In-depth interpretation of modularity: plug-and-play solutions for blockchain performance bottlenecks

Student author| @twilight_momo

Guidance teacher| @CryptoScott_ETH

Initial release date | 2024.6.13

1. Monolithic blockchain is known for its comprehensiveness, independently handling various aspects of the network, from data storage to transaction verification, and so on. On the other hand, modular blockchain separates different functions of the blockchain into independent modules, which can provide performance support and smooth user experience in specific functions, to some extent solving the ‘Impossible Triangle’ problem.
2. As the first blockchain platform to support smart contracts, Ethereum provides a fertile ground for modular design. With the development of blockchain technology, the Bitcoin ecosystem has also begun to explore modular possibilities, achieving more advanced functions by adding new modules, such as improved privacy protection, more efficient transaction processing, or enhanced smart contract capabilities.
3. Modular technology represents a more ‘soulful’ plug-and-play product concept, which will lead to more flexible and customizable blockchain solutions in the future. Various services and functions can be easily inserted and removed like LEGO bricks. This flexibility allows developers to quickly build and deploy blockchain solutions based on the specific needs of the application scenario.

When discussing modular blockchain, we must first understand the concept of Monolithic Blockchain. Monolithic chains, such as Bitcoin, Ethereum, etc., are known for their comprehensiveness and independently undertake various aspects of the network, from data storage to transaction verification, and then to smart contract execution. In this process, monolithic chains play a role as a generalist, involved in all aspects.

Taking Ethereum as an example, a mature single-chain blockchain can generally be roughly divided into four architectures:

• Execution Layer (ution Layer)
• Settlement Layer
• Data Availability Layer/ DA Layer (Data Availability Layer)
• Consensus Layer (Consensus Layer)

The following diagram explains the role of each layer of the architecture by metaphorically comparing accounting on the blockchain to a game of football:

By this analogy, we can have a clearer understanding of how the various architectures of blockchain work together. A monolithic blockchain executes all functions on the same chain, while a modular blockchain is a new type of blockchain architecture that decomposes the blockchain system into multiple specialized components or layers, each responsible for specific tasks, such as consensus, data availability, execution, and settlement.

Modular blockchain is like a group of specialists, focusing on in-depth exploration and technological innovation in their respective fields. This focus enables modular blockchain to provide outstanding performance and user experience in specific functions, for example, they can offer faster transaction processing speed at lower cost.

In terms of node architecture, the monolithic chain relies on full nodes, which must download and process complete copies of the blockchain data. This not only places high demands on storage and computing resources, but also limits the speed of network expansion. In contrast, modular blockchain adopts a design of light nodes, which only need to process block header information, thereby significantly improving transaction speed and network efficiency.

One notable advantage of modular blockchain is its flexibility and collaboration. They can outsource non-core functions to other experts, creating a synergistic effect and significantly improving overall performance. This design philosophy is similar to LEGO bricks, allowing developers to freely combine different modules to create diverse solutions.

Although single chains have advantages in global control, security, and stability, they also face challenges in scalability, upgrade difficulty, and adapting to new demands. Modular blockchain stands out with its high flexibility and customizability, simplifying the creation and optimization process of new blockchains.

However, modular blockchain also faces its own unique challenges. Its complex architecture increases the workload for developers in design, development, and maintenance. As an emerging technology, modular blockchain has not yet undergone comprehensive security testing and market fluctuations test, and its long-term stability and security still need further verification.

Why is modular blockchain technology receiving widespread attention and being predicted as a “future trend”? This is closely related to the famous “Impossible Triangle” theory in the blockchain field.

Source:chainlink

The “Impossible Triangle” of blockchain refers to the difficulty of a blockchain network to achieve the optimal state of security, decentralization, and scalability at the same time.

