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The original Ethereum blockchain was built as a monolithic system, handling its own execution, settlement, consensus, and data availability. As decentralized applications grew in popularity, the demand for blockspace increased. However, when the supply of blockspace falls short of demand, it limits the range of potential applications, hindering utility and widespread adoption.
This challenge is known as the scalability trilemma, which suggests that no public blockchain can achieve maximum decentralization, security, and scalability simultaneously. To address this issue, a modular approach has emerged, allowing core components to be specialized to optimize critical functions.
The concept of modular blockchain focuses on role specialization, decentralizing traditional blockchain functions across specialized networks. By dividing these functions into distinct layers, blockchains can be customized for specific purposes, enhancing efficiency, customization, and, when needed, decentralization, security, and scalability.
Different use cases require different functions, such as pushing oracle price feeds, offering zero-knowledge proving services, providing data, or enabling a more scalable execution layer on top of an existing blockchain.
The need for modularity in the crypto industry is evident as platforms like Ethereum evolve to adapt to changing demands. Projects like Arbitrum, which use layer-2 solutions like rollups, have demonstrated the effectiveness of offloading intensive computation while settling transactions on-chain.
Innovative networks like Celestia are addressing specific challenges, such as the high cost of storing data availability back to Ethereum. By introducing alternative layers like data availability, these networks increase throughput and reduce transaction costs.
Recognizing that a single monolithic design cannot meet current blockchain demands without compromises, the industry is shifting towards modularity. While Ethereum remains a secure blockchain for smart contracts, issues with transaction processing and gas fees persist.
In addition to addressing architectural challenges, there is a growing need for additional services to enable new use cases and drive web3 adoption. Modular architectures allow blockchains to support a variety of services through plug-and-play components, such as oracle services, decentralized RPC, ZK prover networks, and AI.
One ongoing challenge in the space is confidentiality, as most blockchains lack on-chain privacy features. Modular protocols like Inco are introducing solutions like fully homomorphic encryption to enhance confidentiality without altering the base protocol.
The rise of modular protocols indicates a shift towards a new standard for building in web3, disrupting the traditional approach of monolithic chains. By leveraging specific modules for their unique needs, projects can achieve infinite scalability and interoperability.
Looking ahead to 2024 and beyond, modular architectures are expected to drive significant growth in the blockchain industry. These innovative blockchains delegate essential functions to distinct frameworks, enabling new use cases and expanding the landscape of blockchain technology.
Remi Gai, the founder and CEO of Inco, brings a wealth of experience in engineering, entrepreneurship, product management, and venture capital to the web3 space. Through Inco, he aims to overcome the final barrier to mass adoption of web3.