Understanding the Blockchain

Blockchain is a decentralized technology that facilitates secure and transparent transactions, eliminating the requirement for intermediaries such as banks or other financial institutions. It is a decentralized system that allows users to store and share information across a network of computers.

In simple terms, a blockchain is a digital ledger that records transactions in a secure and transparent way. Within the chain, every block encompasses a collection of transactions, and as new transactions are appended to the chain, they undergo verification by a network of computers referred to as nodes. After the verification process, the transaction is included in the block, which is subsequently appended to the chain.

Monolithic Blockchains – What are they?

A monolithic blockchain aims to perform all three core functions of the blockchain within the same space: the L1. As the name suggests, “Monolithic” signifies “formed from a single component”, which explains it is utilized in describing blockchain that adopts the unified-structure model.

The Architecture of Monolithic Blockchain

• Execution – All nodes re-execute transactions to check validity. On the account-based blockchain, nodes execute transactions to compute the new network state.
• Settlement – The settlement process requires a permanent inclusion of transactions in the chain’s historical records. Nodes that propose transactions must place a financial investment to ensure the integrity of the blocks.
• Consensus – The nodes agree on what transactions will be processed for new blocks and the ordering of the transactions they contain.
• Data Availability – Each node holds a copy of the entire blockchain and stores each transaction. The peer can always request transaction information from fellow nodes.

Monolithic Blockchain – The Advantages and Drawbacks

The Benefits:

• Security – Monolithic blockchains possess the benefit of self-enforcing security measures. Nodes have visibility into on-chain transactions and can verify them prior to reaching a consensus. Additionally, resolving the data availability issue is straightforward, as blockchain data is redundantly stored across multiple nodes.
• Utility – The monolithic blockchain, which handles both execution and other responsibilities, offers a more compelling value proposition. By enabling users to purchase the native token for various purposes, it has the potential to accumulate greater long-term value.
• Simplicity – Designing and implementing monolithic blockchains is comparatively simpler, thanks to developers having the advantage of years of experimentation and experience in blockchain technology. Also, creating secure and efficient modular chains demands a higher level of expertise and introduces additional factors to consider during the design process.

The Drawbacks:

• Inefficient execution – In order to confirm their validity, transactions on a monolithic chain require nodes to execute them again.
• Resource limitation – The efficiency of the blockchain is impacted by restrictions on a node’s resources, such as storage and bandwidth.
• Scalability – Monolithic chains increase their throughput by adopting faster block times and larger block sizes, which results in higher hardware demands on nodes and decreases the number of nodes capable of verifying the chain. This, in turn, leads to centralization and increased security risks.
• Flexibility – Due to their lack of flexibility, monolithic chains are unable to optimize for specific attributes without compromising on others.
• Security and decentralization – Monolithic blockchains restrict block times and block sizes in order to attain high decentralization. While this boosts the number of nodes verifying the transactions, processing each transaction on every node decreases throughput.

Modular Blockchains – What are they?

The concept of a Modular Blockchain refers to a blockchain that completely delegates at least one of the four components: Consensus, Execution, Data Availability, and Settlement, to an external chain. This modular chain effectively divides the system into several components that are developed independently.

In the modular blockchain architecture, the execution layer operates autonomously from the underlying output and data availability layers. This enables nodes to execute transactions individually instead of conducting all transactions to assess validity within the restricted block space.

The Architecture of Modular Blockchain

The modular blockchain can be designed to handle one or a combination of the following tasks:

• Execution – The execution layer executes all the transactions to supply top-rated records that are then saved on the blockchain network.
• Settlement – Dispute resolution and bridge.
• Consensus – The consensus later forms the guidelines to be observed via nodes for validating and verifying blocks and agreeing on the blockchain state.
• Data availability – The data availability layer manages the on-chain and stale-chain blockchain records, ensuring that records are available and public for everyone.

Examples of modular blockchains are rollups. The rollup chain processes transactions. However, it outsources data availability, consensus, and settlement to the parent chain.

The modular chain can enhance multiple functions, particularly when they rely on each other. For instance, data availability layers must establish a consensus regarding the arrangement of information. Otherwise determining the accurate representation of historical data becomes unfeasible.

Modular Blockchain – The Advantages and Drawbacks

The Benefits:

• Scalability: The blockchain trilemma defines that the blockchain can only consist of two of three possible qualities, but not all three at a time. These three qualities are decentralization, scalability, and security. Blockchain can have modularity applied to achieve scaling quality without introducing unwholesome trust assumptions. For instance, rollups that concentrate on implementation facilitate greater scalability than regular chains. Still, they get a higher degree of protection by dispensing on Ethereum for data availability and consensus.
• Blockchain Creation: Launching a new blockchain could be complex in terms of building up its security properties. For example, the proof-of-stake chain only requires setting a wide distribution of tokens to eliminate centralization risks, while the proof-of-work chain needs miners to prevent the few parties from controlling the network’s hash rate. However, if the developer only requires to focus on the minimum, such as plug-in another modular blockchain to perform specific tasks. New blockchains can be launched more quickly and without the need for meticulous attention to every aspect of the architecture by making use of modular designs.
• Flexibility: Purpose-built modular blockchain facilitates greater flexibility with respect to trade-offs and design executions. For example, the modular blockchain system might require modular chains that focus on security and data availability, while others focus on implementation. The following are the advantages of modular design:
  • The security and data availability layer experience extra scalability as transactions are processed independently. It only requires enforcing the validity of off-chain implementation and guaranteeing the availability of off-chain information.
  • The execution layer gains advantages in terms of enhanced security by leveraging the properties of the parent chain.

The Drawbacks:

• Security: The modular chain doesn’t guarantee its security qualities. In case, the security layer is ineffective, the modular chain will risk failure.
• Complexity: Implementing modular blockchain design forms new complexity. For example, Ethereum’s information-sharing plan depends on data availability sampling to ensure nodes on one shard don’t withhold information. Similarly, execution layers need certain complex mechanisms, such as validity proofs and fraud proofs, which enable the security layer to enforce the validity of off-chain state transitions.
• Difficulty in attracting token value: Certain modular chains may struggle to generate value for their native tokens due to limited applications. For instance, a layer that solely concentrates on consensus and data availability will likely have fewer use cases for its utility token than the execution layer.

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