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Ethereum, the first smart contract blockchain, was initially designed as a monolithic system, handling its own execution, settlement, consensus, and data availability. However, as decentralized applications grew in number, there arose a greater need for blockspace. When the demand for blockspace surpasses its supply, the limited availability hinders the potential applications, posing a significant obstacle to utility and widespread acceptance.
This challenge is known as the scalability trilemma, which suggests that no public blockchain can achieve maximum decentralization, security, and scalability simultaneously. To address the limitations of the scalability trilemma, a modular approach has emerged, where core components are outsourced to specialized networks optimized for critical functions.
The concept of modular blockchains revolves around role specialization, distributing traditional blockchain functions like execution or data availability across specialized networks. By dividing these functions into separate layers, blockchains can be customized for optimal performance in specific areas, enhancing customization, efficiency, and, when needed, decentralization, security, and scalability.
With a diverse range of use cases, these functions can vary significantly. A modular network can specialize in providing oracle price feeds, zero-knowledge proving services, data availability, or a more scalable execution layer on top of another blockchain.
The need for modularity in the cryptocurrency industry is evident. Ethereum itself has evolved from a monolithic design to a more modular structure. Projects like Arbitrum have successfully implemented rollups to improve scalability by offloading intensive computation off-chain and settling transactions on-chain. Many other projects have followed suit due to the cost-effectiveness and efficiency of using rollups for processing transactions.
Furthermore, the rise of networks that highlight the value of modularity is evident. Celestia, for example, addresses the high cost of storing data availability back to Ethereum. While rollups increase throughput, transaction costs remain high due to storage costs. An alternative data availability layer offers a solution to this challenge.
The recognition that a single monolithic design cannot meet the demands of modern blockchains without trade-offs has led to a shift towards modularity. Although Ethereum is renowned for its security and smart contracts, it still faces challenges with transaction processing and gas fees.
In addition to addressing architectural challenges, it is becoming apparent that additional services are essential for enabling new use cases and promoting web3 adoption. Services like oracle services, decentralized RPC, ZK prover networks, and AI are crucial, but blockchains cannot natively support them due to various constraints. The modular architecture allows blockchains to be more flexible, enabling plug-and-play integration of services like building blocks.
For instance, confidentiality remains a persistent challenge in the blockchain space. Most widely adopted blockchains lack on-chain confidentiality, necessitating resource-intensive hardware for validators when implementing cryptography methodologies like zero-knowledge proofs or fully homomorphic encryption. A confidentiality layer on top of existing dApps is crucial for enabling new use cases that are not feasible on transparent blockchains.
Modular protocols are gaining traction, and as decentralization becomes more widespread, they are likely to become the standard for web3 development. This shift from monolithic chains to modular architectures allows projects to leverage specific modules tailored to their needs, unlocking infinite scalability by combining different ecosystem modules to coexist and grow together.
The blockchain landscape is poised for significant expansion with the emergence of modular architectures in 2024 and beyond. These novel blockchains delegate essential functions like settlement, consensus, confidentiality, data availability, or execution to distinct blockchain frameworks, paving the way for a more versatile and scalable blockchain ecosystem.