This week, CoinMarketCap explains key differences between monolithic and modular blockchains and their architectures.
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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!
Monolithic blockchains have been around for over a decade now. These blockchains are primarily characterized by their ability to handle three core features: consensus (depending on whether they are PoW or PoS), availability of data (the amount of blockspace) and execution of transactions.
Modular blockchains, on the other hand, are known to outsource one of these responsibilities to an external chain. A perfect example of this is sharding on Ethereum PoS.
Both these types of blockchains have different architectures and handle decentralization and security separately, while also being scalable.
Understanding the Core Concepts of Blockchain
Scalability and higher throughput have always been a bone of contention with monolithic blockchains. We all know the famous blockchain trilemma and how many blockchains compromise on decentralization for higher throughputs. On the other hand, some blockchains end up prioritizing security and decentralization, which makes them less scalable and more expensive (take Ethereum, for example).
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.
Consensus: What defines the current state of the blockchain. For instance, this would include the block number/height of the blockchain. Consensus ensures that all validating nodes on the blockchain have the same “state.”
Data availability: The data that is stored in each block of the blockchain. This essentially refers to the data in the storage devices of all the validating nodes on that blockchain.
Execution: Nodes perform transactions and enhance/progress the state of the blockchain. This is usually done by executing the pending transactions in the network (for instance, Bob sending 3 ETH to Alice).
What Is a Monolithic Blockchain?
A monolithic blockchain is a blockchain that aims to carry out all three core components of the blockchain (mentioned above) in the same space: the L1. And to do this, a monolithic blockchain optimizes its consensus, blockspace and execution capabilities subject to the objectives it fulfills.
Data Availability
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.
Execution
As you can imagine, it is much easier to pass transactions quickly through fewer nodes and have them all arrive at a consensus than pass them through a large number of nodes spread all across the world. The greater the number of validators on the network, the longer it takes for the network to validate transactions. If you want to increase the throughput (i.e., the number of transactions being processed per second), the network can reduce the number of nodes. But this, again, comes at the cost of decentralization and security.
Consensus
All permissionless (read: decentralized) blockchains aim to fulfill this primary objective by keeping the node entry requirements low. In the early days of Bitcoin, you could use your own computer to mine Bitcoin. But over the years, the difficulty has increased tremendously. For Bitcoin especially, miners need to perform computational tasks using hardware and energy to mine new blocks. For PoS blockchains, however, the locked capital (known as stake) is used to secure the network. Some have already called out the difficulty of becoming a miner on Bitcoin because of the hardware required and energy usage.
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
Bitcoin is one of the biggest examples of monolithic blockchain, although the Lightning Network has attempted to be a scalable modular aspect of the chain. However, given its current architecture and consensus mechanisms in place, it still is a monolithic blockchain. Solana is another monolithic blockchain. While it has solved the issue of scalability by increasing blockspace (by increasing node requirements), it still lacks when it comes to decentralization as the requirements for validators are too high.
Benefits of a Monolithic Blockchain Design
One of the biggest benefits of a monolithic blockchain is that if it focuses on keeping itself decentralized and secure, it becomes a trustless blockchain. This decentralization lowers the barrier to entry for all users who wish to utilize the blockchain to execute transactions. That is one of the biggest reasons why Bitcoin and Ethereum currently occupy the top spot when it comes to the market cap in crypto. They best follow the narrative of a truly permissionless and decentralized ecosystem that crypto has aimed to be.
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.
Source: vitalik.ca
- 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.
As David and Ryan famously put it in their podcast, all monolithic blockchains are stuck somewhere in this triangle. Both Bitcoin and Ethereum have attempted to remain decentralized (at the cost of not being able to scale) and secure. Another critical problem with monolithic blockchains is that they are not economically sustainable. Just think about Ethereum in its current form (PoW). In a highly congested network, it becomes too difficult for users to execute transactions on Ethereum because of the soaring fee. This is a result of the limited blockspace available on Ethereum.
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?
One of the key things to note in modular blockchains is that they split the three aforementioned tasks rather than performing all of them at once on L1. The idea is to make the system more efficient by making the blockspace bigger, narrowing down the validator set to focus on shards, and thus exponentially enhance the throughput of the blockchain. In a nutshell, it can be said that all the limitations of a monolithic blockchain are effectively transformed into modular factors, thereby increasing its efficiency by high orders of magnitude. How does that happen? Let’s have a look!
Execution
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!
Data Availability
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.
When you split these validators into smaller groups/networks, they are known as committees. Vitalik in his blog on sharding put it simply: the validators are “randomly split” to execute various incoming transactions.
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.
When you combine sharding with rollups, the scalability impact is compounded. Imagine batches of transactions being processed by rollups and verified by these communities. Not only are you increasing the blockspace massively, but you are also verifying more transactions per second. This compounds the overall throughput of the blockchain — all without compromising on neither security nor decentralization.
Consensus
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.
Now, in the former case, you need expensive hardware (which over time gets outdated and needs to be upgraded). In the latter case, however, you just need to spin up a node (which can be very easy to set up) and deposit the minimum required capital to participate in the staking process. Thus, PoS makes it significantly easier for a wider set of validators to participate in network consensus.
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.
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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.
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