1. What is a modular blockchain

When we discuss modular blockchain, we must first understand the concept of Monolithic Blockchain. Monolithic chains, such as Bitcoin, Ethereum, etc., are known for their comprehensiveness, independently handling various aspects of the network, from data storage to transaction verification, and then smart contract execution. In this process, monolithic chains play the role of a generalist, covering all aspects.

Taking Ethereum as an example, a mature single-blockchain can generally be roughly divided into four architectures: The following diagram explains the role of each layer of architecture by metaphorically likening accounting on the blockchain to a game of soccer.

By this analogy, we can understand more clearly how the various architectures of the blockchain work together. A monolithic blockchain executes all functions on the same chain, while the modular blockchain is a new type of blockchain architecture that decomposes the blockchain system into multiple specialized components or layers, with each component responsible for specific tasks such as consensus, data availability, execution, and settlement.

Modular blockchain is like a group of specialists, focusing on the deep mining and technological innovation in their respective fields. This focus enables modular blockchain to provide excellent performance and user experience in specific functions, for example, they can provide faster transaction processing speeds at lower costs.

In terms of node architecture, a monolithic chain relies on full nodes, which must download and process a full copy of the blockchain data. This not only imposes high requirements on storage and computing resources, but also limits the speed of network expansion. In contrast, modular blockchain adopts a design of light nodes, which only need to process block header information, significantly improving transaction speed and network efficiency.

A significant advantage of modular blockchain is its flexibility and collaboration. They can outsource non-core functions to other experts, forming a synergistic effect, and significantly improving overall performance. This design philosophy is similar to LEGO bricks, allowing developers to freely combine different modules to create diverse solutions based on project requirements.

Although standalone chains have advantages in global control, security and stability, they also face challenges in scalability, upgrade difficulty and adapting to new demands. Modular blockchain stands out with its high flexibility and customizability, simplifying the process of creating and optimizing new blockchains.

However, modular blockchain also faces its own unique challenges. Its complex architecture increases the workload for developers in terms of design, development, and maintenance. As an emerging technology, modular blockchain has not yet undergone comprehensive security testing and market fluctuations, and its long-term stability and security still need further verification.

2. Why do we need modular blockchain

Why is modular blockchain technology widely followed and prophesied as the "future trend"? This is closely related to the famous "Impossible Triangle" theory in the blockchain field. The "Impossible Triangle" of blockchain refers to the difficulty of a blockchain network to simultaneously achieve optimal security, decentralization, and scalability.

Scalability focuses on the network's ability to process a large volume of transactions, and its ability to operate efficiently and cost-effectively as user and transaction volume rise. It is typically measured by TPS (Transactions Per Second) and latency (the time required for transaction confirmation).

Security involves the cost and difficulty of protecting the blockchain network from attacks. For example, Bitcoin's POW mechanism requires attackers to control over 51% of the network's computing power, while Ethereum's POS mechanism requires collusion of more than 1/3 of the nodes.

Decentralization describes the operation of the network not relying on a single central node, but distributed among numerous nodes. The more nodes there are and the wider their geographical distribution, the higher the degree of decentralization of the network.

The core point of the "Impossible Triangle" is that it is difficult for a blockchain system to achieve optimization in all three aspects. For example, among many public chains, Bitcoin and Ethereum stand out in decentralization and security due to their widespread node distribution and sufficient number of nodes.

However, they sacrifice a certain scalability, resulting in slow transaction speed and high transaction fees: the block time of Bitcoin is about 10 minutes, and the TPS of Ethereum is about 13. When the transaction volume surges, the transaction fees of Ethereum may be as high as hundreds of dollars.

It is in this context that modular blockchain technology emerged, which solves the challenges of traditional public chains in scalability and transaction costs by assigning different functions to specialized modules. For example, Bitcoin's Lighting Network and Ethereum's Rollup technology are both examples of modular thinking.

The advantage of modular blockchain lies in its layered architecture, allowing each layer to be optimized for specific requirements. The data layer can focus on data storage and verification, while the execution layer can handle smart contract logic. This separation not only improves performance and efficiency, but also promotes interoperability between different blockchains, providing a foundation for building an open and interconnected ecosystem.

In summary, modular blockchain technology provides a new way to solve the limitations of traditional public chains. It achieves higher scalability and lower transaction costs while maintaining decentralization and security, which has profound significance for the widespread application and long-term development of blockchain technology.

3. Analysis of Modular Blockchain Track Projects

3.1 Execution Layer

According to its architectural characteristics, modular blockchain can be divided into different types. Among these types, the data availability layer and the consensus layer are often designed as a unified whole due to their close interdependence. This is because when nodes receive transaction data, they usually also determine the order of the transactions, which is the core of blockchain security and immutability.

