Modular and monolithic describe two different approaches to blockchain design.
Since the genesis of Bitcoin, and later Ethereum, which both launched as a single layer, or monolithic, structure, blockchain developers have come up with many different solutions to the scalability trilemma. Often, this has involved compromising on decentralization to achieve faster consensus and throughput.
Modular blockchains attempt to solve the problem by adopting a layered architecture, where different parts handle the necessary components for a blockchain system, including consensus, data availability, transaction execution, and settlement. This approach aims to be more flexible and scalable. The architecture contrasts with monolithic structures, where all components are handled on a single layer.
What is a monolithic blockchain?
A monolithic blockchain can be considered as a single linear ledger of transactions, where each transaction is executed sequentially and validated by the network based on historical blockchain data. Examples of monolithic blockchains include Bitcoin and Solana. Ethereum adopted a monolithic structure from its launch, but following the Merge at the end of 2022, the platform has moved towards a more modular structure.
How does a monolithic blockchain work?
Legacy monolithic blockchains run on four interconnected functionalities: data availability, transaction execution, consensus, and transaction settlement.
Data availability
Monolithic blockchains store all data on-chain, so the entire transaction history is stored by all nodes on the network and available for anyone to download. This makes every transaction traceable back to the genesis block and provides a way for the node network to check the validity of new transactions.
Transaction execution
Transactions may be initiated by users or by smart contracts. It’s then broadcast to the blockchain network, where a node can pick it up and verify there is sufficient balance to execute the transaction by including it in a block.
Consensus
The network must be able to reach consensus over the state of the blockchain ledger. Nodes compete to see which will win the right to produce the next block via a consensus protocol such as Proof of Work or Proof of Stake. Consensus protocols require operators to invest “skin in the game” in the form of computing power or staked cryptocurrencies, earning them the proportional right to compete in block production while also creating an incentive to ensure transactions are valid. In this way, consensus maintains the security of the shared ledger.
Settlement
Once the transaction has been included in a block and the network has validated the legitimacy of the block based on the ledger history via the consensus protocol, the transaction enters the blockchain ledger. Once there, it becomes an immutable part of the historical blockchain data, available for validating future transactions.
Benefits of monolithic blockchains
The main benefits of a monolithic structure are as follows.
Proven security
The most successful monolithic blockchains have extremely robust security with a high degree of decentralization. This makes it very costly to launch a majority attack on the network. As such, monolithic blockchains such as Bitcoin or Litecoin are considered highly secure.
Simplicity
With all systems operating on a single layer, monolithic blockchains are relatively easy to develop and maintain. This makes it more appealing to larger pools of developers in the open-source community.
Drawbacks of monolithic blockchains
Despite the benefits, monolithic blockchains come with several drawbacks.
Lack of flexibility
The scalability challenges of legacy blockchains are well-documented, resulting from the inability to increase throughput when demand for block space is high. Even next-generation platforms like Solana, which offer superior scalability, have struggled to maintain uptime during periods of high transaction volumes.
Slow and cumbersome upgrades
Monolithic blockchains like Bitcoin and Ethereum have proven extremely difficult to upgrade. Substantial changes like Bitcoin’s SegWit hard fork or Ethereum’s Merge taking several years to research and implement.
Consensus requirements
Sufficiently decentralized monolithic blockchains can be highly secure, but if the network is too centralized, it may be possible to launch a majority attack and compromise the blockchain ledger. In a scenario where there are an increasing number of monolithic blockchains, each requiring many network participants, there’s a risk that the strength of consensus will be diluted.
What is a modular blockchain?
Modular blockchains operate a different approach by segregating each of the blockchain functionalities into different systems, often called layers. The overall aim is that modular blockchains overcome the limitations of monolithic structures by being more flexible and scalable; however, they also introduce new challenges.
How modular blockchains work
Modular blockchains can adopt any configuration that allows them to offload one or more core tasks onto separate chains within the overall modular structure. Examples of modular blockchain structures include Polkadot, Cosmos, and EigenLayer.
The overall system tasks are similar to those of a monolithic structure, but how they are carried out differs in a modular structure.
Data availability
A modular blockchain may offload the storage and retrieval of data to a separate data availability layer. Typically, these layers will operate as a standalone Proof of Stake chain, where the network participants stake tokens to guarantee data availability whenever required. If they fail to deliver, they risk losing part or all of their stake.
Examples of modular data availability networks are Celestia and EigenDA.
Transaction execution
Transaction execution may occur on a standalone chain, which offers a way to increase processing capacity since it can alleviate the burden of traffic on an underlying or connected chain.
This model underpins Ethereum’s transition from a monolithic structure to a modular ecosystem where multiple Layer 2 platforms, such as Optimism and Arbitrum, handle transaction processing. Typically, transactions are batched for validation and settlement on the main chain.
Consensus
Modular systems may operate separate consensus protocols per chain; however, there is often a central or main chain that takes the role of aggregating or overseeing activities elsewhere in the ecosystem. In Ethereum, the main Beacon chain provides a consensus layer underpinning the Layer 2s, while Polkadot’s central Relay Chain plays a similar role.
Settlement
Like consensus, settlement can also take place on Layer 2s or subsidiary chains, but typically the main chain will act as a master settlement layer to establish the final state of the blockchain, enshrining transactions in a permanent ledger.
Benefits of a modular blockchain
Modular blockchains offer several benefits over their monolithic counterparts.
Flexibility and scalability
A modular structure is designed to be more flexible, scalable, and efficient. Each module is optimized for its task, which is more efficient than a generalized system and reduces the chances that any one system will become overloaded. Modularity also introduces scaling capabilities that aren’t possible in a monolithic system, such as parallel processing of transactions.
Shared security
The shared consensus and settlement layer in a modular system reduces or eliminates the need for new projects to set up their own networks and consensus from scratch. This mitigates the risk of diluting consensus across multiple protocols.
Interoperability
Since each chain is dedicated to specific tasks, modular systems are typically designed for interoperability, enabling assets and data to be sent across chains via bridges and interoperability protocols.
Drawbacks of a modular blockchain
Despite their advantages, modular blockchains introduce critical challenges.
Complexity
Modular blockchains are a significantly more complex architecture, which makes them more difficult to design and build than monolithic structures. This complexity can make it more difficult to appeal to a wide pool of developers, as well as introduce the risk of hidden bugs or vulnerabilities.
Security
Due to the complexity, security issues can emerge in modular systems. One example is interoperability protocols such as bridges, which typically operate their own governance and have consequently become a target for attackers.
Modular vs. monolithic blockchain essentials
- A monolithic blockchain describes a single platform that handles all tasks, including data availability, transaction execution, consensus, and settlement.
- The same tasks are performed in a modular blockchain, but separate, connected chains may carry out some or all tasks.
- While monolithic blockchains are highly secure, they are typically inflexible. Modular structures aim for flexibility and adaptability but come with some complexity.