Introduction

About a decade ago, the world saw a rise in the growth of mobile smartphones. At the time, some large companies thought they could revolutionize smartphones by introducing modular architectures. In 2013, Google announced Project Ara, a new smartphone with a modular design. Unlike today’s “monolithic” phones, made of sealed-off pieces of aluminum and glass, Ara would allow users to customize their phones in numerous ways, enabling all of the essential parts to be modular. You wouldn’t be forced to upgrade to a new phone as frequently. Instead, you could simply add the best new parts to your older phone, according to your own preferences. Sadly, modularity did not succeed in the mobile phone ecosystem, and the concept remains a mostly forgotten piece of tech history.

The modular smartphone may serve as a cautionary tale for modular blockchains, as the hype of new and exciting solutions does not guarantee a long-term win, despite current tools’ legitimate drawbacks. However, in the case of blockchains, users’ demand for scalability is already pushing developers to build out and adopt modular architectures. This demand makes it unlikely that modular blockchain architectures will share the same fate as that of the modular smartphone.

But what exactly is a modular blockchain architecture? How can we ensure these solutions won’t end up as another Project Ara? This article hopes to answer all of these questions.

Monolithic and Modular

Before delving further, let’s clarify the difference between monolithic and modular architectures. The simplest way to introduce this concept would be with an example of a familiar concept. Just as mobile phones have certain core components, such as a camera, a battery, and a touchscreen, a blockchain also has core components.

An iPhone is a great example of a “monolithic” phone. It comes with all of the parts needed to use the phone and doesn’t offer much in the way of customization options. Sure, you may not be able to edit the internals much, but it is sleek and fast. However, there may be a time when you wish to customize your phone further. Suppose as the years go by, new phones come out with far better cameras. The rest of your out-of-date phone may work fine, but with your existing camera, you cannot match the experience of the newer phones.

With a modular architecture, you would not have to buy a brand-new phone. Instead, you could swap out your camera like a lego piece and pop in a better one.

Google’s Project Ara is an example of a modular phone. The phone is made of building blocks that can be swapped in and out parts to your choosing. As long as compatible parts are made, Ara will support them.

Like smartphones, blockchains are comprised of multiple essential components; these components are laid out below:

• Consensus
  • The consensus layer of blockchains provides ordering and finality through a network of computers reaching consensus on the state of the chain.
• Execution
  • This layer handles the actual processing of transactions by running their specified code. It is also where users typically interact with the blockchain, such as by signing transactions, deploying smart contracts, and transferring assets.
• Settlement
  • The settlement layer serves as the platform for verifying activity executed on layer 2s, such as rollups, as well dispute resolution. Most importantly, it is where the final state of the actual blockchain is recorded.
• Data Availability
  • The data required to verify that a state transition is valid should be published and stored on this layer. This should be easily retrievable and verifiable in the event of attacks or operational failures where block producers fail to provide transaction data.

Simply put, a monolithic blockchain performs all of these tasks on its own, in a single piece of software, while a modular blockchain separates them into multiple pieces of software. At this point, you may wonder what are the disadvantages of a blockchain which handles all these tasks at once?

This falls back to the age-old problem, the scalability trilemma.

The scalability trilemma says that a blockchain can only have two of the three following characteristics: decentralization, security, and scalability. Existing monolithic blockchains tend to optimize for the secure and scalable corners of the triangle. Bitcoin and Ethereum put more emphasis on being as decentralized and secure as possible. Unfortunately, this comes at a price. The decentralized chains usually do not have high bandwidth for executing transactions. Ethereum caps out around 20 transactions per second, and Bitcoin falls even lower on the scale. 20 transactions per second is woefully inadequate if we want to use these protocols at a global scale. Some monolithic chains could, at least theoretically, get us much closer to global scale, as their TPS and overall throughput are sufficient. However, they often lack decentralization, the core principle of blockchain technology.

A modular architecture aims to outsource some of the work of a blockchain to make more performant chains while maintaining decentralization. Let’s walk through Ethereum and discuss how it is expected to leverage modularity.

