For Sunday reading, please develop the theoretical foundations of understanding the blockchain.
Based thread from Ignas | DeFi Research
💥 Modular blockchains could be the key to a whole new world of cryptocurrencies. And this is a growing narrative for the next bull run!
What makes them special, and why should we be interested in that?
⚡Bitcoin and Ethereum are monolithic blockchains!
In a monolithic blockchain, one layer performs all three main functions:
🔅Consensus - ensures the consistency of the current state of the blockchain.
🔅Data availability - transaction data.
🔅Execution - processing transactions.
⚡The problem with monolithic blockchains is that nodes must perform all three actions at the same time. This is not an easy task and leads to the blockchain trilemma.
Ethereum L1, for example, sacrifices scalability for decentralization, resulting in high gas fees and slow transactions.
‼This is where modular blockchains come in!
A modular blockchain only focuses on a few features and offloads the rest to separate layers. This allows better specialize and optimize specific tasks.
💥Modular blockchains are made up of several layers, each with its own specialized function.
For example, one layer can deal with transaction execution, another with data availability, and a third with consensus.
💥Blockchain Rollups ensures the execution of transactions by combining several transactions into one. The data is then passed to layer 1 where a consensus is reached. That's how they work Optimistic rollups (Optimism/Arbitrum) or zkRollups (zkSync/Starkware).
⚡To further increase scalability and maximize data availability, Ethereum will move to a sharded design.
In short, shards can process transactions in parallel, or act as "stores" for various pieces of blockchain data.
‼This allows nodes to only store data that is published to their shard chain, which reduces storage requirements and improves performance.
🔥Thanks to rollups and sharding, Ethereum is becoming a modular blockchain. Sharding is being developed in stages - the next update, EIP-4844, will appear somewhere in the middle of 2023.
It will reduce the cost of L2 rollups by 10-100 times!
💥Another modular design has been announced BitDAO . It will launch a "modular Ethereum Layer 2" with three layers:
🔅One to complete transactions
🔅Another to complete the transaction
🔅Third - for data availability
⚡Gas will be charged at $BIT
💥Modular blockchains make it easy to launch new blockchainsas they can use existing modular blockchains for their offloaded functionality.
‼This reduces deployment time and minimizes costs.
⚡Cosmos SDK already makes it easy to deploy blockchains designed for specific applications. However, these Cosmos Hub (dApps) do not have general security — but that will change with the launch of Atom 2.0 and Interchain Security!
⚡Another example is Celestia ! They claim it is “the first modular blockchain network.” They specialize in consensus and data availability, offloading execution to separate chains. They don't even have smart contracts 👀.
⚡Vision Celestia is a combination of sovereign interoperable zones of Cosmos and rollup-oriented Ethereum with common security.
🔅 In practice, this means that chains can be quickly launched with their own rules of control with common security guarantees.
‼Modular blockchains have advantages over monolithic ones constructs such as increased scalability to solve the blockchain trilemma.
Delphi_Digital called it a paradigm shift: "We expect their network effects to become increasingly apparent over the next few years."
Author: Lyubasha
VC | Telegram | Twitter | Youtube | VK | Website