Based on these design principles, we can understand the different projects of modular blockchain from three aspects: execution layer, data availability layer and consensus layer, settlement layer.

Layer 2 technology, as an extension of the execution layer in blockchain architecture, is a manifestation of the concept of modular blockchain. It is dedicated to improving the scalability of the mainchain by building off-chain networks, systems, or technologies on top of the underlying blockchain.

Layer 2 solutions allow for faster and more cost-effective transaction processing while maintaining the security and decentralization features of the underlying blockchain. According to the Dune dashboard created by @0x ning, the gas consumed by Layer 2 verification and settlement in the Ethereum ecosystem accounts for an average of less than 10%, greatly reducing transaction costs for users.

source: ning/ethereum-gas-war

Rollup technology is currently the most mainstream solution for Layer 2, and its core concept is "off-chain execution, on-chain verification", performing calculations and other work off-chain, and then uploading the calldata back to the Mainnet.

Off-chain Execution: In the Rollup model, transactions are executed off-chain, while the underlying blockchain only verifies transaction proofs in smart contracts and stores raw transaction data. This design significantly reduces the computational burden on the mainchain, reduces storage requirements, and allows for more efficient transaction processing. To further reduce costs, Rollup adopts transaction bundling technology. This can be compared to the cargo consolidation in logistics, where sending each piece of cargo separately would incur high shipping costs. Rollup technology packs multiple transactions together and only requires one "shipment", greatly reducing the cost of each transaction.

On-chain validation: On-chain validation is key to the security of Layer 2 networks. Layer 2 networks must provide encryption proof to address potential discrepancies on the underlying blockchain. Currently, the two mainstream proof mechanisms are fraud proof and validity proof, which support Optimistic Rollups and ZK Rollups respectively.

Proof of Error in Optimistic Rollups: Optimistic Rollups adopts an optimistic assumption that all transactions are considered valid unless there is clear evidence of errors. This model relies on fraud proofs during the challenge period, where any network participant can submit proof to challenge the state of smart contracts, ensuring fairness and transparency of the network.

According to the data from L2 BEAT, there are a total of 16 Layer 2 solutions currently using the Optimistic Rollups mechanism, such as Arbitrum, OP, Base, Blast, etc.

• Validity proof of ZK Rollups

Unlike Optimistic Rollups, ZK Rollups adopt a more cautious approach that requires all transactions to undergo validity proof before being accepted. This proof mechanism is similar to a verification process that ensures the accuracy of every transaction and computation in the Layer 2 network.

In short, validity proof is the cornerstone of ZK-Rollups, which requires each batch of transactions to be accompanied by corresponding proofs, thereby ensuring that the underlying smart contracts on the blockchain can verify and approve state changes. For validation nodes, ZK Rollups provide a zero-fault settlement mechanism, as each transaction must undergo strict validity verification.

According to the data from L2 BEAT, there are a total of 11 Layer 2 solutions currently using the ZK Rollups mechanism, such as Linea, Starknet, zkSync, and so on.

3.2 Celestia

As a pioneer in the field of modular blockchain, Celestia is essentially a data availability layer, providing a solid foundation for the development of dApps and Rollups. By deploying on Celestia's data availability and consensus layers, application developers can focus on optimizing execution logic, leaving the data availability and consensus mechanism complexity to be handled by Celestia. Celestia's architectural design provides diverse solutions for modular expansion and mainly includes the following three types:

Sovereign Rollup: Celestia provides the data availability layer and consensus layer, while the settlement layer and execution layer are independently implemented by their respective sovereign chains.

Settlement Rollup (e.g., Cevmos project): On the basis of the DA and consensus layer provided by Celestia, Cevmos provides settlement layer services, while the application chain assumes the role of the execution layer.

Celestium: The data availability layer is handled by Celestia, while the consensus layer and settlement layer rely on the powerful network of Ethereum, and the AppChain continues to focus on the execution layer.

Celestia adopts multiple innovative technologies, significantly reducing the cost of data storage and optimizing storage efficiency.

Erasure Coding Technology: One of Celestia's innovations is the application of Erasure Codes. In the paper "Data Availability Sampling and Fraud Proof", co-authored by Mustafa Albasan (one of the founders of Celestia) and Vitalik Buterin, a new architectural idea is proposed, whereby full nodes are responsible for the production of blocks, while light nodes are responsible for the verification of blocks. Erasure coding technology ensures complete recovery of the original data block even in the event of up to 50% data loss by introducing redundancy during data transfer.