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An Ethereum-Centric Ecosystem

Examples: Most Layer 1s, Fuel

Ethereum, as it exists today, is a monolithic blockchain. Most other layer 1 blockchains today would also be classified as monolithic blockchains and structured as such. Like the iPhone example, certain capabilities of monolithic blockchains sometimes begin to fall behind those of newer alternatives, leading to the loss of both developers and consumers as they look for the newest and most innovative layer 1. To address Ethereum’s current bottlenecks in throughput, developers are building rollup execution layers to increase transaction bandwidth.

Examples: Optimism, Arbitrum, Fuel, Scroll, ZkSync

Rollups as an execution layer are the most widely used scaling method on Ethereum today. Rollups are separate blockchains with more performant transaction execution and whose net results settle on Ethereum to effectively inherit its (far better) security and decentralization.

At a high level, a rollup is just a blockchain that posts the net result of its blocks to another blockchain. However, this is only one component of being a rollup, as you also need fraud & validity proofs and a method of permissionless insertion of transactions. Rollups accomplish this by syncing the data between two smart contracts, one deployed on layer 1 and one deployed on layer 2. This design is what makes it a rollup and not a sidechain. These key components are necessary for a rollup to be secure, as the rollup can be halted or censored without them.

Currently, most rollups offer EVM compatibility to help Ethereum developers migrate easily, but in terms of computation efficiency and ease of development, there may be better alternatives for execution layers. Users may even want more quality-of-life features that aren’t present on EVM equivalent chains, such as account abstraction. Given the wide range of developer preferences, it’s likely this trend will continue, and we will see even more novel solutions populate the market, such as SolanaVM and MoveVM execution layers. Fuel is an example of an execution layer that is not EVM compatible and whose sole focus is to perform computations not possible on other rollups. Fuel is also the first “modular execution layer,” which, as we will see, allows it to be a sovereign rollup, a settlement chain, or even a monolithic blockchain. Whereas rollups are only execution layers, Fuel can be more.

Fuel can be modularized in ways normal rollups cannot. Hence the name “modular execution layer.” We will dive into the mechanics of the Celestia architecture soon. (Source: Fuel)

Fuel has shown that execution layers can be creative and prioritize computational speed over EVM support. While many familiar with modular architectures know of Fuel, another great contender is lesser known. One of the most interesting upcoming modular execution layers is called Kindelia. Outside being one of the fastest computation layers, Kindelia has a unique proof system utilizing its virtual machine. Kindelia’s HVM offers a near-instantaneous proof checker built into their smart contract language called Kind. Kind is essential because smart contracts can prove within their code that their code is safe from exploits and operates correctly. This type of design could solve the issue of improperly coded smart contracts and save us from the exploits plaguing smart contracts today. This is just one way Kindelia provides value over other execution layers.

But scaling in terms of an execution layer is just one piece of the puzzle. Developers seek to further modularize monolithic blockchains to squeeze out every possible ounce of performance. This brings us to how the data availability layer can be modularized.

Examples: Metis, ZkPorter, Anytrust

A Validium is a rollup whose data is moved off-chain instead of storing it on-chain.

But why are we moving data off-chain? This is because we are trying to optimize for data availability. The overall efficiency of a rollup system is heavily dependent on the capabilities of its data availability layer. When this layer fails to handle the volume of data generated by the rollup’s transaction sequencer, it leads to a bottleneck in processing transactions. As a result, the rollup cannot handle additional transactions, leading to increased gas fees and/or slow execution times. In other words, the performance of the rollup’s data availability layer is a critical factor in determining its overall transaction processing capabilities and the fees associated with them.

The drawback of validiums is that they are off-chain, introducing more trust assumptions. We want an on-chain solution to improve the data availability layer of Ethereum. The answer is Danksharding.

The integration of Danksharding into Ethereum transforms it into a streamlined platform for both settlement and data accessibility.

