Understanding the Recently Hot Modular Blockchains

Recently, modular blockchains have gradually become a hot topic in the industry. Literally understood, modular blockchains refer to modularizing blockchain technology, applications, rules, and standards, making it convenient for different project developers to match solutions based on personalized needs.

Of course, modular blockchains are essentially a concept proposed around scalability solutions, and there have been no completely successful experimenters in the current technical environment. Therefore, for projects currently promoting this concept, whether investors or developers, should carefully screen and make rational choices.

In addition, given that this concept is not yet mature and industry interpretations vary, this article only aims to introduce its core principles in the simplest and most understandable language while ensuring macro-logical accuracy.

I. Concept Suite Based on Layer 2

Specifically, modular blockchains aim to split the system into multiple module components, giving them blockchain properties, and they can even have subdivided functions such as DEX application chains, stablecoin application chains, NFT application chains, and derivative application chains. Developers can extract these new modules and combine them in any order to achieve more advanced functions. In addition, modular blockchains have their own unique logic, attempting to weaken the "impossible triangle" problem and practice the core spirit of blockchain technology. We will discuss the details below.

In fact, the concept of modular blockchains was mentioned as early as a few years ago, but was quickly overshadowed by other hot topics. Since the second half of last year, modular blockchains have been repeatedly mentioned by influencers because Ethereum Layer 2 solutions began to gain traction then, and Layer 2 is an important foundation and prerequisite for blockchain modularization. It should be noted that modular blockchains are mainly solutions proposed for Ethereum upgrades, with their narrative logic revolving around Ethereum. However, there are also projects on other chains using this as a reference for performance improvements.

As everyone knows, the "impossible triangle" of blockchain technology has always been a concern for developers and users, and solutions like Layer 2 were created specifically to address this core pain point. Layer 2's specific approach is to move data computation and processing to Ethereum's second-layer network, with the first-layer network focusing on security, or consensus. Modular blockchains go further by dividing blockchain into three layers: the execution layer, settlement layer, and data availability layer.

Typically, the above three layers have long existed, but they are coupled within the Ethereum network without very clear boundaries and divisions of labor. What modular blockchains aim to do is decouple, first using Layer 2 applications as the technical environment to categorize and refine functions such as privacy security, node verification, transaction confirmation, data storage, and fraud proofs, achieving overall on-chain scaling. Below, we'll provide a detailed interpretation around these three layers.

II. Deep Collaboration of 3-Layer Network, Prioritized Processing of Transaction Data

First, let's look at the execution layer, which mainly faces the user side, that is, various Layer 2 Rollup applications such as Arbitrum and Optimism. Its core function is to quickly package and process user transactions. This layer is relatively easy to understand and is also the primary function of on-chain applications. However, doubts about various Rollup solutions sacrificing decentralization to pursue performance have never ceased. In extreme environments, could the high rate of the modular blockchain execution layer come at the cost of large nodes collaborating maliciously? This question will be resolved by the settlement layer.

The settlement layer is mainly responsible for verifying the security of transaction information, also known as the consensus layer. Bitcoin and Ethereum's operating rates are widely criticized, but this is brought about by the full node verification model under the PoW consensus mechanism. Therefore, Bitcoin and Ethereum are recognized as the most secure public chains in the entire network. Many high-performance public chains currently ranking high in TVL have partially abandoned decentralization to achieve performance breakthroughs.

In modular blockchain design, transaction data packaged by the execution layer is submitted to thousands of nodes in the Ethereum settlement layer for joint processing and verification, and anti-fraud proof technology will play a role in this. This itself can significantly weaken the risk of some nodes acting maliciously and hedge against the hidden danger of centralization on the Rollup side. Of course, Rollup itself is also constantly iterating on the technical side to further embrace decentralization.

However, with the surge in transaction data, Ethereum under the full node verification model will inevitably become more congested, which will further test users' patience. In this regard, the approach given by modular blockchains is to prioritize verification data by importance, with more important data having higher priority and being verified by more nodes earlier. Small peer-to-peer transfer data between individual users does not need to mobilize most nodes to participate in processing. This can greatly reduce Ethereum's on-chain load and increase operating speed.

