What is a Modular Blockchain and How Does It Work?

Modular blockchains separate the system into several parts that are able to act independently. The solution has emerged as a means of solving the so-called blockchain trilemma.

Blockchain developers have long been struggling to create an optimal system that would be decentralized, scalable, and secure at the same time.

Alas, none of their attempts has proved to be successful so far. All these solutions were either too complex for end-users or unable to scale and thus meet the requirements of the ever-growing user base. 

Yet, technologies evolve. The introduction of sharding and layer 2 blockchains has marked a new stage of technology development and resulted in a new concept of modular blockchains. This concept implies splitting the blockchain network into different layers to distribute the processes instead of trying to cover all the features within a single system. 

In this article, we are going to review modular blockchains and how they solve the problems inherent to the crypto industry as a whole.

The Blockchain Scalability Trilemma

Bitcoin along with many other blockchains has always faced scalability issues. The term “scalability trilemma” implies that the given blockchain can only meet two of the following three requirements:

• Decentralization. In the context of blockchains, the higher the decentralization of a given system, the lower the chances of a single user or group of users monopolizing the network and enforcing their will on it.
• Security. This characteristic logically follows the previous one. A user that controls the majority of nodes in a given network can easily conduct double-spend transactions. Thus, the whole point of going decentralized and switching to the blockchain rails disappears.
• Scalability. The last aspect refers to blockchain’s capability to handle an ever-growing number of transactions without increasing the resources needed for their verification. For example, Bitcoin can handle only 7 transactions per second. When network congestion becomes particularly high, users have to pay higher fees to get their transactions approved.

What Is a Monolithic Blockchain?

The blockchain trilemma is typically applicable to monolithic chains. As the name implies, these chains rely on the structure formed from a single piece, i.e. they are unified. 

The architecture of a monolithic blockchain is alone responsible for all the key processes. At this, the chain handles all of the following core components:

• Execution. The chain executes both transactions and smart contracts.
• Consensus. The nodes agree on the contents of transactions and the order to get them registered in the system.
• Data availability. Transaction data is available to all the participants of the system at any time.
• Settlement. This characteristic enables the chain to finalize transactions, guarantees the integrity of each block, settles disputes, and validates proofs.

As it usually happens, the approach has both upsides and downsides.

Benefits of monolithic blockchain design

Security. Managing all the processes under one roof makes monolithic blockchains ultra-secure. Nodes can check the validity of transactions on-chain before verifying them. Besides, end-users can enjoy the same level of transparency as the nodes do.

Simplicity. Monolithic chains represent fully-functional platforms created and polished by many developers. They come with out-of-the-box functionality and, as a result, require lower technical skills.

Cons of monolithic chains

Inefficient execution. Nodes may occasionally re-execute transactions to verify their validity which results in delays.

Limited resources. The nodes of monolithic chains have limited bandwidth and storage which eventually reduces the network capacity.

Scalability. To process more transactions, monolithic chains increase block sizes. As a result, the whole chain requires more resources, i.e. more powerful equipment to maintain. This leads to higher centralization as the number of users who can afford such equipment gets smaller. 

State bloat. Since nodes store all the data online, the ever-growing number of transactions results in the exponential growth of the system. This also increases hardware requirements and leads to centralization.

Examples of monolithic blockchains

Some of the most popular monolithic systems include, of course, Bitcoin and Ethereum.

Bitcoin relies on the Proof of Work consensus mechanism. It makes the network ultra-secure and at the same time limits its scalability. The Lightning Network resolves the problem to some extent. However, the number of nodes that use it remains pretty low throughout the years.

Ethereum has already switched to the Proof of Stake but still struggles to support the growing user base. Its developers are currently in the process of implementing sharding to make the network more scalable.

Solana is another well-known monolithic chain. The network has overcome the scalability issue by sacrificing decentralization and security. It claims to handle up to 65,000 tps. Yet, high hardware requirements do not allow for a large number of validators.

What Is a Modular Blockchain?

A modular blockchain is a totally different story. Unlike a monolithic blockchain, it focuses only on one process and “outsources” the rest to separate layers. 

In fact, it segregates the system into distinct components. What’s more, such an approach makes it possible to combine these components in many different ways to achieve various goals.

Modular blockchains work on the same tasks as monolithic chains do, i.e. execution, consensus, data availability, and settlement. Yet, since every module has a narrow specialization, it handles its functions much better than a monolithic chain. 

Advantages of modular blockchain architecture

Modular chains make it possible to resolve the blockchain trilemma. Thus, these blockchains come with the following benefits:

• Scalability. Modular chains can infinitely scale. High congestion of a given network no longer results in high transaction fees. Transactions’ confirmation, in turn, takes just a few seconds.
• Simplicity. The modular design makes it possible to launch new blockchains in a quick and simple way. Developers no longer have to struggle with the correct deployment of every single aspect.
• Flexibility. When every module serves a specific purpose, developers have more freedom in design implementations.

Disadvantages of modular blockchains

Despite numerous benefits, modular chains have some drawbacks as well:

• Complexity. The design of modular chains is much more complicated. It often involves expert operators to manage the nodes. In addition, each module requires the implementation of complex mechanisms such as validity proofs to be able to communicate with other layers.
• Token value reduction. Modules may feature their own utility tokens with restrained use cases. As a result, it may be difficult for developers to draw equal interest in each of them which negatively affects the tokens’ value.

Examples of modular blockchains

Cosmos is one of the earliest examples of modular chains that have ever gone live.

Its subchains rely on the read-made modules that developers can easily obtain from the Cosmos Stack and use for their own purposes. These modules include a consensus protocol Tendermint Core, a dev kit Cosmos SDK, and a network communication protocol Cosmos SDK.

Celestia is another modular PoS-based blockchain network that focuses primarily on the data availability layers. 

As stated on the official website, Celestia decouples the consensus and execution layers and enables developers to run many execution layers in parallel. Thus, it makes the deployment process simple while keeping the system scalable and secure.

Unlike monolithic chains, modular architecture segregates each function into a separate layer. Thus, it contributes to efficiency, security, and decentralization

The Future of Modular Blockchains

The deficiencies of monolithic blockchains are hard to ignore. With the ever-growing interest in blockchain, switching to modular blockchain networks seems to be a logical solution.

For example, Ethereum works on several upgrades such as Optimistic rollups, Plasma, zk-Rollups, and more. All these solutions should enable the most popular platform to switch to a modular architecture.

In addition, many new projects emerge that implement these layers from the very start. Therefore, we may expect the blockchain landscape to gradually switch to modular architecture in the upcoming years.