Our previous guide examined the key distinctions between modular and monolithic blockchain designs. We highlighted that monolithic blockchains, such as Bitcoin and Ethereum (early version), function as a single chain responsible for all transactions and computations. Conversely, modular blockchains distribute these functions among multiple chains, allowing for specialization and optimization for different applications.

Modular blockchains aim to improve scalability, flexibility, and optimization compared to monoliths. They also introduce new layers to improve chain interoperability, security, and governance.

In this guide, we'll explore the modularities of blockchains, from the standard monolithic designs to the newer modular ones. We'll shed light on innovative intermediate paradigms such as Polylithic and Semi-Modular architectures, providing a comprehensive overview of these structures. We will dissect the core components of a modular architecture, investigating in detail the consensus, execution, settlement, and data availability layers, exploring their core functions, the technologies involved, and examples of blockchain utilizing them.

Modularities of Modular Blockchain Architectures

As we strive to comprehend blockchain architecture, we've delved into the fundamental principles of monolithic and modular designs. However, it's essential to understand that the landscape is not binary. There are nuanced architectures between the clearly defined monolithic and modular poles - polylithic and semi-modular.

These intermediate forms are considered in cases where the description of blockchain architectures is granular to the lowest level. However, there are only monolithic and modular blockchains from a high level of understanding.

The Monolithic, Polylithic, Semi-Modular and Modular blockchain architectures showcase the blockchain community's determination to innovate to overcome scalability, security and decentralization challenges. These varying paradigms represent complete solutions for achieving these goals within blockchain design.

Polylithic Architecture: The Multi-Chain Approach

Polylithic architecture offers a compromise by avoiding dependence on a single blockchain for all operations. Instead, it employs a multi-chain structure, with each blockchain focusing on specific functions. This approach enhances scalability and flexibility, as individual chains can be optimized for tasks like consensus, transaction processing, and smart contract execution.

Key Highlights

• Decentralization Through Specialization: Polylithic architectures utilize the advantages of specialization by delegating tasks to multiple chains, which can result in a more robust and effective system.

• Interconnected Ecosystems: This approach envisions blockchains as integral components of a more extensive, interconnected network rather than isolated entities. This approach prioritizes collaboration and interoperability between diverse blockchain networks.

Notable Examples: Cosmos, Avalanche, and Polkadot are pioneering this approach, each creating a unique ecosystem of interconnected blockchains.

Semi-Modular Architecture: The Hybrid Model

The semi-modular architecture combines internal blockchain features and external networks, creating a hybrid model. This method retains some of the comprehensive characteristics of monolithic blockchains while allowing for customized external solutions to enhance scalability and effectiveness.

Key Highlights

• Balance and Flexibility: Semi-modular architectures strive to achieve a harmonious blend of self-reliance and reliance on external factors, facilitating the seamless integration of various technologies. This approach promotes adaptability and flexibility.

• Evolutionary Path: Many established blockchains are evolving towards semi-modular architectures. This gradual shift allows them to maintain core principles while embracing innovations for scalability and efficiency.

Notable Examples: Ethereum, with its 2.0 upgrades, Near (phase 10, Mina protocol, and Tezos, are significant players moving in this direction, integrating features like sharding and Layer 2 solutions to enhance their capabilities.

These structures illustrate the gradual evolution of blockchain technology towards a modular framework, highlighting an interim stage in its advancement geared toward enhancing decentralized systems' efficiency and functionality.

Modular Architecture Explained

Modular architecture refers to designing blockchains as a set of independent components that can be mixed and matched based on specific use cases, in contrast to monolithic blockchains with all the core functionality bundled into one system.

At their core, modular blockchains rely on similar foundational principles as traditional monolithic blockchains to perform the blockchain's core functions - consensus, execution, settlement, and data availability. However, modular architectures allow developers to customize and separate these functions into different layers to meet the specific needs of their application.

Let’s go through each of the components/layers in a bit more detail.

Consensus Layer

The consensus layer contains the rules and algorithms nodes/participants follow to validate transactions and add new blocks. The network participants have to agree on the state of the ledger through a Consensus Mechanism. Modular consensus enables swapping consensus mechanisms or parameters without disrupting other layers.

