Modular Blockchains vs. Monolithic Blockchains
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Consensus, execution, data availability, and settlement are said to be the four primary functions of a blockchain network. When a blockchain network executes all four of these functionalities in its base layer, it’s called a monolithic blockchain. Whereas, if a blockchain network handles only a few out of the four functionalities at the base layer while outsourcing the rest of its functionalities to other layers, it’s called a modular blockchain.
The pace of innovation in the blockchain scene makes it hard enough to keep track of developments. Despite its importance and relative novelty, the topic of the design of blockchains and their consensus mechanisms often lies behind the scenes. However, the transition of the Ethereum network from a proof-of-work to a proof-of-stake consensus algorithm put it right back on the map.
In this article, we’ll dive into modular vs. monolithic blockchains, the difference between these two blockchain architectures, how they work, and lastly, their benefits and tradeoffs.
The blockchain scalability trilemma
First of all, let’s have a look at the need for different blockchain architectures, such as modular and monolithic, a story that starts with the blockchain scalability trilemma. This trilemma points out that blockchains in the way we often think about them can only meet two out of the following three properties:
1. Security
Security refers to the capacity of the network to survive an attack. This precept is a middle tenet of blockchains (no chain would advertise itself as unsafe!) and ought to in no way be compromised, so the real tradeoff is usually between scalability and decentralization.
2. Decentralization
Decentralization in the context of blockchain systems points to the level to which a single user (or entity, or group) can take over the network and enforce their will. For a blockchain to be decentralized, hardware necessities ought not to be a hindrance to participation, and the resource necessities of verifying the network need to be low.
3. Scalability
Scalability refers to the potential of a blockchain to handle an increasing amount of transactions while keeping resource necessities for verification low. Even if you increase the block size and the potential of transactions that may be covered in a block, sadly, larger block sizes result in the centralization of the community as the hardware requirements of jogging full nodes will increase in response to the need for better computational output. Scalability is often measured by how much transaction data a blockchain can handle while keeping costs low and speed adequate.
Now, scalability has been a major challenge for blockchain systems. In essence, it’s practically impossible to optimize a single-layer monolithic blockchain network for all three core properties. The idea of using multiple layers instead of a single base layer to execute all four functions (consensus, execution, data availability, and settlement) emerged in answer to this.
Instead of optimizing for all three properties on a single layer, some proposed to design a system that optimized for one or two properties on one layer and optimized for the third property on another layer. This gave origin to the concept of modular vs. monolithic blockchains.
What is a monolithic blockchain?
In a monolithic blockchain, all key features or responsibilities of a blockchain system are addressed internally. A monolithic blockchain, in its base consensus layer, undertakes key features such as data availability, settlement, and execution. Usually, settlement and execution are tied together.
Every single task is carried out within a specific (limited) space, from data availability to transaction execution. Bitcoin and Ethereum (without considering layer-2 or rollups) can be said to be the two most prominent examples of monolithic blockchain architectures.
A monolithic blockchain is, therefore, a blockchain that possesses nodes for data availability, transaction execution, and consensus, all within a block. Let’s examine this architecture design along with some key features of a monolithic blockchain design.
Data availability
A monolithic blockchain usually has many transactions in the same block for high throughput and the expansion of block space. Once node service providers do not have the required storage space, a monolithic blockchain is designed to cut them off the network.
Execution
With a monolithic blockchain, it is very easy to bypass transactions with fewer nodes when all of them arrive at a consensus, as opposed to passing them to several random nodes in the network.
The higher the number of transaction validators made available within the system, the longer its transaction validation time is. However, the number of nodes in the network may be reduced to increase throughput or the number of transactions carried out each second.
Consensus
In monolithic chains, consensus is achieved by nodes agreeing on what transactions to be processed for new blocks, including the order of transactions. This establishes a common state of the network at any given point in time.
Settlement
This characteristic of the monolithic blockchain guarantees the commitment of transactions to the chain’s history to guarantee the integrity of each block. In a proof-of-work blockchain, miner energy is expended on new blocks, while validators are needed in the case of a proof-of-stake blockchain.
Benefits and drawbacks of monolithic chains
Let’s have a look at the benefits and drawbacks of monolithic chains.
