This week, CoinMarketCap explains key differences between monolithic and modular blockchains and their architectures.
We don’t often pay a lot of attention to blockchain designs in crypto — primarily because most of us are not directly involved in its processing and development. But learning the technicalities of any industry that you are interested in always pays off. Let’s discuss the basics of modular and monolithic blockchains and their functionalities!
Both these types of blockchains have different architectures and handle decentralization and security separately, while also being scalable.
Understanding the Core Concepts of Blockchain
Modular blockchains attempt to bring the best of both worlds by being both scalable and decentralized.
To better understand how these two blockchain designs work and how they differ, let’s first attempt to understand what the core concepts of a blockchain are — especially in this context.
What Is a Monolithic Blockchain?
If a blockchain aims to have a high throughput, it will increase its blockspace and attempt to have more transactions in the same block. This will stress the node service providers as they will have to increase their storage, and could result in them dropping out due to not having adequate resources (whether technical or financial). This scenario will reduce security and decentralization.
How Does a Monolithic Blockchain Work?
A monolithic blockchain functions according to the consensus protocol set down for the blockchain. To participate, you need to run a node aligning with the requirements set by the network. Let’s take the example of Ethereum. Any user wanting to run their own node first needs to identify which kind of node they want to run. After setting it up, they download the blockchain data from the network. After this process, they start participating in the network following the protocol rules. In the case of PoW, validators are required to put up their hardware (computational hardware) at stake to be selected to mine blocks on the network. In the case of PoS, their stake is utilized.
In both cases, it is the monetary premium that the network issues for miners/validators that makes them participate in the protocol.
Monolithic Blockchain Platform Examples
Benefits of a Monolithic Blockchain Design
Problems With a Monolithic Blockchain
The node is required to perform all three actions all at once. If, however, the blockchain were to compromise any of the above-mentioned aspects, then the blockchain trilemma comes in. It consists of scalability, decentralization and security. The reason it is a trilemma is that a blockchain - in the traditional sense - can only achieve two out of these three components.
We have already explored this above so I will only touch upon it briefly here.
- If a blockchain is decentralized, it is secure. But to retain the security, it cannot not scaled and thus offers lesser throughput.
- If a blockchain is scalable and decentralized, then there are chances that it isn’t secure because there will be a barrier to entry for validators.
- If a blockchain is scalable and secure, then it is probably not decentralized.
One way around this would be to increase the blockspace. But that, in turn, will stress the existing validators on the network, thereby compromising decentralization. Since that does not happen, users end up paying exorbitant gas fees for simple transactions. This has a benefit and a repercussion.
Benefit: It keeps the blockchain completely secure.
Repercussion: It impacts the economic viability of the blockchain, thereby pushing users to look for alternatives.
The only way to optimize a blockchain for security, decentralization and scalability then becomes too difficult. And that is why, they resort to external help, such as shards and/or rollups. This is where modular blockchains come in and change the whole game around blockchain design.
What Is a Modular Blockchain?
Let’s first talk about execution, because this is how the blockchain aims to increase throughput.
In the case of modular blockchains, the L1 is not the only place where transactions are being executed. In fact, transactions are split between the L1 and rollups.
Rollups are a complementary execution layer for L1. They function with the assumption that they cannot change the underlying infrastructure of the L1; i.e., they do not assume any security of the transactions themselves. Instead, they just focus on the execution of the transactions. They can then decide to send these transactions back in batches to L1. The network then adds those transactions to the blocks.
As you can tell, rollups effectively help in reducing the burden on L1 without compromising on decentralization. As mathematician David Hoffman put it, you can think of them as “compressing” agents for the blockchain — akin to the compression of files on the computer. This greatly increases the efficiency of the blockchain.
The next key component is data availability. This is where it gets really interesting!
Sharding is the core principle here that helps scale the blockchain exponentially without compromising decentralization or security. When we “shard” Ethereum’s data layer, the validators on the network get spread across different smaller networks. These smaller networks then verify various transactions on the blockchain. This effectively helps increase the blockspace on that chain, thereby increasing the network’s overall throughput.
At the ground level, the validators in the entire PoS network only need to verify the signatures that the validators in various committees have verified: they do not need to verify the entire transaction itself. The latter is carried out by the validators in each committee.
For example, if there are 100K validators on the network and there are 100 committees of 1K validators each, there would only be the need to verify 100K signatures rather than verify all the blocks signed by those validators.
Proof-of-stake (PoS) chains help in the modularity of the blockchain because of a very simple yet foundational principle.
In proof-of-work (PoW), the security of the network depends on the computational hardware that miners put up. The more complex the hardware is, the more likely it is to solve cryptographic computatons, thereby helping the blockchain remain alive.
In proof-of-stake, however, security is a factor of the economic capital that users decide to lock (or bond) to the network.
Benefits of a Modulator Blockchain Design
One of the biggest benefits of a modular blockchain is its ability to split various tasks into segments. This fragmentation of tasks/responsibilities helps the blockchain scale without compromising security. As blockspace increases with data shards and as rollups introduce scalability, the overall throughput of the blockchain increases.
All of this is made possible with PoS chains where the barrier to entry to the chain is lowered as compared to PoW chains.
Join us in showcasing the cryptocurrency revolution, one newsletter at a time. Subscribe now to get daily news and market updates right to your inbox, along with our millions of other subscribers (that’s right, millions love us!) — what are you waiting for?
Modular Blockchain Platform Examples
As already discussed above, Ethereum PoS is probably one of the biggest examples of a modular blockchain. Another example is Celestia, a relatively new blockchain.
How Will Ethereum Work in a Modular Context?
Ethereum is probably one of the perfect examples of a modular blockchain currently in existence. While it currently follows the PoW consensus mechanism, when it does transition to PoS in late 2022, it aims to become one of the most scalable, decentralized and highly secure blockchains.
A more predictable future for Ethereum PoS will be that as more and more validators will join the network, a larger set will be able to be spread across different shards. And as more shards are introduced, more data can be stored (i.e., the blockspace increases) — and as more shards are introduced, rollups can consume more data. Thus, the effect of throughput on Ethereum will be compounded by the availability of both shards and the introduction of rollups.