Modular blockchain allows consensus in various forms such as proof of claim, proof of authority, Byzantine fault tolerance, etc. These mechanisms facilitate agreement among nodes about the accuracy of the blockchain's data in a distributed network. Modular blockchains introduce even greater complexity around consensus by allowing developers to swap different consensus protocols in and out like Lego blocks.

Examples of Consensus Mechanisms

Some commonly used consensus mechanisms in modular blockchains include:

How Avalanche Consensus mechanisms work. Source: Avalanche Docs.

Execution Layer

The execution layer is where the actual computation of blockchain state transitions takes place. It's responsible for executing transactions and smart contracts as per the operational code (opcode) they carry. This involves processing all transaction-related data, including inputs, outputs, and cryptographic signing, and ensuring these transactions are valid and adhere to the network rules.

This layer enables decentralized applications (dApps) to automate processes and enforce agreements without relying on intermediaries, serving as the platform on which they operate and interact with smart contracts.

Core Functions of the Execution Layer

1. Transaction Execution: It is responsible for executing the operations associated with transactions beyond just currency transfers—such as contract creation, contract function calls, and data updates.

2. Smart Contract Management: It defines the rules by which the various states of smart contracts are modified. The layer executes the code stipulated by the smart contracts, ensuring deterministic behavior.

3. State Transition: Every action on the blockchain system, be it a transaction or contract execution, leads to a change in the network's state. The Execution Layer computes these changes to the blockchain's state.

4. Resource Accounting: It keeps track of resource utilization (like gas in Ethereum) to prevent abuse of network resources and ensures that users pay transaction fees accordingly.

Implementations and Developments of the Execution Layer

Different blockchain platforms utilize the execution layer in their specialized manner, depending on their use cases and design principles. Here are some recent examples of technologies, systems, or methods prominently used in the execution layers of various blockchains:

Ethereum Virtual Machine (EVM)

• Technology: This is the core of Ethereum's execution layer, allowing the execution of complex smart contracts in a sandboxed environment.

• Example: Ethereum utilizes the EVM to process and execute smart contracts across its network, enabling developers to create decentralized applications (DApps).

WebAssembly (Wasm)

• Technology: An efficient binary instruction format enabling near-native web application performance. It's being increasingly adopted in blockchain execution layers for smart contracts.

• Example: Polkadot and EOS use Wasm to enhance the performance and security of smart contract execution on their networks.

Transaction Execution Environment (TEE)

• Technology: Hardware-based execution environment that allows code to run in a secure, isolated context, protecting the execution from the rest of the system.

• Example: Phala Network leverages TEE to ensure the privacy and integrity of contract execution on its blockchain platform.

Direct Acyclic Graph - DAG (the “Tangle”)

• Technology: Utilizing a graph structure instead of the conventional blockchain architecture provides an option that enables greater scalability and quicker transaction confirmation times.

• Example: IOTA's Tangle utilizes a DAG structure, enabling scalable and feeless transactions ideal for the Internet of Things (IoT).

Diagram comparing a traditional blockchain with IOTA Tangle. Source: Wikipedia.

Settlement Layer

At the core of all blockchain networks lies the Settlement Layer, which acts as a decisive authority for transactions. Its vital role is to guarantee that every transaction becomes unalterable and eternally inscribed onto the blockchain once executed. This unchangeability and permanency foster trustworthiness and safety characteristics unique to this technology.

This layer plays a pivotal role in facilitating the transfer of digital assets and tokens between network participants, underpinning the financial infrastructure of the blockchain.

Purpose of the Settlement Layer

The settlement layer serves several critical functions:

1. Finality and Security: It ensures that once a transaction is confirmed, it becomes irreversible and immutable. Settlement layers provide cryptographic guarantees that transactions are valid and cannot be altered.

2. Consensus and Order: Settlement layers use consensus mechanisms to agree on the order of transactions. They establish a common ground for all participants to reach a consensus.

3. Interoperability: In some architectures, the settlement layer facilitates communication and transaction settlement across different blockchain systems.