• Scalability focuses on the network’s ability to process a large number of transactions, and its ability to operate efficiently and cost-effectively as user and transaction volume grow. It is typically measured by TPS (Transactions Per Second) and latency (time required for transaction confirmation).
• Security involves the cost and difficulty of protecting the blockchain network from attacks. For example, Bitcoin’s POW mechanism requires attackers to control more than 51% of the computing power of the entire network, while Ethereum’s POS mechanism requires collusion of more than ⅓ of the nodes.
• Decentralization describes the operation of the network not relying on a single central node, but distributed among many nodes. The more nodes there are and the wider the geographical distribution, the higher the degree of decentralization of the network.

The core point of the “Impossible Triangle” is that it is difficult for a blockchain system to optimize all three characteristics. For example, among many public chains, Bitcoin and Ethereum perform outstandingly in decentralization and security due to their widespread node distribution and sufficient number of nodes.

However, they sacrifice some scalability, resulting in slower transaction speeds and higher transaction fees: Bitcoin has a block time of about 10 minutes, and Ethereum has a TPS of about 13. When transaction volume surges, Ethereum transaction fees can reach hundreds of dollars.

It is in this context that modular blockchain technology has emerged, which solves the challenges of scalability and transaction costs in traditional public chains by assigning different functions to specialized modules. For example, the Lightning Network of Bitcoin and the Rollup technology of Ethereum are both embodiments of modular thinking.

The advantage of modular blockchain lies in its layered architecture, which allows each layer to be optimized for specific needs. The data layer can focus on data storage and verification, while the execution layer can handle smart contract logic. This separation not only improves performance and efficiency, but also promotes interoperability between different blockchains, providing a foundation for building open and interconnected ecosystems.

In summary, modular blockchain technology provides a new approach to solve the limitations of traditional public chains. It achieves higher scalability and lower transaction costs while maintaining decentralization and security. This has profound implications for the widespread application and long-term development of blockchain technology.

According to its architectural characteristics, modular blockchain can be divided into different types. Among these types, the data availability layer and the consensus layer are often designed as a unified whole due to their close interdependency. This is because when nodes receive transaction data, they usually also determine the order of the transactions, which is the core of blockchain security and immutability.

Based on these design principles, we can understand different projects of modular blockchain from the aspects of execution layer, data availability layer, consensus layer, and settlement layer respectively.

Layer 2 technology, as an extension of the execution layer in blockchain architecture, is a manifestation of the concept of modular blockchain. It aims to improve the scalability of the mainchain by building off-chain networks, systems, or technologies on top of the underlying blockchain.

Layer 2 solutions allow for faster, more cost-effective transaction processing while maintaining the security and decentralization of the underlying blockchain. According to the Dune dashboard created by @0xning, it can be seen that the proportion of gas consumed by Layer 2 verification and settlement on the Ethereum ecosystem is on average less than 10%, greatly reducing transaction costs for users.

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Rollup technology is currently the most mainstream solution for Layer 2, with the core concept of “off-chain execution, on-chain verification”, performing computations and other work off-chain, and then uploading the calldata back to the Mainnet.

off-chain execution

In the Rollup model, transactions are executed off-chain, and the underlying blockchain is only responsible for verifying the transaction proofs in smart contracts and storing the original transaction data. This design significantly reduces the computational burden on the mainchain, reduces storage requirements, and allows for more efficient transaction processing.

To further reduce costs, Rollup adopts transaction packing technology. It can be compared to the cargo consolidation in logistics, where sending each item separately would incur high shipping costs. However, Rollup technology greatly reduces the cost of each transaction by packaging multiple transactions together and requiring only one ‘shipment’.

on-chain verification

On-chain validation is key to the security of Layer 2 networks. Layer 2 networks must provide encryption proof to address potential divergences on the underlying blockchain. Currently, two mainstream proof mechanisms are fraud proof and validity proof, which respectively support Optimistic Rollups and ZK Rollups.

Proofs of Incorrectness for Optimistic Rollups

Optimistic Rollups adopt an optimistic assumption that all transactions are valid by default unless there is clear evidence of error. This model relies on fraud proofs during the challenge period, where any network participant can submit proof to challenge the status of smart contracts, ensuring fairness and transparency of the network.