This mechanism means that in order to ensure 100% availability of block data, block producers only need to publish 50% of the block data to the network. If malicious producers attempt to tamper with 1% of the block data, they actually need to tamper with the entire 50% of the data, which greatly increases the cost of their misconduct.

Data Availability Sampling: Celestia addresses the scalability issue of blockchain by introducing Data Availability Sampling (DAS) technology. The workflow of DAS includes the following key steps:

Random Sampling: Light nodes perform multiple rounds of random sampling on block data, requesting only a small part of the block data each time.

Gradually increasing confidence: as the light node completes more sampling rounds, its confidence in data availability gradually increases.

Reach confidence threshold: Once the light node reaches the preset confidence level (e.g., 99%) through sampling, it considers the data of the block to be available.

This mechanism allows light nodes to verify the availability of block data without downloading the entire block data, ensuring the integrity and availability of the blockchain data. Celestia focuses on providing data availability rather than executing state, which improves block production rate, allows each block to have more space, and accommodates more sampled data, significantly increasing TPS (transactions per second).

3.3 EigenDA

EigenDA is a secure, high-throughput, and decentralized data availability service, which is the first Active Validation Service (AVS) launched on EigenLayer. AVS can be understood as node operators, which are selected from thousands of node operators on Ethereum. In addition to their primary responsibilities (responsible for Ethereum consensus verification), they also take on some additional tasks (providing consensus verification services for rollup networks and other networks with consensus verification requirements) to earn additional income.

With the increase in the amount of Ether re-staked, and more AVS joining the EigenLayer ecosystem in the future, Rollups can achieve lower transaction costs and higher security composability in the EigenLayer ecosystem.

EigenLayer is a re-staking protocol based on Ethereum, which uses the stakers of the Ethereum consensus layer as validators, thus leveraging some of the security of Ethereum and avoiding the trust risks of centralized service providers or proprietary tokens, thereby lowering the development threshold for other projects. At the same time, it also strengthens Ethereum's trust network, increasing the value and influence of Ethereum.

In terms of architecture, EigenDA uses ZK technology to verify the state data submitted by Layer 2, and the EigenDA network, which ensures consensus security by Restaking ETH, is responsible for finality. Finally, the state data of Layer 2 is submitted and saved to the Ethereum mainnet. Therefore, EigenDA acts as a subcontractor for the validation and finality of the DA service on the Ethereum mainnet, rather than a competitor like Celestia.

3.4 Avail

Avail is a modular blockchain project announced by the Polygon team in June 2023. It was split from Polygon in March this year and operates as an independent entity. Currently, Avail is running on the testnet and has just completed a $43 million Series A financing, led by Dragonfly and Cyber Fund.

The core architecture of Avail is mainly composed of Avail DA, Avail Nexus, and Avail Fusion. Avail DA is a modular data availability layer that provides DA services for various blockchains, similar to Celestia. Avail Nexus is a standardized cross-chain messaging protocol, similar to Cosmos' IBC protocol, which enables interoperability between different cross-chains. Avail Fusion introduces a proof-of-stake (POS) consensus with multi-asset staking, aiming to provide secure consensus for the entire Avail network.

In terms of technology, Avail DA uses Kate polynomial commitments to avoid fraud proofs and does not require assuming that the majority of nodes are honest or relying on full nodes to obtain data availability. This is different from the architecture of Celestia, which is based on fraud proofs, so there is a fundamental difference between the two at the technical level.

With the emergence of modular data availability blockchain projects such as Celestia and Avail, the competition for modular DA War will become more intense, and Ethereum's functionality as the DA layer will also be diverted. In the future, it is very likely to present a "one super and multiple strong" competitive situation.

3.5 Dymension

Dymension is a modular blockchain platform based on Cosmos that provides RollApp developers with a concise framework through built-in scalability aggregation technology. In Dymension's architecture, developers can focus on implementing business logic and quickly deploy Rollups for specific applications using the Rollup Development Kit (RDK) and dedicated settlement layers.

The architecture of Dymension consists of two core components: RollApp and Dymension Hub.

RollApp is a fusion of Rollup and App, and it is a high-performance modular blockchain on Dymension dedicated to specific applications. RollApp can be presented in various forms, including but not limited to dedicated Layer 2 solutions for decentralized applications such as DeFi platforms, Web3 games, NFT trading markets, etc.

In RollApp, the sequencer plays a key role, responsible for the validation, ordering, and processing of local transactions. After the blocks are packaged, this data will be transmitted to the peer full node and published on-chain to the data availability network selected by RollApp, such as Celestia. Upon receiving a response from Celestia, the sequencer sends its state root to Dymension Hub to achieve consensus formation and settlement.