Benefits
Protection/Security
Monolithic blockchains can put secure transactions in force on their own nodes. The nodes see transactions achieved on the blockchain and validate them after confirming a consensus. This additionally solves data issues when the blockchain data is saved in many nodes.
Usage
A monolithic blockchain can offer extra value in the long run, provided users continue to use the token. They are easy to recognize and relatively simpler to implement and design.
Drawbacks
Some of the major disadvantages of using a monolithic blockchain include:
- Nodes on a monolithic chain may occasionally require re-executed transactions for verification of validity, leading to delays.
- Node source limits, including bandwidth and storage. While this increases the number of validating nodes, having every node process transactions can affect blockchain efficiency.
- They are inflexible in comparison to their modular counterparties, affecting production quality. They do not allow for an outsourcing function even when there is downtime resulting from overload.
- If big block sizes are applied, high throughput becomes a trade-off for high hardware costs, decreasing the variety of validators on the chain. This will cause centralization (a great risk for most chains under this setting), considering that blockchain validation powers stay within the arms of a few users.
- When transactions are stored on chains, this can cause exponential growth of the blockchain size over time, resulting in heavy hardware requirements on nodes besides disrupting the decentralization function.
What is a modular blockchain?
As we established above, if you try to run all four functionalities (consensus, execution, data availability, and settlement) at a chain’s base layer, this ultimately limits the system's capacity and, subsequently, its total throughput. A modular architecture blockchain separates the system into several possible parts or additives that are independently developed.
In a modular blockchain structure, the execution layer is independent of the bottom data availability and consensus layers. It permits nodes to execute transactions separately rather than performing all the transactions to test validity within a limited space or block. The mainchain serves as a settlement layer since it is the most secure and decentralized network. Cosmos, Fuel, and Celestia blockchain can be said to be the most prominent examples of this type of blockchain structure.
Let’s examine the design of a modular architecture blockchain and some of its key features. In modular chains, three core layers work independently to make its output easier and quicker:
Consensus layer
The consensus layer establishes the set of guidelines to be observed through nodes for verifying and validating blocks and agreeing on a canonical blockchain state. This ensures that there is an agreement among all of the nodes in the consensus network with the installed blocks and transactions, thereby guaranteeing true security and decentralization.
Data availability layer
The data availability layer manages the on-chain and stale-chain blockchain records, making sure that records are available and public for everybody to look at. Numerous blockchain tasks, including Polygon Avail, are presenting data availability solutions to convert conventional (monolithic) blockchain designs to modular ones. In their own words, Polygon Avail promises to be “fast, scalable, and flexible enough to allow any kind of chain regardless of the execution environment to be built on top.”
Execution layer
The execution layer’s function is to process transactions. It executes all of the transactions to supply top-rated records, which are then saved on the blockchain network.
Fuel is an example of a project addressing this issue by developing a throughput-oriented execution layer for the modular stack.
Additionally, FuelVM's deterministic state system enables Fuel to perform as a state channel. State channels are smart contracts that allow safe off-chain exchanges and relieve pressure on the main network.
Settlement layer
The settlement layer is where transaction execution is verified and finished. It can also serve as a cross-rollup bridging center and a source of liquidity. Because some rollups, such as optimistic rollups, can use an independent data availability and consensus layer, the settlement layer is an optional component of the modular stack.
Further breakdown of a modular blockchain
This blockchain design consists of layers developed for a particular action. There is a division of labor for better results. Consequently, Its main advantage is fixing the “scalability trilemma,” a major challenge with blockchain technology:
Scalability
Modular blockchains allow for decentralization, protection, and scalability. Within the real world, this translates into users being able to avoid Bitcoin’s long confirmation time or high Ethereum gas fees, for example.
Assigning each layer or section a single mission or task ensures security, speed, and efficiency.
Decentralization
Despite being split into distinctive layers, the modular structure nevertheless ensures consensus and, as a result, security. No single server can solely manipulate the network, even if overloaded.
Social consensus is used to make even essential selections regarding transactions, helping to grow an absolutely decentralized platform.