Key Technologies and Blockchain Examples

Random Beacon & Threshold Signatures

• Technology: Random Beacons are unpredictable numbers that help in the secure and fair selection of validators or proposers for block creation. Threshold signatures require a subset of participants (threshold) to generate a signature that authenticates a message or transaction.

• Example: Random beacons used by DFINITY's Internet Computer enhance its security and decentralization. These are employed to select proposals for the blockchain's nervous system and apply threshold signatures to secure this process.

Random beacon architecture. Source: MDPI.

Crosslinks

• Technology: Crosslinks are references to shard chains included in the Beacon Chain blocks, essential for the final state validation of shards in a sharded blockchain architecture.

• Example: Ethereum 2.0 utilizes crosslinks in its sharding mechanism, enabling the Beacon Chain to keep track of the state of each shard, facilitating inter-shard transactions and state finality.

zk-SNARKs

• Technology: SNARKs (Succinct Non-Interactive Argument of Knowledge) and other zero-knowledge proofs enable the validation of transactions without revealing transaction details, striking a balance between transparency and privacy.

• Examples: Zcash uses zk-SNARKs to facilitate private transactions, guaranteeing that transaction particulars are obscured whilst their legitimacy and integrity remain intact. Other blockchains utilizing zk-SNARK proofs for finality include Loopring, zkSync, Mina, etc.

Multi-signatures and Schnorr Signatures

• Technology: Multi-signatures allow users to sign a single document, while Schnorr signatures enable aggregating multiple signatures into a single signature, which decreases the amount of blockchain space needed.

• Example: With the implementation of Schnorr signatures through the Taproot update, Bitcoin has boosted its privacy, efficiency and scalability by enabling intricate smart contracts and multi-signature transactions to be processed on-chain with a single signature.

Interchain Protocols and Relays

• Technology: These tools establish an interconnected network that enables transaction settlement by facilitating interoperability among several blockchain systems.

• Example: Polkadot and Cosmos - The fundamental aspect of these blockchains is interoperability, which is achieved through cross-chain messaging protocols such as Polkadot's Cross-Consensus Message Format (XCM and inter-blockchain communication like Cosmos’s IBC. These mechanisms function across layers but are critical for the settlement layer to recognize and finalize transactions from different chains.

Data Availability Layer

The Data Availability Layer is essential for the integrity and efficiency of blockchain networks. It ensures that data resulting from transactions and smart contract executions is appropriately stored, readily accessible, and verifiable by all participants in the network. This layer addresses scalability, data redundancy, and security challenges, providing a robust foundation for decentralized applications.

Core Functions of the Data Availability Layer

1. Data Storage: Safely stores comprehensive transaction records, smart contract codes, and state data of the blockchain, ensuring long-term accessibility.

2. Data Validation: Involves data verification to confirm its accuracy and consistency with the blockchain's protocol, including consensus rules and smart contract requirements.

3. Data Replication: To ensure fault tolerance and resilience, it replicates data across multiple nodes within the network. This redundancy mitigates the risk of data loss or corruption due to node failures or malicious attacks, enhancing the overall robustness of the blockchain network.

4. Data Retrieval: Enables efficient querying and fetching of blockchain data by users and applications, supporting activities like transaction verification, smart contract interaction, and blockchain state analysis.

5. Ensuring Data Availability: Critical for the network's trustworthiness, it guarantees that data is accessible to all network participants, mitigating the risks of data censorship or loss.

The data availability layer of a blockchain network ensures that data is propagated and stored across the network in a decentralized and verifiable manner. It plays a crucial role in maintaining the accessibility of the blockchain's data, allowing all network participants to access and validate its stored information.

Technological Solutions for Data Availability Layer

Many innovative technologies power the functions of the Data availability layer of various blockchains.

Erasure Coding:

• Technology: It involves dividing data into multiple fragments, encoding them with additional redundant pieces, and distributing them across the network. Even if some fragments are lost or unavailable, the original data can still be reconstructed from the remaining pieces.