As the center of the entire ecosystem, Dymension Hub serves as the consensus layer and settlement layer. It receives the state root from RollApp and provides final transaction confirmation and settlement services for RollApps.

With this design, Rollup is able to hand over the tasks of consensus and settlement to Dymension Hub, and the tasks of data storage and verification to DA networks such as Celestia. In this way, Rollup can share the economic security of these two networks, while focusing on improving the execution efficiency and user experience of the application itself.

3.6 Cevmos

The name Cevmos combines Celestia, EVMos, and CosmOS to provide a settlement layer for EVM-compatible rollups. Since Cevmos is a rollup in its own right, all rollups built on it are collectively referred to as settlement rollups. Each rollup enables the redeployment of existing rollup contracts and applications on Ethereum through a minimized two-way trust bridge with the Cevmos rollup, reducing the migration effort. Rollups on Cevmos publish data to Cevmos, which then batches the data before publishing it to Celestia. Just like Ethereum, Cevmos will perform rollups proofs as a settlement layer.

4. Modular Blockchain of Bitcoin Ecosystem

With the inscription enrichment effect brought by the Ordinals protocol, as well as the approval of Bitcoin ETF, multiple favorable factors converge, injecting new vitality into the Bitcoin ecosystem. The market's attention has been rapidly drawn to the Bitcoin ecosystem, and institutional investors' funds are also pouring into this field, demonstrating confidence and expectations for the future development of the Bitcoin ecosystem.

In this context, Bitcoin Layer 2 technology presents a prosperous scene, with numerous technical solutions emerging and forming a diverse and vibrant technical ecosystem. Various innovative solutions have emerged, collectively promoting the expansion and optimization of the Bitcoin network. Although there is currently no unified consensus on the precise definition of Bitcoin Layer 2 in the industry, this article will draw on the concept of modular blockchain in Ethereum and explore the possibility and methods of building Bitcoin Layer 2 from a modular perspective. The Ethereum network is known for its Turing complete smart contract functionality, which can store and verify historical states, thereby supporting complex decentralized applications (DApps). In contrast, the Bitcoin network is a stateless non-smart contract network, and its imperfect system design is mainly due to two aspects:

1. Limitations of UTXO Account System

In the blockchain world, there are two main ways of recording: the account/balance model and the UTXO model. Bitcoin uses the UTXO model, which is in sharp contrast to the account/balance model used by Ethereum.

In the Bitcoin system, although users see the account balance in the wallet, in fact, the Bitcoin system designed by Satoshi Nakamoto does not include the concept of balance. The so-called "Bitcoin balance" is actually a concept derived from UTXO by the wallet application. UTXO represents the Unspent Transaction Output, which is the core of Bitcoin transaction generation and validation.

Each Bitcoin transaction consists of inputs and outputs. Each transaction spends one or more inputs and generates new outputs, which then become new UTXOs waiting for future transactions to spend.

As a minimalist asset transfer and settlement technology architecture, the UTXO model is difficult to scale to support complex functions such as smart contracts.

2. Non-Turing complete scripting language

Bitcoin's scripting language does not support all types of calculations because it lacks looping and conditional statements, making it not Turing complete. While this feature helps reduce hacker attacks and improve network security, it also limits Bitcoin's ability to execute complex smart contracts.

Due to the imperfect design of the Bitcoin system, for more complex functions, it needs to rely on external modular extensions. In this respect, the need for modularity in Bitcoin is undoubtedly more urgent than that of Ethereum. The functions in its ecosystem, such as the execution layer, data availability layer, consensus layer, and cross-chain interoperability layer, all need to be encapsulated and extended in a modular way.

4.1 Merlin Chain

In the current track of Bitcoin Layer 2, Merlin Chain has the highest TVL, which has reached billions of dollars, making it the most attractive project in the Bitcoin ecosystem. As a Bitcoin Layer 2 network, Merlin Chain supports a variety of native Bitcoin assets while also being compatible with EVM, demonstrating its dual support for the Bitcoin and Ethereum ecosystems.

Merlin's features revolve around the ZK-Rollup network, decentralized oracle network, and on-chain anti-fraud.

ZK-Rollup Network: The core of ZK-Rollups is the use of Zero-Knowledge Proofs. Zero-Knowledge Proof, as an encryption method in cryptography, allows one party (the prover) to prove to another party (the verifier) that a statement is correct without revealing any information other than the fact that the statement is correct.