What makes Danksharding innovative is its ability to merge these concepts into a cohesive unit. The rollup proofs and data are verified within the same block, creating a seamless and efficient system. However, as part of their normal operation, rollups require significant storage for their compressed data. Danksharding provides a solution to this requirement, offering the potential for millions of TPS across multiple rollups. Danksharding is a technique that splits network activity into shards to increase space for data blobs. A data blob is a more efficient and standardized data format in Ethereum that can carry a large amount of data and is used by rollups to reduce gas fees. Danksharding utilizes “data availability sampling” to enable nodes to verify significant data amounts by examining only a small portion, paving the way towards a future where cheaper and faster layer 2 networks can thrive while enabling direct transactions on Ethereum.

Danksharding is also great as it would inherit all of the security and decentralization of Ethereum itself. However, this comes with a downside. Due to the relatively slow pace of Ethereum development, we are probably years from Danksharding being properly implemented into Ethereum. EIP-4844 plans to introduce Proto-Danksharding, which is the first step to achieving Danksharding. EIP-4844 enhances Ethereum by introducing a new transaction that accommodates data blobs. This specialized storage for rollup data paves the way for a more cost-effective fee market.

What if you want a fast data availability layer but don’t want to sit around waiting for Danksharding to be released? Celestia is a protocol that offers just that. Shifting from an Ethereum-centric view on modularity, it is worth diving into Celestia to see how else modular blockchains can be interpreted.

A Celestia-Centric Ecosystem

Celestium is a unique solution that combines the data availability of Celestia with the settlement and consensus of Ethereum. Danksharding remains the most secure method due to its integration into Ethereum, decentralization, and robustness. However, some rollups prefer to seek scalability right now rather than waiting for Danksharding to be implemented into Ethereum.

For the projects who can’t wait for Danksharding, one possible choice is to utilize off-chain data availability solutions, such as Validiums, which utilize a “Data Availability Committee” (DAC) to attest to the data being available. However, this method is not as decentralized or secure, as it relies on a multi-sig, and there is no way to verify if the DAC is currently honest or if they have been honest in the past.

Celestium offers a more secure alternative to DACs. With Celestium, the attestation that data is available is backed by the stake of the entire Celestia validator set, meaning if ⅔ of validators provide incorrect information, they can be slashed and potentially lose a large sum of money. This provides a harsh and immediate response, unlike in a DAC where no penalty exists.

Additionally, users can verify the honesty of Celestia by running Data Availability Sampling on the blocks and checking the Quantum Gravity Bridge, which is the trustless 1-way messaging bridge from Celestia to Ethereum. Bridges are typically the most vulnerable part of any solution, so redundancies must be built.

Celestium, along with Danksharding, utilizes data availability sampling (DAS) to verify the non-malicious nature of all data. DAS allows nodes to ensure the availability of a block by downloading random segments and alerting in case any part is missing. This alert system is only one aspect of a DAS mechanism that employs fraud proofs (such as Celestia). In the case of a validity proof DAS mechanism like Danksharding, there is no need for an alert system, as the validity proofs guarantee the correctness of erasure coding and commitments. These mechanisms reduce the risk of concealed block data and ensure numerous nodes randomly inspect the block.

A node randomly samples a block to check its availability. (Source: Vitalik Buterin)

Data sampling is what makes Celestia and Danksharding so secure. At least users know that if corruption happens, they can quickly detect it. In contrast, with the black box of a DAC, there could be corruption for a year, and nobody would realize it.

Examples: Fuel

In contrast to traditional rollups on Ethereum, sovereign rollups function differently. Unlike standard rollups, sovereign rollups do not rely on a set of smart contracts on the layer 1 to validate and append blocks to the canonical chain. Instead, the blocks are published as raw data directly onto the chain, and the nodes on the rollup are responsible for verifying the local fork choice rule to determine the correct chain. This shifts the responsibility for settlement from the layer 1 to the rollup. Unlike traditional rollups, there is no established trust-minimized bridge between a sovereign rollup and Celestia. This can be seen as a negative, as you would want a bridge to be as trust-minimized as possible, but this does give sovereign rollups the advantage of an independent upgrade path through forking. This allows for easier coordination and more secure upgrades than non-sovereign rollups can offer. Technically, we should not consider this a rollup, as a rollup usually implies having a unified settlement and data availability layer. Because of this, sovereign rollups are also referred to simply as sovereign blockchains.