According to the data from L2BEAT, there are currently 16 Layer 2 solutions using the Optimistic Rollups mechanism, such as Arbitrum, OP, Base, Blast, etc.

Source: l2beat.com

Validity proof of ZK Rollups

Unlike Optimistic Rollups, ZK Rollups adopts a more cautious approach, requiring all transactions to undergo validity proof before being accepted. This proof mechanism is similar to a validation process, ensuring that every transaction and computation in the Layer 2 network is accurate and error-free.

In short, validity proof is the cornerstone of ZK-Rollups, which requires corresponding proofs to be attached to each batch of transactions, thus ensuring that smart contracts on the underlying blockchain can verify and approve state changes. For verification nodes, ZK-Rollups provides a zero-fault settlement mechanism because each transaction must pass strict validity proof.

According to the data from L2BEAT, there are currently a total of 11 Layer 2 solutions using ZK Rollups, such as Linea, Starknet, zkSync, etc.

Source: l2beat.com

As a pioneer in the field of modular blockchain, Celestia is essentially a data availability layer, providing a solid foundation for the development of dApps and Rollups. By deploying on Celestia’s data availability layer and consensus layer, application developers can focus on optimizing execution logic, leaving data availability and consensus mechanism complexity to be handled by Celestia.

Celestia’s architecture design provides a variety of solutions for modular expansion, and its architecture mainly includes the following three types:

• Sovereign Rollup: Celestia provides the data availability layer and consensus layer, while the settlement layer and execution layer are independently implemented by their respective sovereign chains.
• Settlement Rollup (e.g. Cevmos project): On the basis of the DA and consensus layer provided by Celestia, Cevmos provides settlement layer services, while the application chain takes on the role of the execution layer.
• Celestium: The data availability layer is managed by Celestia, while the consensus layer and settlement layer rely on the powerful Ethereum network. The AppChain continues to focus on the execution layer.

Celestia has adopted multiple innovative technologies, significantly reducing the cost of data storage and optimizing storage efficiency.

Erasure Coding Technology

One of the innovations of Celestia is the application of erasure coding. In the paper “Data Availability Sampling and Fraud Proof” co-authored by Mustafa Albasan (one of the founders of Celestia) and Vitalik Buterin, a new architectural concept is proposed, in which full nodes are responsible for block production, while light nodes are responsible for block validation. Erasure coding technology introduces redundancy in the process of data transmission, ensuring that even in the case of up to 50% data loss, the original data block can be completely recovered.

This mechanism means that, in order to ensure 100% availability of block data, block producers only need to publish 50% of the block data to the network. If a malicious producer tries to tamper with 1% of the block data, they actually need to tamper with the entire 50% of the data, which greatly increases the cost of the wrongdoer.

Data Availability Sampling

Celestia solves the scalability problem of blockchain by introducing Data Availability Sampling (DAS) technology. The workflow of DAS includes the following key steps:

1. Random Sampling: Light nodes perform multiple rounds of random sampling on block data, requesting only a small part of the block data each time.
2. Gradually increasing confidence: As the light node completes more rounds of sampling, its confidence in data availability gradually increases.
3. Reach Confidence Threshold: Once the light node reaches the preset confidence level (e.g. 99%) through sampling, it considers the data of the block to be valid.

This mechanism enables light nodes to verify the availability of block data without downloading the entire block data, ensuring the integrity and availability of blockchain data. Celestia focuses on providing data availability rather than execution state, which improves block production rate, allows each block to have more space, and can accommodate more sampled data, significantly increasing TPS (transactions per second).

EigenDA is a secure, high throughput, and decentralized data availability service, which is the first Active Verification Service (AVS) launched on EigenLayer. AVS can be understood as node operators, selected from the thousands of node operators on Ethereum, who do some additional work (providing consensus validation services for rollup networks, etc.) on top of their primary job of Ethereum consensus validation to earn extra income.

With the increase in the amount of Ether re-staked and the future addition of more AVS to the EigenLayer ecosystem, Rollups can achieve lower transaction costs and higher security composability in the EigenLayer ecosystem.