Merlin Chain will process and calculate transactions off-chain to avoid the high transaction fees and network congestion of the Bitcoin network. At the same time, ZK-rollup can compress multiple transaction proofs into batches, and the Bitcoin mainchain only needs to verify a single proof that packages multiple transactions, greatly reducing the workload of the mainchain and improving transaction efficiency.

Decentralized Oracle Network: The decentralized oracle network of Merlin plays a role similar to that of DAC (Data Availability Committee) to inspect and ensure that the sequencer accurately publishes complete DA data off-chain. The decentralization of the oracle network lies in its POS form, where anyone can run an oracle node by staking enough assets. The staking mechanism is very flexible, supporting assets such as BTC, MERL, and also proxy staking similar to Lido.

On-chain fraud prevention: Merlin introduces the idea of BitVM and adopts the 'optimistic ZK-Rollup' mechanism, which can be simply understood as assuming that all ZK Proofs are trustworthy by default, and only punishing the operator when an error occurs. Because the verification is carried out on the Bitcoin mainnet, on the Bitcoin mainnet, due to technical limitations, it is impossible to fully verify the ZK Proof, and only a certain step of the ZK Proof calculation process can be verified in special cases. Therefore, people can only point out errors in a certain calculation step of the ZK Proof in the off-chain verification process and challenge it through fraud proof.

4.2 B² Network

The B² Network adopts a modular design, with the Rollup layer (ZK-Rollup) responsible for execution, the data availability layer (B² Hub) responsible for storing data, B² Nodes for off-chain verification, and the final settlement layer being the Bitcoin mainnet. The ZK-Rollup layer of the B² Network adopts the zkEVM solution, responsible for executing user transactions within the second layer network and outputting relevant proofs. The Rollup layer is responsible for submitting and processing user transactions, while the DA layer is responsible for storing copies of aggregated data and verifying relevant zero-knowledge proofs.

B² Hub is an off-chain built DA network that supports data sampling functionality and is regarded as a pioneer in modular Bitcoin scaling solutions. B² Hub draws on the design principles of Celestia and introduces data sampling and erasure coding techniques to ensure that new data can be quickly distributed to numerous external nodes and minimize the risk of data withholding. Additionally, the Committer in B² Hub uploads storage indexes and data hashes of DA data to the Bitcoin blockchain for public access.

Source：

According to the future plans of the B² Network, the EVM-compatible B² Hub is expected to become an off-chain verification layer and DA layer for multiple Bitcoin Layer 2, forming a functional extension layer for Bitcoin off-chain. Considering that Bitcoin itself cannot support many use cases, the method of constructing a functional extension layer off-chain will become increasingly common in the Layer 2 ecosystem.

As the first modular third-party DA layer for Bitcoin, B² Hub can help other Bitcoin Layer 2 utilize the Bitcoin mainchain as the final settlement layer and inherit the security of Bitcoin, which is beneficial for promoting the scalability of the Bitcoin network and enhancing the diversity of its applications.

5 Summary

"Modular is the future" This slogan is gradually changing from an idea to a reality. The modular blockchain technology, with its flexibility and scalability, provides a solid foundation for building the next generation of decentralized applications. This technology allows developers to choose and combine different modules according to specific needs, creating more efficient, secure, and easy-to-maintain blockchain solutions.

The rise of modular blockchain represents a more 'soulful' plug-and-play product concept. In this concept, the blockchain is no longer seen as a closed system, but an open, scalable platform where various services and functions can be easily inserted and removed like LEGO bricks. This flexibility allows developers to quickly build and deploy blockchain solutions according to the specific needs of the application scenario. Originating from the Ethereum ecosystem and now making a splash in the Bitcoin ecosystem, modular technology has already shown its prowess in various tracks of the cryptocurrency industry. For example, Chromia, a modular public chain using 'relational database' technology, has collaborated with multiple games like My Neighbor Alice and Chain of Alliance in the gaming sector; in the RWA track, Chromia has created the Ledger Digital Asset Protocol, which has been adopted by several projects.

In the field of AI, CARV focuses on building modular data layers for AI and Web3 games, ensuring privacy and security in the data processing process through technologies such as Trusted Execution Environment (TEE) and Zero-Knowledge Proof.

With the continuous maturity of modular blockchain technology and the expansion of application areas, we have reason to believe that this technology will bring more innovative possibilities to various industries. From the birth of Bitcoin to the widespread application of modular blockchain today, we have witnessed how blockchain technology has evolved from a single digital currency application to an ecosystem that supports complex and diverse applications. In the future, modular blockchain will continue to drive technological progress and lay the foundation for building a more open, flexible, and secure digital world.