• Example: Filecoin and Polkadot are prominent blockchains that employ erasure coding to reinforce data availability and recoverability in their networks. Filecoin uses it across nodes in its storage network, while Polkadot applies it within its relay chain to cater to recovery needs, especially in its multi-blockchain parachain setting.

A process flow on how the data is encoded and decoded using erasure coding. Source: Etherscan.

Distributed File Systems (Decentralized Storage)

• Technology: Distributed file systems can store and manage massive amounts of data throughout a node network by dividing files into smaller sections before distributing them across numerous nodes. The lack of one central controlling point (decentralized storage) usually improves resistance against censorship, fault tolerance, and redundancy within these file systems.

• Examples:

  • InterPlanetary File System (IPFS): is a system that facilitates decentralized storage for sharing hypermedia via peer-to-peer communication on a distributed file network. The unique feature of IPFS is the content-addressable structure, which uses specific cryptographic hash keys to retrieve data rather than its location information. Additionally, Filecoin utilizes and extends upon IPFS by instituting an incentivized data retrieval and storage architecture.

  • Storj: Another decentralized cloud storage network that safeguards data through encryption in a DFS and distributes it across a decentralized network.

  • Swarm: Swarm is a native base layer service of the Ethereum web3 stack that provides a decentralized storage and communication infrastructure in a distributed technology.

  • Sia: Siacoin's decentralized storage network splits, encrypts, and distributes data across a global network of peers. This approach ensures high redundancy and reliability for the data.

  • BitTorrent File System (BTFS): A variant of the BitTorrent peer-to-peer protocol optimized for file sharing and decentralized storage.

Data Availability Sampling (DAS)

• Technology: Data Availability Sampling (DAS) is a cryptographic mechanism that guarantees data availability in blockchain networks. This approach allows nodes to confirm that block data is accessible without needing to download the entire block. Instead, nodes sample small, random parts of a block across several verification rounds.

• Examples

  • Celestia: This blockchain utilizes Data Availability Sampling at its core. Celestia allows blocks to be sampled efficiently by light nodes, which only download a tiny portion of each block, making the blockchain more scalable and accessible.

  • Avalanche: Although not the same as DAS, the Avalanche protocol employs Sampling, where nodes randomly sample other nodes in the network to validate transactions quickly and with high confidence. This results in a highly scalable network with minimal computational resources.

Data Availability Sampling example. Source: Avail Project

Polygon Avail

• Technology: Polygon Avail is a highly scalable and robust general-purpose data availability system designed by Polygon. It's designed to cater to diverse use cases and systems - standalone chains, sidechains, and Layer 2 solutions like roll-ups. The main goal of Polygon Avail is to ensure efficient and reliable off-chain data availability for various applications, serving as a solid foundational block in the architecture of blockchain systems. It utilizes erasure codes in its data availability checks. Designed as a dedicated data availability layer from the ground up, it provides and secures raw block space that other blockchains can leverage for their data availability needs.

zk-STARKs

• Technology: Zero-knowledge Scalable Transparent Arguments of Knowledge (zk-STARKs) are cryptographic proofs that enable highly efficient verification, even of complex computations.

• Example: StarkWare uses zk-STARKs to ensure data availability by generating proof from a large amount of data, which is then stored on-chain, ensuring compactness and verifiability.

Conclusion

Modular blockchains signify a notable transformation in the structure of blockchain, intended to augment efficiency, adaptability and optimization as opposed to conventional monolithic blockchains.

We delved into several critical modular designs, including polylithic, semi-modular, and modular styles. Each of these approaches possesses distinct advantages. Polylithic networks utilize multiple specialized chains and semi-modular combined internal and external solutions, while fully modular architectures enable customization of individual components.

We also dove into the modular components like the consensus, execution, settlement, and data availability layers. Each layer serves critical functions, from transaction execution to state transition, but can be configured separately based on specific use cases in modular blockchains. Technologies like PoS, zk-SNARKs, erasure coding, etc., power these layers.

As modular blockchains evolve, we can expect even greater architectural innovation that balances decentralization with scalability and security. The possibilities are endless as developers combine and customize modular building blocks to create optimized solutions. The future is multi-chain.