EigenLayer is a re-staking protocol based on Ethereum, which utilizes the stakers of Ethereum’s consensus layer as validators, thereby leveraging some of Ethereum’s security to avoid the trust risk of centralized service providers or proprietary tokens, thus reducing the development threshold for other projects. At the same time, it also strengthens Ethereum’s trust network, increasing Ethereum’s value and influence.

In terms of architecture, EigenDA uses ZK technology to verify the state data submitted by Layer 2, and EigenDA network, which ensures consensus security by Restaking ETH, is responsible for final determinism. Finally, the state data of Layer2 is submitted and saved to the Ethereum Mainnet. Therefore, EigenDA acts as a subcontractor for the verification and final determinism of the DA service on the Ethereum Mainnet, rather than a competitor like Celestia.

Avail is a modular blockchain project announced by the Polygon team in June 2023. It was spun off from Polygon in March this year and operates as an independent entity. Currently, Avail is running on the Testnet and recently completed a Series A financing round of $43 million, led by Dragonfly and Cyber Fund.

The core architecture of Avail mainly consists of Avail DA, Avail Nexus, and Avail Fusion. Avail DA is a modular data availability layer that provides DA services for various blockchains, similar to Celestia. Avail Nexus is a standardized cross-chain messaging protocol, similar to Cosmos’ IBC protocol, which enables interactivity between different cross-chains. Avail Fusion introduces a POS consensus with multi-asset staking, aiming to provide secure consensus for the entire Avail network.

In terms of technology, Avail DA uses Kate polynomial commitment to avoid fraud proof, does not require assuming that the majority of nodes are honest, and does not rely on full nodes to obtain data availability. This is different from the architecture of Celestia, which is based on fraud proof, so there is a fundamental difference between the two at the technical level.

With the emergence of modular data availability blockchain projects such as Celestia and Avail, the competition for modular DA War will become increasingly fierce, and Ethereum’s functionality as the DA layer will also be diverted. It is very likely that a ‘one super, many strong’ competitive situation will emerge in the future.

Dymension is a modular blockchain platform based on Cosmos, which provides a concise framework for RollApp development through built-in scalability aggregation technology. In Dymension’s architecture, developers can focus on the implementation of business logic, and quickly deploy Rollups for specific applications using the Rollup Development Kit (RDK) and a dedicated settlement layer.

The Dymension architecture consists of two core components: RollApp and Dymension Hub.

RollApp is a fusion of Rollup and App, it is a high-performance modular blockchain on Dymension dedicated to specific applications. RollApp can take various forms, including but not limited to dedicated Layer 2 solutions for decentralized applications such as DeFi platforms, Web3 games, NFT trading markets, etc.

In RollApp, the sequencer plays a key role in verifying, sorting, and processing local transactions. After completing the block packaging, this data will be transmitted to peer full nodes and published on-chain to the data availability network selected by RollApp, such as Celestia. After receiving a response from Celestia, the sequencer sends its state root to Dymension Hub to achieve consensus and settlement.

As the center of the entire ecosystem, Dymension Hub performs the functions of the consensus layer and settlement layer. It receives the state root from RollApp and provides final transaction confirmation and settlement services for RollApps.

With this design, Rollup is able to delegate the tasks of consensus and settlement to Dymension Hub, and the tasks of data storage and verification to networks such as Celestia. This way, Rollup can share the economic security of these two networks, while focusing on improving the execution efficiency and user experience of the application itself.

The name Cevmos combines Celestia, EVMos, and CosmOS, aiming to provide a settlement layer for EVM-compatible rollups.

Since Cevmos is a rollup itself, all rollups built on it are collectively referred to as settlement rollups. Each rollup achieves the redeployment of existing rollup contracts and applications on Ethereum by minimizing bidirectional trust bridges with Cevmos rollup, reducing migration workload. Rollups on Cevmos will publish data to Cevmos, which will then batch process the data and publish it to Celestia. Like Ethereum, Cevmos will act as the settlement layer to execute rollup proofs.

