Ethereum is moving towards modularity.

Ethereum is Striving Towards a More Modular Design.

The concept of modular blockchain

Modular blockchain is focused on handling a few responsibilities and outsourcing the rest to one or more independent layers of blockchain. Modular blockchain can be used to handle individual tasks or a combination of tasks:

Execution: Supports the execution of transactions and facilitates the deployment and interaction of smart contracts.

Data availability: Ensures the availability of transaction data.

Consensus: Allows for agreement on the content and order of transactions.

Settlement: Used for completing transactions, resolving disputes, validating proofs, and bridging between different execution layers.

Ethereum's move towards modularity

Modular chains typically perform two or more interdependent functions. For example, the data availability layer must reach consensus on data ordering, otherwise it would be impossible to know which data represents the correct version of the record.

Advantages of modular blockchain design

Scalability: Using modularity in blockchain allows for scaling without introducing harmful trust assumptions.

Ease of launching new blockchains: By leveraging modular design, new blockchains can be launched faster without needing to ensure correctness in every aspect of the architecture.

Flexibility: Purpose-built modular chains provide more choices for trade-offs and design implementations. For example, a modular blockchain system may include chains focused on security and data availability, while others focus on execution.

Disadvantages of modular blockchain design

Security: Unlike a monolithic chain, modular blockchain cannot guarantee its own security quality. If the security layers responsible for consensus and data availability fail, the modular blockchain will face the risk of failure.

Complexity: Implementing modular blockchain design introduces new complexities. For example, Ethereum’s data sharding plan relies on data availability sampling to ensure nodes on a shard cannot hide data. Similarly, the execution layer must create certain complex mechanisms like fraud proofs and validity proofs to enable the security layer to guarantee the validity of off-chain state transitions.

Token value: Due to limited use cases, native tokens of some modular blockchains may struggle to accrue value. For example, utility tokens that solely focus on consensus and data availability layers have limited utility compared to the execution layer, making it potentially harder to attract participants into such networks.

Ethereum’s modular forms: sharding and rollup

Like first-generation blockchains such as Bitcoin, Ethereum was initially designed as a monolithic blockchain. However, to enhance network performance, scalability, and sustainability, the Ethereum network is currently transitioning to a modular framework.

Sharding is the process of dividing a system (such as a database) into multiple parts to run. By distributing functionality across multiple components, the system can achieve more output and efficiency. In a blockchain network, sharding involves dividing the blockchain into multiple sub-chains, with each sub-chain handling different sections of network activity.

In Ethereum’s sharding design, there will be 64 parallel shard chains. Shards can process transactions in parallel (execution shards) and can also be used to store different parts of the blockchain data (data shards). With data sharding, Ethereum nodes will only store the data published on their shard chains – contrasting the current structure where all nodes store the same data.

The relationship between Ethereum's beacon chain and shard chains

Sharding is a modularized form where different components (shard chains) handle different responsibilities. In data sharding, shard chains store different parts of Ethereum’s data, while execution shards allow each shard chain to process its own set of transactions, increasing data throughput and reducing processing time.

Some developers have adopted a rollup-centric approach to scale Ethereum. Unlike purely off-chain scaling solutions (like sidechains), rollups are tightly integrated with the main chain. With rollup outsourcing computations while preserving settlement, consensus, and data availability to the Ethereum blockchain, rollups can optimize execution with faster block times and larger blocks without compromising decentralization or security.

The functionalities of Ethereum (L1) and rollup (L2) in a modular blockchain architecture

The development process of Ethereum’s modular technology stack

The development process of Ethereum’s modular technology stack is as follows:

1. Monolithic blockchain: Represents Ethereum L1 or the main chain, which is itself a monolithic blockchain.

2. Rollup: Acts as an L2 solution for execution, such as Arbitrum and Optimism, moving the execution layer out of Ethereum L1, publishing state roots and rollup data, and sending them back to Ethereum L1.

