- The blog compares Monolithic and Modular blockchains, detailing how Monolithic blockchains handle all functions (execution, consensus, settlement, data availability) within a single system, while Modular blockchains separate these functions into specialized layers for improved scalability and optimization.
- t provides a primer on the blockchain transaction lifecycle, emphasizing the importance of execution, consensus, settlement, and data availability in maintaining network integrity and transparency.
- The blog discusses the inherent challenges in balancing performance, security, and decentralization in blockchain design, highlighting the flexibility and scalability issues of Monolithic blockchains and the security and complexity concerns of Modular blockchains.
- Read more Crypto Council Explainers.
Blockchain technology, known for its decentralization, transparency, and open-source nature, is evolving rapidly, and with it, so are the designs of blockchain systems. Over the years, Bitcoin has become a household name. However, many likely still don’t appreciate the design architecture of the Bitcoin blockchain. Similarly, many observers may assume that emerging blockchains are designed the same as Bitcoin and use a different name (e.g., iOS and Android).
We will briefly describe the two types of blockchains seen today and dig deeper into their key design characteristics to better grasp the rapidly developing blockchain industry. The primer breaks down the mechanics of a blockchain and will help bring more context for the rest of this explainer.
Blockchain Primer
The lifecycle of a transaction on the blockchain relies on its unique design architecture. Each design generally caters to specific use cases. However, they all comprise Execution, Consensus, Settlement, and Data Availability.
When user(s) submit transactions, they are broadcasted to the network. Network operators, often called Nodes or Validators, verify that the transaction meets the network’s rules. This first step is part of Execution. After the initial verification, operators push the transactions into a queue of pending transactions where operators come to a Consensus on which pending transactions should be included in the next block. This process ensures that the established majority of operators agree on the composition of transactions in the new block.
A new block is propagated and added to the blockchain when consensus is reached. The finality of the new block is known as Settlement, meaning the transaction is permanently recorded on the ledger. Data Availability (DA) is critical during this process since network operators are required to maintain copies of the blockchain. DA ensures data transparency about all recorded transactions is accessible to users and operators.
Source: Chainlink
The frequency and volume of transactions can determine how fast or robust a network would be. Additionally, it’s now easier to understand that maintaining copies of a blockchain could become challenging due to substantial hardware needs.
Optimizing a blockchain for scalability (e.g., throughput), security (e.g., consensus), and decentralization (e.g., barrier to entry) proves to be challenging. This challenge is called the blockchain trilemma. Often, two of the three can be improved, but this leads to compromise in the third.
What are Monolithic Blockchains?
A monolithic blockchain is one where network operators are responsible for all four functions: execution, consensus, settlement, and data availability. Aside from known limitations describing the blockchain trilemma, securely upgrading and interoperating with other blockchain networks has proven challenging.
Source: Visa
Most general-purpose blockchains with monolithic architecture are designed to be a “one-size-fits-all” solution, so the blockchain community began exploring alternative architectures separating these functions, like Modular blockchains.
What are Modular Blockchains?
Modular blockchains take a different approach by separating the four functions into smaller, more manageable layers. This separation enables builders to specialize and optimize each of these interconnected components that work together from start to finish. A modular execution layer can vastly improve scale while relying on the underlying blockchain’s consensus, settlement, and data availability.
Source: Galaxy
The illustration above shows the more commonly used modular systems, such as a Regular Rollup, Sovereign Rollup, or Settlement Rollup, all of which handle different functions. These rollup options have unique benefits, each offloading execution into separate environments while maintaining some flavor of settlement, consensus, and data availability at Layer 1.
What are the Tradeoffs?
These designs come with significant tradeoffs. Monolithic chains often struggle with flexibility, scalability, and balancing security and decentralization. Generally speaking, attempts to increase throughput require higher hardware requirements, creating a higher entry barrier, thus decreasing decentralization. These drawbacks highlight the inherent challenges in optimizing a blockchain system that seeks to balance performance, security, and decentralization.
Source: Celestia
While modular blockchains help improve execution and settlement, they lack the ability to secure their own blockchain. Additionally, the complexity of communicating critical functions and transferring monetary value between chains can reveal vulnerabilities due to this modular architecture.