Efficiency
A developer can introduce Layer-2 answers to resolve the blockchain’s hassle. As an instance, Optimism & ZK rollups for Ethereum make use of robust security while lowering its fee and latency (e.g. processing smart contracts and transactions).
Different use cases for the modular blockchain architecture
In a modular architecture, every project is handled by a separate group of layers which might be closely-associated chains working at the identical layer. For example, each app-chain in the Cosmos network leverages the ready made modules provided by the Cosmos Stack. The Cosmos Stack includes Tendermint Core, a pre-constructed consensus engine, Cosmos SDK, a software development kit, and IBC, a network communication protocol. This enables developers to use these modules and easily build an application-specific chain in a modular-blockchain ecosystem.
The network of interconnected blockchains handles each transaction just like a typical blockchain would. Transactions are verified and delivered to the main (base) pool or dropped.
A miner/validator can broadcast a block to peers if they are successful in locating the unique identification for the candidate block as required through the proof-of-work/proof-of-stake requirements. Once all transactions are confirmed as authentic via the various nodes, the brand new block is added to the chain. Different miners retain this technique, steadily lengthening the chain by adding new blocks on top of the ones which have already been mined.
Benefits and drawbacks of modular blockchains
Modular blockchain benefits
The most noticeable benefits of a modular architecture blockchain include scalability, ease of design, and flexibility.
Scalability
A monolithic blockchain allows a user to have all the expected functions of the blockchain in just a single layer called “Layer-1”. This makes blockchain creation uneasy to achieve because it tries to deal with all functions at a time within a single layer. With a modular blockchain, the functions are shared among different layers, improving scalability and preventing possible network disruption.
Blockchain Creation
To launch a brand new blockchain, miners must face several issues related to security and decentralization, which may equally prevent some from optimizing the out-of-network hash rate (opportunity).
When miners concentrate less on particular functions like consensus, it gives them the ability to leverage the layout and create new blockchains more quickly, regardless of the blockchain architecture.
For instance, in Celestia, anybody may instantly create a decentralized blockchain without having to spend time bootstrapping a new consensus network.
Flexibility
In comparison to the monolithic blockchain, the modular blockchain layout is significantly more flexible. It is designed to provide miners with features they cannot find in the monolithic blockchain.
Every blockchain in cryptocurrency shares a few simple characteristics, like ensuring data availability, security, consensus, and transaction execution. Typically, blockchains manage this kind of function at the identical layer. Meanwhile, the modular type of blockchain architecture ensures more efficiency by offloading work to other layers.
Modular blockchain drawbacks
Even though they solve various issues where monolithic blockchain lags behind, modular architecture comes with its own set of drawbacks. These are:
Security
Unlike monolithic blockchains, which execute each blockchain function in a single layer, modular chains may lack protection-related characteristics.
Complexity
It is often difficult to design without the involvement of expert operators due to their design’s complexity.
Modular blockchain architectures difficult attracting token value
Some modular chains may not be able to draw interest to their native tokens due to restrained use cases. For example, when compared to an execution layer, a layer dedicated to data availability and consensus will, in all likelihood, see much less use for its utility token. This makes it very difficult to attract users to these networks.
Modular blockchain architecture is the future.
As the blockchain industry witnesses improvement or updates to different existing solutions, efficiency is key to new development. Modular blockchain networks such as Cosmos or Celestia blockchain ensure that a network remains enormously scalable without tampering with security and decentralization.
Monolithic chains like Ethereum and Solana are already drifting to a modular design since blockchain developers now see the need for a seamless and cost-effective transaction arrangement.
However, in the recent past, we’ve witnessed the Ethereum ecosystem moving towards modular architecture with the development of Layer-2 and rollups. This could be considered an indicator of Ethereum being in a transition that marks the resolution of the blockchain scalability trilemma at a great scale, a first-ever and by all means a significant industry milestone.
About Panther
Panther is a decentralized protocol that enables interoperable privacy in DeFi using zero-knowledge proofs.
Users can mint fully-collateralized, composable tokens called zAssets, which can be used to execute private, trusted DeFi transactions across multiple blockchains.
Panther helps investors protect their personal financial data and trading strategies, and provides financial institutions with a clear path to compliantly participate in DeFi.
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