3. Modular rollup: A rollup with modular data availability.

Ethereum's journey towards modularity

Ethereum’s modular L2 technology stack can provide scalability while maintaining high levels of security and decentralization. This powerful combination lays the foundation for Ethereum to become a more efficient and sustainable blockchain ecosystem.

Monolithic blockchain

A monolithic blockchain is the original form of Ethereum, which can handle everything without the use of rollups or data sharding. This monolithic architecture offers the highest level of security but comes with the cost of high expenses and limited scalability. As a result, the transaction speed on the Ethereum mainnet is relatively slow, with an average TPS of only 15-20. Currently, Ethereum is gradually transitioning towards a modular blockchain, primarily through the adoption of a rollup-centric computation and data sharding strategy.

Rollup

Rollup is the earliest technological breakthrough in modular blockchain, providing a separate layer for execution and expanding Ethereum’s monolithic architecture. Rollup securely abstracts the execution layer of the blockchain to a sequencer, which uses powerful computers to package and execute multiple transactions before periodically sending compressed data back to the Ethereum mainnet for validation. By transferring this computational process to the Ethereum chain, Rollup can increase TPS by 20-50 times.

In the current scenario, rollup plays the role of the execution layer, processing transactions while outsourcing settlement, consensus, and data availability. For example, optimistic rollup utilizing the Optimistic Virtual Machine, and ZK rollup running the zk EVM. These rollups execute smart contracts and process transactions but still rely on Ethereum for:

Settlement: All rollup transactions are completed on Ethereum. Users of optimistic rollup must wait until the challenge period passes or the transaction is deemed valid after anti-fraud computation. ZK rollup users must wait until the validity is proven through verification.

Consensus and data availability: Rollup publishes transaction data to the Ethereum mainnet in the form of CallData, allowing anyone to execute rollup transactions and rebuild their state when needed. Optimistic rollup requires a significant amount of block space and a 7-14 day challenge period before finality is determined. ZK rollup retains verifiable data for 30 days, providing near-instant finality but requires substantial computational power to create proofs.

Due to Ethereum serving as the underlying layer of rollup, it allows for faster block times and larger blocks without compromising decentralization or security. Rollup can be considered the beginning of a new era for Ethereum. Recently, the total transactions on Arbitrum and Optimism have surpassed Ethereum’s transaction count, reflecting Ethereum’s modular trend.

Modular Rollup

Newer modular rollups move the data availability layer out of Ethereum. For example, Mantle relies on Ethereum for settlement and consensus but utilizes Mantle DA as the data availability layer. Mantle DA sorts data and provides data proofs without the need to execute transactions; transaction execution is effectively outsourced to Mantle’s execution layer.

Previously, Ethereum was the only data availability solution for rollups, resulting in cost challenges. Data availability is the biggest cost driver for most rollups, especially storing transaction data on Ethereum, which can account for up to 70% of the cost. Moreover, this cost is variable and increases proportionally to usage, becoming a significant barrier as more users join. So far, only large-scale rollups with substantial resources have been able to accommodate a sizable user base.

Fortunately, Ethereum is evolving, and new modular solutions are emerging in the form of data availability layers to reduce the cost of submitting transaction data. Major examples of data availability layers include EigenDA, Celestia, and Avail, which aim to address data availability issues and provide potential solutions to the limitations of rollup.

The Modular Future

In the past decade or so, the blockchain field has often found itself stuck in a paradox when it comes to scalability challenges — constantly creating new L1 blockchains due to the high cost and limitations of Ethereum. But the high fees of Ethereum are actually not an unsolvable bug.

In a world where L2 solutions are becoming the adopted norm, modular blockchains are transforming the architecture by dividing the execution, settlement, consensus, and data availability layers. When a single-chain blockchain is limited by scalability, the potential of modular architecture will be unleashed.

As the data availability layer develops and competition increases, the barriers and entry thresholds for new rollups will greatly decrease. In the near future, applications on the OP or ZK stack are likely to thrive due to the reduced cost of data availability and further improvements in modular functionality.