It is worth noting that Ethereum's consensus mechanism transitioned from PoW to PoS in the second half of this year, creating conditions for this. It can be said that the settlement layer's structured, differentiated, prioritized, and categorized processing of transaction data is the soul of modular blockchains.

Finally, let's look at the data availability layer, which is the storage layer for Rollup data, used to store the most primitive transaction data. We can understand it as a data backup chain. Its function is very single, only storage, without executing any smart contract protocols and completely without involving computation. Its core function is to ensure transaction data is correct and available, providing materials for fraud proofs, or helping users trace assets with original data in case of network attacks to reduce losses.

Another point that cannot be ignored is that storing data on the L1 layer (settlement layer) would be very expensive, and dedicating a chain solely for storage might be a cost-effective choice. Therefore, the data availability layer is a supplement to the entire public chain system and can provide double insurance for information security.

III. Some Players Launch Exploration, Expecting the Concept to Finally Materialize

The reason why modular blockchains have become hot recently is mainly driven by a series of related projects such as Celestia.

On February 7, Cosmos officially announced that its modular blockchain network Celestia's first public testnet will launch in the second quarter of 2022, with mainnet going live by the end of the year. However, Celestia has not issued a token nor published an economic model. Avail, which has similar technical logic to Celestia, was launched by Polygon at the end of June last year. The commonality between the two is that technically, they play the role of a separate data availability layer or consensus layer to assist the operation of the entire system. Most importantly, Celestia and Avail are pluggable and have very small memory footprint, with functions limited to transaction ordering, but this also provides flexibility for the modularization of the entire system. Interestingly, when Avail was launched last year, it was accused by Celestia of plagiarism.

In addition, the public chain project IOTA, which has been dormant in the industry for many years, has also actively attempted to transform into modular. At the end of last year, IOTA developed a new chain called Assembly. Assembly has scalability and can continuously deploy new contract chains and is compatible with EVM. Some analysis believes that Assembly can be seen as Layer 1.5, which is a smart contract architecture layer, and the various smart contract chains built on Assembly are the real Layer 2.

It cannot be ignored that starting this year, the Ethereum community stopped using "Eth1" and "Eth2," instead using "execution layer" and "consensus layer" to describe the upcoming Ethereum upgrade. This change in terminology seems to inadvertently endorse modular blockchains. At least these two events roughly coincide in when they received outside attention, also implying a coincidence.

It should be noted that this change is also accompanied by Ethereum's approaching transition to PoS consensus mechanism, and technical performance may decline accordingly. The specific technical logic has been detailed in "ETH 2.0 Reinvented: What Impact Will the June Upgrade Have?". Welcome to click and view. At this time, the popularity of the modular blockchain concept implies increasingly clear meaning and direction.

Although there are currently some capable players who have made attempts at blockchain modularization, whether they can successfully land applications still needs time to verify. Although these public chains are all high-performance public chains with different technical logic and mechanism designs from Ethereum, and even limited by their transaction volume and number of nodes, there is still no need to build Layer 2, but there is no doubt that the industry is developing and users are growing. More flexible modular public chains may better adapt to the needs of the future multi-chain era, which is also a proactive measure.

In summary, the core idea of modular blockchains is to divide the network structure into three layers—transaction packaging, node verification, and data storage—based on functions on top of Layer 2, and automatically identify transaction data attributes to differentially mobilize node power, achieving efficient, decentralized operation, and increasing the number of nodes in this ideal virtuous cycle system to achieve scaling of the entire on-chain system.

It can be said that the vision is beautiful and the logic is rigorous, but the technical implementation difficulty is still very large. Therefore, whether it can truly land cannot be determined at present. However, in the "impossible triangle" pain point, there seems to be no perfect solution, but the modular blockchain concept demonstrates a pragmatic spirit of seeking balance between the three points, which is worthy of recognition.

Whether successful or not, modular blockchains are also a hope for promoting the deep development of the industry, and users look forward to seeing related technologies and solutions achieve real breakthroughs.

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