their monolithic counterparts. Testing of their abilities has been less extensive, and the networks have not been subjected to the amount of concurrent traffic that Ethereum or Bitcoin have been proven to be able to withstand.

Future of Modular Blockchains

While modular blockchain development is still in its infancy, the market has shown excitement surrounding the sector with Celestia's explosive price action. Following its mainnet launch on October 31st, Celestia’s token $TIA is up 142% since it went live.

Solving the scalability trilemma has been a focus for development teams since the term was originally coined by Ethereum co-founder Vitalik Buterin. Improving scalability without compromising decentralization or security is paramount for furthering the adoption of DeFi.

Celestia’s mainnet launch may allow for more high-volume testing of the modular structure, and other modular blockchains are currently being developed and prepared for launch. Over time, the range in which modularity is applied to crypto is likely to expand, as the design promotes versatility and interoperability.

Certain dApps will work better with specific layer designs, and theoretically, many of those can be mixed and matched for optimal network performance on a per-dApp basis. Through this flexibility, modular networks’ tech stacks can support a much larger range of versatile and secure dApps that could help propel DeFi to the next level.