Modular Blockchains: Redefining Blockchain Scalability and Security
Modular blockchains represent a new blockchain architecture that enhances scalability, security, and flexibility by separating key functions into distinct layers. This design addresses the performance bottlenecks that traditional monolithic blockchains face when handling large transaction volumes, while also enabling greater customization of the system.

What is a Modular Blockchain?

Traditional monolithic blockchain systems, such as Ethereum and Bitcoin, typically handle all tasks on a single chain, including transaction execution, consensus (transaction verification), data storage, and settlement. While this approach benefits overall security and decentralization, it often encounters performance issues when dealing with high transaction throughput, rapid verification, and large-scale applications. Modular blockchains, through a multi-layered architecture, divide these functions into different modules, allowing each module to focus on specific tasks to achieve more efficient resource allocation and performance optimization.

Key Functions

Modular blockchains typically comprise four main functional modules:

1. Consensus: Determines transaction ordering and new block creation, ensuring transaction authenticity. The consensus layer ensures network nodes agree on a single version of the ledger.
2. Execution: Processes transactions and updates the blockchain state, acting as a computing engine for running smart contracts.
3. Data Availability: Stores transaction data, ensuring that data is always available for nodes to download and verify, forming the foundation for blockchain transparency and security.
4. Settlement: Provides transaction finality, ensuring transactions cannot be altered once confirmed, and acts as the arbitration layer for cross-chain disputes.

How Modular Blockchains Work

The core concept of modular blockchains is to decompose the various functions of a blockchain into different modules, each handled by different chains. Traditional monolithic blockchain architectures typically manage all tasks—execution, consensus, settlement, and data availability—on a single chain. While this structure is straightforward, its scalability and performance tend to decline as on-chain activity increases. Modular blockchains, by compartmentalizing these functions, enable different blockchains to focus on specific tasks, achieving a balance between scalability, decentralization, and efficiency. Here is a detailed breakdown of how modular blockchains operate:

1. Execution Layer The execution layer handles and verifies all transactions, managing state changes on the blockchain. Different chains can adopt various architectures and optimization strategies on the execution layer, such as Rollup technology and sharding mechanisms, to increase transaction execution speed and efficiency. This flexibility allows the execution layer to scale based on specific needs, optimizing execution time and reducing transaction fees.
2. Consensus Layer The consensus layer is responsible for communication and coordination among nodes in the network to reach agreement on transaction order. Decentralization and security at this layer determine the robustness of the entire blockchain system. For instance, Proof of Stake (PoS) can provide an efficient consensus mechanism for the consensus layer, achieving higher throughput while ensuring security. By decoupling from other modular layers, the consensus layer can be independently scaled and optimized.
3. Settlement Layer The settlement layer validates transaction validity, manages asset bridging and flow between execution layers, and ensures the security of cross-chain interactions. This layer usually relies on a more robust and secure base blockchain (such as Ethereum) and completes validation and settlement through smart contracts, ensuring the finality of cross-chain transactions.
4. Data Availability (DA) Layer The data availability layer ensures that all transaction data is accessible to validation nodes. This layer’s independence provides modular blockchains with an efficient data management mechanism, using techniques like data sharding and sampling to reduce storage requirements and enable light nodes to participate in data validation. For example, Celestia’s “data availability sampling” technology allows nodes to determine the availability of entire data by sampling a small amount of data, thus achieving efficient on-chain data verification.
   The modular blockchain operational model allows each layer to be optimized based on its own requirements, independently evolving. Since the layers no longer need to run on the same chain, developers can select the appropriate chain to fulfill specific tasks, thereby addressing the trade-offs between scalability, security, and efficiency.

Main Types

Modular blockchains can be flexibly configured by combining the execution, consensus, settlement, and data availability layers to form various structural designs that meet different on-chain requirements. Based on the combination of these modules, the main types of modular blockchains include the following:

1. Layer 1 and Layer 2 Architecture The most basic modular blockchain architecture is the layered design of Layer 1 and Layer 2. Layer 1 serves as the underlying base chain, primarily handling consensus and settlement, while Layer 2 is a chain dedicated to execution, using Rollup technology to increase processing capacity. Celestia adopts this approach, supporting multiple Layer 2 networks (such as Arbitrum and Optimism) that utilize it as a data availability layer, thus improving scalability.
2. Execution, Settlement, and DA Layer Architecture In this architecture, the execution, settlement, and data availability layers are further decoupled. The execution layer focuses on transaction bundling and processing, the settlement layer verifies and stores the final state of execution, and the data availability layer ensures data accessibility and storage security. Each module’s independence is stronger. Validium is an application of this architecture, representing another form of Rollup that processes transactions off-chain before submitting data to L1, with a separate data availability layer.
3. Sovereign Rollup Architecture Sovereign rollups function as both the execution and settlement layer, with data blocks published directly onto the rollup. Unlike smart contract rollups, sovereign rollups manage transaction validity and ordering through their own validation nodes rather than relying on validation at the smart contract layer. Sovereign rollups autonomously control the execution and settlement processes, while the DA layer ensures data availability.

Advantages and Challenges

Advantages:

• Enhanced Scalability: Each module focuses on a specific task, significantly improving blockchain throughput without compromising decentralization.
• Flexibility and Interoperability: Modular blockchain design facilitates collaboration between different Layer 1 and Layer 2 chains, allowing developers to freely choose virtual machines and technology stacks based on actual needs.
• Support for Multi-functional Applications: The modular structure enables developers to create efficient and secure decentralized applications (DApps) with ease, unlocking more possibilities for diverse use cases.

Challenges:

• Development Complexity: The multi-layer design of modular blockchains increases development difficulty and technical requirements for both users and developers, which may slow down adoption.
• Lack of Mature Testing: Compared to traditional monolithic chains, modular blockchains have limited testing and validation in practical applications. Mature chains have undergone extensive testing, while modular networks are still catching up.

Project Examples

Celestia: As a leader in the modular blockchain space, Celestia is a data availability-focused modular blockchain that ensures transaction data accessibility through data availability sampling. It allows Layer 2 networks, such as rollups, to leverage its data storage functionality while reducing the main chain’s burden.
Dymension: Dymension offers fast-deployment modular blockchain “RollApps” and divides the network structure into front-end and back-end, similar to traditional application stack architecture. Dymension ensures efficient communication between RollApps and leverages a data availability network for data storage and provisioning.

Conclusion

Modular blockchains offer a new path for the blockchain space, enhancing scalability and flexibility by modularizing key functions and laying the technical foundation for further DeFi and other decentralized application development. Although still in the early stages, modular blockchains hold promise for overcoming current technical challenges, delivering greater performance and security for distributed networks.