With the inscription wealth effect brought by the Ordinals protocol and the approval of Bitcoin ETF, multiple favorable factors converge, injecting new vitality into the Bitcoin ecosystem. The market’s attention is quickly drawn to the Bitcoin ecosystem, and institutional investors’ capital is also pouring into this field, demonstrating confidence and expectations for the future development of the Bitcoin ecosystem.

In this context, Bitcoin Layer 2 technology presents a prosperous scene, with numerous technical solutions emerging, forming a diverse and vibrant technical ecosystem. Various innovative solutions have emerged, jointly driving the expansion and optimization of the Bitcoin network.

Although there is no unified consensus in the industry on the precise definition of Bitcoin Layer 2 at present, this article will draw on the concept of modular blockchain in Ethereum, and explore the possibility and methods of building Bitcoin Layer 2 from a modular perspective.

The Ethereum network is known for its Turing complete smart contract capability, which can store and verify historical states, thus supporting complex decentralized applications (DApps). In contrast, the Bitcoin network is a stateless non-smart contract network, and its imperfect system design mainly stems from two aspects:

1. Limitations of the UTXO Account System

In the blockchain world, there are mainly two ways of record keeping: the account/balance model and the UTXO model. The UTXO model used by Bitcoin forms a sharp contrast with the account/balance model used by Ethereum.

In the Bitcoin system, although users see account balances in their wallets, Satoshi Nakamoto’s designed Bitcoin system does not actually include the concept of balance. The so-called ‘Bitcoin balance’ is actually a concept derived from UTXO by wallet applications. UTXO represents Unspent Transaction Outputs, which are the core of Bitcoin transaction generation and validation.

Each Bitcoin transaction is composed of inputs and outputs. Each transaction will spend one or more inputs and generate new outputs. These newly generated outputs then become new UTXOs, waiting to be spent in future transactions.

As a minimalistic asset transfer and settlement technology architecture, the UTXO model is difficult to scale to support smart contracts and other complex functions.

2. Non-Turing complete scripting language

Bitcoin’s scripting language does not support all types of calculations because it lacks loops and conditional control statements, making it not Turing Complete. While this feature helps reduce hacker attacks and improve network security, it also limits Bitcoin’s ability to execute complex smart contracts.

Due to the imperfect design of the Bitcoin system, for more complex functions, it needs to rely on external modular extensions. In this regard, the need for modularity in Bitcoin is undoubtedly more urgent than Ethereum. The functions in its ecosystem, such as the execution layer, data availability layer, consensus layer, and cross-chain interoperability layer, all need to be encapsulated and extended in a modular way.

Merlin

Currently in the Bitcoin Layer 2 race, Merlin Chain has the highest TVL, reaching billions of dollars, making it the most attractive project in the Bitcoin ecosystem. As a Bitcoin Layer 2 network, Merlin Chain not only supports various native Bitcoin assets, but also is compatible with EVM, demonstrating its dual consideration for the Bitcoin and Ethereum ecosystems.

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Merlin’s features revolve around the ZK-Rollup network, decentralized oracle network, and on-chain anti-fraud.

ZK-Rollup Network

The core of ZK-Rollups lies in the use of zero-knowledge proofs. Zero-knowledge proofs, as an encryption method in cryptography, allow one party (the prover) to prove to another party (the verifier) that a statement is correct without revealing any information other than the proof of the correctness of the statement.

Merlin Chain processes and calculates transactions off-chain, avoiding the high transaction fees and network congestion of the Bitcoin network. At the same time, ZK-rollup can compress multiple transaction proofs into batches, and the Bitcoin mainchain only needs to verify a single proof that includes multiple transactions, greatly reducing the workload of the mainchain and improving transaction efficiency.

Decentralized Oracle Network

Merlin’s decentralized oracle network plays the role of DAC (Data Availability Committee) to check and ensure that the sequencer faithfully publishes complete DA data off-chain. The decentralization of the oracle network lies in its form of POS, where anyone can run an oracle node by staking sufficient assets. This staking mechanism is very flexible, supporting assets such as BTC, MERL, and proxy staking similar to Lido.

