Opinion: Modularity Revolutionizes the Crypto Terrain
Disclaimer: The author’s views and opinions expressed in this article are personal and do not reflect the views and opinions of crypto.news’ editorial team.
The initial blockchain platform, Ethereum, was designed as a monolithic system that handled its own execution, settlement, consensus, and data availability. As decentralized applications grew in number, the demand for blockspace increased as well. However, when the demand surpasses the supply of blockspace, it limits the potential applications and hinders widespread adoption.
This limitation is known as the scalability trilemma, which states that no public blockchain can achieve maximum decentralization, security, and scalability simultaneously. To overcome this challenge, modularity has emerged as a solution by outsourcing core components to specialized networks optimized for specific functions.
The concept of modular blockchain focuses on role specialization, decentralizing functions like execution and data availability across different layers. By segmenting these functions, blockchains can be customized for optimal performance in specific areas, enhancing efficiency, customization, and, when needed, decentralization, security, and scalability.
Different use cases require different functions, and a modular network can specialize in various areas such as 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 crypto industry is evident. Ethereum, for example, has gradually transformed into a modular system, following the footsteps of Bitcoin. Layer-2 solutions like Arbitrum have successfully separated intensive computations for scalability off-chain while settling back on-chain. Many other projects have adopted this design due to its resource effectiveness and cost efficiency.
But the trend doesn’t stop there. Networks that facilitate modularity have been on the rise. Celestia, for instance, addresses the significant cost of storing data availability back to Ethereum. While rollups increase throughput, transaction costs remain relatively high due to storage costs. The solution is to offer an alternative data availability layer.
The realization that a monolithic design cannot meet the demands of today’s blockchain without trade-offs has led to a shift towards modularity. While Ethereum is the most secure blockchain with smart contracts, it still faces challenges with transaction processing and gas fees.
In addition to addressing architectural challenges, it is becoming clear that additional services are needed to enable new use cases and promote web3 adoption. These services include oracle services, decentralized RPC, zero-knowledge prover networks, and AI, among others. However, blockchains cannot support these services natively due to overhead, hardware requirements, or technical incompatibilities. The modular architecture allows blockchains to be plug-and-play, like Lego blocks, without needing to support everything themselves.
Confidentiality is one of the unsolved problems in this space. Most widely adopted blockchains lack on-chain confidentiality without resource-intensive hardware. Modular protocols are now emerging as the fifth layer, introducing fully homomorphic encryption (FHE) to enhance confidentiality without altering the base protocol.
Modular protocols are gaining traction, and with the increasing adoption of decentralization, they are likely to become the standard for web3 development. This standard disrupts the vertically integrated approach of monolithic chains and allows projects to use specific modules that meet their needs instead of trying to do everything.
This approach unlocks infinite scalability by combining different modules from different networks. For example, a network could rely on Ethereum for security, Move for execution, Celestia for data availability, and Inco for confidential computing. The goal is for diverse ecosystem modules to coexist and grow together.
The blockchain technology landscape is set for significant expansion with the introduction of modular architectures in 2024 and beyond. These new blockchains delegate essential functions to distinct blockchain frameworks, such as settlement, consensus, confidentiality, data availability, or execution.
About the author: Remi Gai is the founder and CEO of Inco. He has a background in engineering, entrepreneurship, product management, and venture capital. His current focus is on building Inco to remove the final barrier to mass adoption of web3.
