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Ethereum, the first smart contract blockchain, was monolithic by design. This means managing your own execution, settlement, consensus, and data availability. Over the years, new decentralized applications have been developed, increasing the demand for block space. When the demand for block space exceeds the supply, availability constraints limit the range of potential applications and pose significant obstacles to practicality and widespread adoption.
This limit is called Scalability trilemma Simply put, the idea is that no public blockchain can simultaneously achieve optimal scalability, maximum decentralization, and security. To overcome the limitations of the scalability trilemma, modularization has emerged as a way to outsource core components that are optimized to solve critical functions.
The theory of modular blockchain focuses on role specialization. It proposes to distribute traditional blockchain functions such as execution and data availability across specialized networks. Segmenting these functions from a single L1 into separate layers allows blockchains to be tuned for optimal performance in specific areas, increasing customization, efficiency, decentralization, security, and It can significantly improve scalability.
These features may vary given the diverse use cases. Modular networks can specialize in pushing oracle price feeds, providing zero-knowledge proof services, creating usable data, or enabling a more scalable execution layer on top of another underlying blockchain. Masu.
The need for modularity in the cryptocurrency industry
Ethereum represents a gradual transformation towards a modular world. The chain was first launched with a monolithic design, following in the footsteps of Bitcoin. Layer 2, Arbitrum, represents a rollup success story that isolates the intensive computation required for scalability off-chain while bringing it back on-chain. More and more projects are adopting this design due to its resource efficiency and low cost design for transaction processing using rollups.
That's not all. A growing number of networks are helping developers realize and unlock the value of modularity. Celestia is a great example of solving the obvious problem of the high cost of storing data availability (DA) on Ethereum. Although rollups increase throughput, the cost of transactions is still relatively high, as it ultimately depends on the storage cost of the payment layer. The solution to this problem is to provide an alternative DA layer.
The recognition that no single monolithic design can meet today's blockchain demands without trade-offs is why the field is moving toward modularity. Although Ethereum is the most secure blockchain with smart contracts, it continues to face various drawbacks when it comes to processing transactions and gas fees.
In addition to solving blockchain architectural challenges, it is becoming clear that additional services are needed to enable new use cases and drive Web3 adoption. Examples of such add-on services include Oracle Services, Distributed RPC, ZK Prover Network, and AI, to name a few. However, blockchains cannot natively support these services due to additional overhead, hardware requirements, or technical incompatibilities. Given the configurable nature of modular architecture, the blockchain itself no longer needs to support everything, and everything can be plug-and-play like Lego.
As an example, one of the open questions this space will continue to grapple with is around confidentiality. Most currently widely adopted blockchains are transparent and require validators to be resource-intensive when utilizing cryptographic techniques such as zero-knowledge proofs (ZKP) and fully homomorphic encryption (FHE). You cannot add on-chain confidentiality without requiring hardware.
Beyond the four existing blockchain layers (execution, payment, data availability, and consensus), the confidentiality layer on top of existing dApps is critical to enabling entirely new use cases that would not be possible on a transparent blockchain. This is the missing part. Inco is an example of a modular protocol that acts as a fifth layer of confidential computing by introducing fully homomorphic encryption (FHE) to Ethereum and other blockchains without changing the underlying protocol.
Modular protocols are currently gaining traction, and with the rise of decentralization, they may become the standard for building on Web3. This standard will definitely disrupt the vertical integration approach of monolithic chains and leverage specific Lego blocks that can be matched to create separate modular stacks. This means that the project uses the modules it needs for its specific needs, rather than trying to do everything.
This unlocks infinite scalability as the network can rely on Ethereum for security, Move as the execution environment, Celestia for data availability, and Inco for confidential computing. The ultimate goal is for different ecosystem modules to coexist and grow together.
The blockchain technology landscape is poised to expand significantly with the advent of modular architectures in 2024 and beyond. These new blockchains delegate at least one of the typical functions such as settlement, consensus, confidentiality, data availability (DA), and execution to another different blockchain framework.
