Remember the blockchain scalability trilemma that we talked about a while back? No? Let's refresh your memory.
The blockchain trilemma refers to a widespread belief that a decentralized network infrastructure can only provide two out of three benefits simultaneously regarding decentralization, scalability, and security.
When it comes to blockchain technology, there are two types of blockchains that we can compare: monolithic and modular blockchains. In this article, we'll observe both blockchain designs in depth to understand how they work and what benefits they bring to the table.
Core concepts of blockchain
Before we explain modular vs. monolithic blockchains, we should review some fundamental concepts of blockchain technology.
Consensus: This concept characterizes the blockchain's current condition. It includes the block number and height of the blockchain. Consensus ensures that all validating nodes on the blockchain are in the same "state" at the same time.
Execution: It refers to the nodes that validate transactions and advance/improve the blockchain's state. They execute transactions that are pending in the network to increase blockchain efficiency.
Data availability: It refers to the information kept in each blockchain block. In essence, this describes the data stored on all the validating nodes connected to that blockchain.
With these critical notions in mind, we'll compare the modular blockchain design to the monolithic chains and understand how they work and how (and if!) they solve the blockchain trilemma.
What is a monolithic blockchain?
Monolithic blockchains have been around since blockchain technology first emerged over ten years ago. The monolithic blockchain design aims to carry all three core components mentioned above in the same layer, L1.
Data accessibility, settlement, and execution are essential features that a monolithic blockchain takes on at its underlying consensus layer. Settlement and execution are frequently linked.
Every single task, including transaction execution and data availability, is completed inside a particular (restricted) space. Without considering layer-2 or rollups, Bitcoin and Ethereum can be considered the two most well-known examples of monolithic blockchain architecture.
Monolithic blockchains address all the key features of the blockchain system internally. When it comes to blockchain data, the monolithic chain has many transactions in the same block for high throughput and the expansion of block space.
When the node service providers reach their storage space limit, the monolithic blockchain network cuts them off the system. Unfortunately, this scenario reduces both security and decentralization.
With monolithic chains, it's much easier to process transactions faster by passing them through fewer nodes and having them all arrive at a network consensus, as opposed to passing them through multiple nodes spread all over the world.
The bigger the number of network validators is, the longer it will take for the blockchain system to validate the transactions. The network can minimize the number of nodes if it is desired to boost throughput (i.e., the number of transactions processed per second). However, security and decentralization suffer as a result.
Monolithic blockchains obtain consensus when the nodes fully agree on what transactions to be processed and in what order. This way, the network's state is known by all at any given time.
Decentralized blockchains try to keep the node entry requirements low, like at the beginning of Bitcoin when users could use their computers to mine BTC. Over the years, the difficulty has increased, and miners must perform computational tasks requiring serious hardware and energy consumption.
PoS blockchains, like the Ethereum network, use locked capital, or stake, to secure the network.
How do monolithic blockchains work?
The monolithic design functions according to the consensus protocol established for the blockchain. In order to be a validator, one must run a node that aligns with the requirements of the network.
If we look at Ethereum, users need to decide what kind of node they want to operate. After that, they download the blockchain data from the network. Following this, they begin participating in the network in accordance with the protocol regulations.
When using PoW, validators must put their hardware (computational hardware) on the line to be chosen to mine blocks for the network.
Monolithic blockchain benefits and problems
The monolithic approach brings some benefits, like added security and data availability. Secure transactions can be implemented on the nodes of a monolithic blockchain. The nodes observe transactions completed on the blockchain and validate them after establishing a consensus. When the transaction data is stored among numerous nodes, this also resolves data problems. Monolithic blockchains are also easier to design and implement than modular chains.
Unfortunately, the monolithic blockchain lags in several areas:
- Delays can occur due to the re-execution of transactions on monolithic chains.
- Node source restrictions may impact network efficiency on bandwidth and storage.
- Compared to modular blockchains, they are more inflexible, and they don't allow outsourcing.
- Large block sizes reduce the diversity of validators on the chain by making high throughput a hardware cost trade-off. In time, it can lead to centralization.
- When transactions are recorded on-chain, this might result in the blockchain's size growing exponentially over time, placing a significant burden on the nodes' hardware and impacting blockchain scalability.
A modular blockchain does not try to run all three core tasks on the same layer. In a modular blockchain network, the consensus and data availability layers are separated from the execution layer.
The modular blockchain layout segregates its vital functions into separate layers, allowing nodes to execute transactions separately rather than performing all the transactions to test validity within a limited block space.
Modular blockchain networks worth mentioning are Cosmos, Celestia, and Fuel.
Data availability layer
In the modular approach, sharding is used to help scale modular blockchains exponentially without compromising decentralization or security.
For example, Ethereum's data layer can be sharded into several validators spread onto smaller networks. These smaller networks verify all the numerous transactions on the blockchain.
Sharding effectively contributes to expanding the block space on multiple chains, which enables developers to raise the throughput of the entire network.
By combining complex mechanisms like sharding with rollups, modular blockchains solve the scalability trilemma by significantly expanding the block space while simultaneously verifying more transactions per second. This increases the blockchain's overall throughput while maintaining both security and decentralization.
Modular blockchains split transaction execution between L1 and rollups.
Rollups are complementary execution layers for L1. They don't presume any security of the transactions themselves because they operate under the assumption that they cannot alter the L1's underpinning infrastructure.
The rollups from a modular design focus on the execution of the transactions. After that, the transactions are sent back to L1 in groups, and the modular blockchain system adds them to the blocks.
As you can see, rollups significantly lessen the load on L1 while maintaining decentralization.
The modular blockchain architecture works with a Proof-of-Stake consensus mechanism.
As we've seen above, monolithic chains rely on Proof-of-Work, where the network's security is linked to the computational hardware miners put up. The more advanced the hardware, the more probable it is to solve cryptographic computations, thereby assisting the blockchain's survival.
On the other hand, modular blockchains use PoS, where security is linked to the economic capital that users stake on the network. In a modular chain, one needs only to spin up a node and deposit the minimum capital to participate in the staking process.
As such, modular blockchain architectures allow a far greater number of validators to participate in the network's consensus.
Modular blockchain benefits and drawbacks
As you can probably guess, the flexibility of a modular architecture to divide various tasks into smaller units is one of its main advantages. This fragmentation of tasks/responsibilities allows modular blockchains to scale without having to compromise security in any way.
Other critical benefits are the ease of design and increased scalability. The overall throughput of the blockchain improves as data shards add more block space, and rollups add scalability.
However, when leveraging modular designs, blockchain developers should be aware of the potential drawbacks of the modular stack network with pluggable modules.
Modular chains might have fewer safety features than monolithic blockchains, which carry out every blockchain function in a single layer. Another issue that modular chains might face is the lack of interest in the network. For instance, a layer devoted to consensus and data availability will most likely see far less use for its utility token compared to an execution layer.
Due to their restricted use case, some modular networks might not generate enough interest in their native token.
It's important to understand the differences between modular vs. monolithic blockchains, as both architectures have their own advantages and disadvantages.
The security guarantees of a monolithic chain may be preferred by high-value DeFi applications, whereas projects that call for less expensive and quicker operations (like high-frequency trading) may be better suited to a modular blockchain designed for execution.
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