Modular Blockchains and Ethereum

March 23, 2022
6:03 pm

Over the last year there have been a bunch of new buzzwords and phrases entering the Ethereum ecosystem; two of which are associated with the debate around modular blockchains vs. monolithic chains.

The biggest proponents to this discussion has been Celestia, who essentially created some of these terminologies and sparked most of the discussion around what a modular blockchain is back in 2019, and are building a modular data availability layer for blockchains. They were the first team to launch a Data Availability layer for blockchains. More recently, @epolynya has grown to become an educator stemming from this concept for Ethereum and Ethereum L2s, talking about the subject frequently on his Twitter and Medium.

So let’s dive into what exactly a modular blockchain actually is!

Before we go into understanding how a modular blockchain works, it’s best to summarize what it is. A modular blockchain allows you to be creative with the design of the infrastructure you are using and to meet the needs of developing any type of application. Think of a modular blockchain as similar to DeFi money legos, but instead of smart contracts, it’s money legos for blockchains! Money legos in DeFi refer to the concept of using different protocols as building blocks to create new innovations (e.g. Yearn, IndexCoop FLI products, Convex, among others!)

The mindset for a modular chain comes from how blockchains are aiming to solve the problem around the scalability trilemma by offering users an experience of their choosing.

In this image, we see how different types of blockchains are able to approach two of these characteristics, but none have necessarily solved the “trilemma”. Ethereum currently solves two of these, being “Decentralized” and “Secure”. As many people know, Ethereum has been struggling with the “Scalability” side of things.

As epolynya stated in a recent article, “a blockchain has three basic tasks – execution, security, and data availability”.

Execution occurs from the end-user initiating a process (e.g. executing/signing a transaction). Security comes down to how a network is secured, generally through its maturity and consensus layer. A network going down for 24 hours, for example, indicates that the blockchain network has poor security. Data availability relates to how you can use a blockchain to leverage it for storing and querying data. This isn’t necessarily “perfect” for Ethereum at the current time, but will be much more effective once sharding occurs in ~18 months.

These “shard chains” are what is known as the data availability layer as they communicate back to the coordination layer on Ethereum, which will be known as the Beacon Chain. You may have heard of the Beacon Chain, as that is where all consensus is going to occur on Ethereum after the Merge. Some blockchains that have taken the sharding approach to their underlying blockchain networks for data availability are Polkadot, NEAR, & Harmony. However, none of these chains are at the same level as Ethereum when it comes to security.

With the above in mind, it essentially allows developers and end-users to have the solutions they want, whether it be speed, scalability, security, and decentralization, as opposed to building on monolithic chains of the past (ones focused on just one or two of the characteristics of the scalability trilemma). The goal for Ethereum is to not have to sacrifice its security and decentralization, but to provide a secure data availability layer, with increased throughput and obviously less gas costs.

The best way to understand how Ethereum is tackling this modular approach is through Layer-2 (aka L2) technologies. Executing transactions for the majority of people on Ethereum is quite terrible. It’s always reliable, but it is extremely slow, and expensive- causing the majority of people to be priced out (see above meme). This is where L2 networks are able to step in and handle the execution for Ethereum. L2s can still leverage underlying networks for data availability and security, rather than run their own sidechain to help scale. Creating a sidechain will end up causing problems because you have to spin up a security *and* data availability layer on top of your execution layer. This can get quite expensive and difficult to achieve! Alternatively, L2s can use Ethereum just for security and another network for data availability (like Celestia, as an example).

This whole concept of improving execution around L2 is where rollups come into place. As you may know, Numio was the first mobile app to natively support rollups (zkRollups, specifically), and have been focused on bringing this type of experience to retail users for a long time. Some examples of teams focused around taking the computation of data on Ethereum offchain into rollups are Matter Labs (zkSync), StarkWare (StarkEx & StarkNet), Optimism, Offchain Labs (Arbitrum), Aztec, Polygon (Hermez, Zero, Nightfall, etc.), among many others!

This concept of building a modular blockchain is still very new, so it will be quite interesting to see what existing chains begin to take a similar approach. It also means that we are also going to see many thought experiments arise. For example, we are yet to see any examples of a Validium implementation using an external data availability layer, or even an L1 chain using an external data availability layer. We are also seeing potential experiments with how data can be modified and potentially improved, on Ethereum with rollups, prior to sharding going live, which has been given the term danksharding. It will be exciting to see how this space continues to evolve!

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