To make it easier for developers to create sovereign rollups on Celestia, Celestia has created Rollmint, replacing Tendermint as a consensus mechanism. This enables rollups to publish blocks directly to Celestia instead of going through the Tendermint process. With this design, the community behind the chain has full sovereignty and is not subject to the authority of any other state machine. This sets it apart from communities behind smart contracts or rollups on Ethereum, which are bound by the social consensus of the Ethereum community.

Examples of a Settlement Chain: Fuel, Cevmos, dYmension

The creation of a standalone and modular settlement component is what defines the concept of a settlement rollup. Currently, rollups utilize the Ethereum main chain for settlements, but there are additional solutions apart from this. The Ethereum chain is shared with other non-rollup applications for smart contract transactions, leading to reduced scale and a lack of specialization.

An ideal settlement layer for rollups would only allow rollup smart contracts and simple transfers between rollups while prohibiting or making it expensive for non-rollup applications to settle transactions.

Celestia’s design offers a standard global state consensus layer for developers to construct execution rollups that are part of a single trust-minimized cluster. It also enables trust-minimized bridging between rollups on the same global state consensus layer, a new concept not seen in current architectures. Whether or not developers will adopt this new cross-rollup paradigm remains to be seen.

Examples of settlement chains include Cevmos, Fuel, and dYmension, with Polygon competing with Celestia by building its interpretation of a modular architecture. In Polygon’s modular design, Polygon Avail serves as the data availability and consensus modular components, while the Polygon blockchain functions as the settlement layer.

The Case for Monolithic Chains

Many articles on modular blockchains typically pronounce monolithic layer 1s as a dinosaur technology compared to newer modular solutions. Currently, it’s hard to fully support this claim, as one major issue with these scaling solutions is the further trust assumptions they add to the overall system. While we have discussed how most DACs and validiums are insecure, this can even extend to the execution layer (i.e. the rollups).

Some of the most widely used rollups today still have yet to become genuinely decentralized, even though they secure billions of dollars. At the time of writing this article, Optimism still does not have functional fraud proofs, and Arbitrum is mutable from a single multisig. Both protocols are working to address these issues as part of their scheduled development, but it is important to keep in mind that decentralization is not a given just because a protocol uses a particular architecture. Additionally, the bridges between all pieces of modular components, primarily sovereign rollups, can face the same insecurities that cross-chain bridges face. Lastly, one major issue is that there is added complexity to developing on top of a modular stack; for some developers, it may be challenging. Eventually, we expect rollups will solve these issues and achieve sufficient decentralization. However, monolithic layer 1s could also become just as decentralized in the meantime.

Our previous reports discussed how some monolithic layer 1s scale internally with a DAG architecture. This is just one example showing that monolithic blockchains are trying to innovate without relying on off-chain components, and countless other optimizations are being worked on to maximize performance. We cannot simply discredit the idea of a new blockchain design that aims to solve all corners of the scalability trilemma.

Conclusion

Just as there were modular phones, there are now modular blockchains. However, seeing the potential for a rollup-centric future based around Danksharding indicates that modular blockchain architecture is unlikely to suffer the same fate as the modular phone. Execution layers like Kindelia and Fuel will especially see user growth, as their focus on speed and new features will allow the applications built on top of them to be truly innovative.

Unfortunately, many of these modular designs are still untested, and some modular blockchain designs may never gain widespread adoption. Validiums may be completely phased out as Celestia and Danksharding become widely adopted. Celestia’s sovereign rollups may face some of the same bridging issues as existing layer 1s, hindering adoption due to security and complexity concerns.

A decentralized, modular blockchain future is still a long way away. In the meantime, monolithic blockchains will continue to be relevant and keep innovating. When we finally do reach a future where modular blockchains are widely adopted, the monolithic blockchain landscape may also look completely different. Nevertheless, we need scaling solutions to service existing blockchains with liquidity and users, and in the long term, a modular blockchain architecture will likely be the best way to do so.

Author

Robert McTague is an Investment Associate for Amber Group’s Eco Fund, the company’s early-stage crypto venture fund. He recently won the third place prize during ETHSF with a few friends building on top of Fuel. He is very optimistic about the future of modular blockchains.

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