On-chain Anti-Fraud

Merlin adopts the idea of BitVM and uses the optimistic ZK-Rollup mechanism, which can be simply understood as assuming that all ZK Proofs are trustworthy by default, and only punishing the operator when errors occur. Because the verification is performed on the Bitcoin mainnet, on the Bitcoin on-chain, due to technical limitations, it is impossible to fully verify the ZK Proof. Only in special cases can a certain calculation step of the ZK Proof be verified. Therefore, people can only point out that there is an error in a calculation step of ZKP in the off-chain verification process, and challenge it through fraud proof.

B² Network

The B² Network adopts a modular design, with the Rollup layer (ZK-Rollup) responsible for execution, the Data Availability layer (B² Hub) responsible for storing data, B² Nodes for off-chain verification, and the final settlement layer is the Bitcoin Mainnet.

The ZK-Rollup layer of the B² Network adopts the zkEVM solution, responsible for executing user transactions within the second-layer network and outputting relevant proofs. The Rollup layer is responsible for submitting and processing user transactions, while the DA layer is responsible for storing copies of aggregated data and verifying relevant zero-knowledge proofs.

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B² Hub is a DA network built off-chain that supports data sampling and is seen as a pioneer in modular Bitcoin extension solutions. B² Hub draws on Celestia’s design ideas and introduces data sampling and erasure coding technology to ensure that new data can be quickly distributed to numerous external nodes and minimize the risk of data retention. In addition, the Committer in B² Hub uploads the storage index and data hash of DA data to the Bitcoin chain for public access.

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According to the future plan of B² Network, the EVM-compatible B² Hub is expected to become an off-chain verification layer and DA layer for multiple Bitcoin Layer 2, forming a functional extension layer off-chain of Bitcoin. Considering that Bitcoin itself cannot support many application scenarios, the method of building a functional extension layer off-chain will become more and more common in the Layer 2 ecosystem.

As the first third-party DA layer of modular Bitcoin, B² Hub can help other Bitcoin Layer 2 utilize the mainchain of Bitcoin as the ultimate settlement layer, and inherit the security of Bitcoin, which is conducive to promoting the expansion of the Bitcoin network and enhancing the diversity of its applications.

“Modular is the future” This slogan is gradually turning from an idea into reality. Modular blockchain technology, with its flexibility and scalability, provides a solid foundation for building the next generation of decentralized applications. This technology allows developers to select and combine different modules based on specific needs, thereby creating more efficient, secure, and maintainable blockchain solutions.

The rise of modular blockchains represents a more “soul-oriented” idea of pluggable products. In this line of thinking, the Blockchain is no longer seen as a closed system, but as an open, scalable platform where various services and functions can be inserted and unplugged as easily as Lego bricks. This flexibility enables developers to quickly build and deploy Blockchain solutions based on the needs of specific use cases.

Originating from the Ethereum ecosystem and then emerging in the Bitcoin ecosystem, modular technology has been used in various tracks of the Crypto Assets industry.

For example, Chromia, a modular blockchain using the “relational database” technology, has collaborated with multiple games in the gaming industry such as My Neighbor Alice and Chain of Alliance. In the RWA track, Chromia has created the Ledger Digital Asset Protocol, and several projects have already adopted the protocol.

In the field of AI, CARV focuses on building modular data layers for AI and Web3 games, ensuring privacy and security in data processing by leveraging technologies such as Trusted Execution Environments (TEE) and Zero-Knowledge Proofs.

With the continuous maturity of modular blockchain technology and the expansion of application areas, we have reason to believe that this technology will bring more possibilities for innovation in various industries. From the birth of Bitcoin to the widespread application of modular blockchain today, we have witnessed how blockchain technology has evolved from a single digital currency application to an ecosystem that supports complex and diverse applications. In the future, modular blockchain will continue to drive technological progress and lay the foundation for building a more open, flexible, and secure digital world.

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