Introduction
Blockchain technology was introduced in 2009 with Bitcoin as a novel approach to enabling decentralized digital transactions between individuals, eliminating the need for a central bank or other financial middleman. Problems with scalability, interoperability, and adaptability have plagued blockchain developers and businesses since then as they have sought to expand the technology’s possible use cases. The immediate result was the birth of modular blockchains, the next wave of blockchain networks.
Each part of a modular blockchain functions as a standalone building block that, when combined, forms the network’s backbone. These separate modules’ capabilities, governance structures, and consensus procedures are entirely up to them. Networks with specialized functionality and features tailored to individual objectives or company needs can be created by developers by combining pre-built modules. It’s the building blocks of blockchain technology.
One modular supply chain solution platform could include modules for inventory management, logistics, trade financing, and analytics from Internet of Things (IoT) sensors. Adding modules without affecting the overall system makes it ideal for businesses that experience growth or changes in their demands.
In contrast to older, more rigid “monolithic” blockchains, the modular design allows for more adaptability, interoperability, scalability, and upgradeability. Instead of a one-size-fits-all model, it enables functional specialization. Cosmos, Polkadot, and Terra are three of the most innovative modular blockchain frameworks now in use.
In this beginner’s tutorial on modular blockchains, we will cover Some crucial advantages over older blockchains.
- Parts of a building and how they interact
- Modular blockchains in action: real-world examples
- Potential future applications
- Modular platforms continue to face challenges
What Are Modular Blockchains? A Beginner’s Guide explores the fundamental concepts of modular blockchains, providing an accessible introduction to the decentralized and interconnected world of blockchain technology.
Benefits of Modular Blockchains
There are several advantages to modular blockchain systems over monolithic blockchains that make them attractive as contemporary solutions:
Customizability
The flexibility to tailor features and functionality to individual use cases is a crucial advantage of modular blockchains. Instead of a cookie-cutter approach, developers can choose specialized modules to build a blockchain stack that works for them. You won’t have to start from square one if you create and plug in extra modules as your needs change.
Interoperability
The various parts of a modular blockchain can work together and exchange data with one another and other blockchains. This paves the stage for scalable cross-chain transactions and the transfer of data and digital assets. Ecosystem components focused on interoperability protocols link the various parts. This gives you more options for replacing or upgrading specific modules.
Flexibility in scaling
For early adopters like Ethereum, scalability is still a big hurdle. As their use grows, modular blockchains can manage more transactions per second since their functionalities are separated across chains and use parallel processing. Developers need to incorporate more modules to increase the system’s capabilities.
Upgradability
Hard forks are necessary for updates on monolithic blockchains and can be messy and divide communities. It is possible to upgrade or replace individual modules in a modular blockchain without affecting other chains in the network. Within the adaptable framework, this facilitates the coordination of upgrades and innovations.
Specialization
Instead of having one integrated blockchain that handles everything less efficiently, different modules should concentrate on their skills to improve performance for specific needs. We can also create bespoke modules to address new requirements as the technology develops and gains traction in the market.
Architectural Components
The underlying architecture of modular blockchains consists of multiple interdependent components:
Consensus mechanisms
These protocols enable decentralized network nodes to agree on the blockchain’s valid state. Based on the needs, various modules can use multiple consensus models, such as proof-of-work, proof-of-stake, or novel hybrids.
Smart Contract Execution Environments
The modular design enables developers to use specialized runtime environments to implement smart contracts and application logic on certain chains. They lay the groundwork for decentralized application development and management.
Data Availability Layers
It is paramount to guarantee that on-chain data is accessible and available quickly throughout a modular blockchain. Sharding, snapshots, indices, and peer-to-peer caching are native ways data availability modules make this possible.
Interoperability Bridges
Bridges allow for the transfer of data across different chains that make up a network and between networks that are not modular, such as Ethereum and Bitcoin. Intermediary proxy tokens or asset wrapping allow for fast cross-chain transactions.
Regulatory Frameworks
For modular blockchains to progress swiftly, on-chain governance is essential. This allows token holders to vote on network-wide and individual module-specific upgrades and operational choices. This is possible with different governance modules.
The modularity, customizability, and performance advantages of blockchains over earlier monolithic models are all due to the creative stacking of these critical components.
Examples of Modular Blockchains
A few leading platforms have embraced the modular architecture paradigm and are showing promising results:
Cosmos
Cosmos refers to itself as the “Internet of Blockchains.” It’s centered around an interoperability hub that connects many independent layers 1 blockchain, each powered by robust sovereignty through cryptographic solid proofs. Popular Cosmos chains include Terra, Crypto.com, and Osmosis.
Polkadot
Polkadot’s multi-chain approach has a central Relay Chain for consensus and security, with modular Parachains offering functionality like smart contracts. It uses a heterogenous sharding model, with interoperability via bridges to external chains like Ethereum.
Klaytn
Created by Korean web giant Kakao, Klaytn takes a shared security and distributed governance approach across an array of separated service chains. These communicate via Klaytn’s main consensus blockchain for a coherent user experience.
Terra
One of the most popular Cosmos chains, Terra is a public blockchain protocol deploying a series of decentralized stablecoins supporting a payments-focused DeFi ecosystem. Its modules drive innovation in areas like fiat integration and financial applications.
Many other projects are building on these platforms to launch specialized chains around decentralized finance (DeFi), non-fungible tokens (NFTs), and decentralized storage solutions using modular architecture.
Use Cases
Modular blockchains can power transformation across numerous industries thanks to their flexibility:
In the financial sector, regulated institutions and international finance can benefit from a modular finance chain with specialized DeFi modules for digital banking, asset management, lending, and derivatives.
Material, production, shipment, inventory, and point-of-sale data modules that follow the whole supply chain can link together via a dedicated chain to provide clear provenance.
Gaming
Modules provide rapid transaction speeds, minimal fees, and rich expansion potential, all necessary for gaming-focused blockchains.
Isolating the identification and credentialing modules makes protecting sensitive personal data easier while allowing integration with verification requirements across different chains.
Public Services
Public service and e-governance platforms can offer digital identification, records, payments, and more by utilizing modular blockchains.
Specialized Markets
Instead of depending on general-purpose chains that eventually swell, any specialty industry can acquire dedicated chains with modules enabling necessary capabilities.
As blockchain adoption rates rise, the potential for modular stacks to revolutionize ecosystems is limitless. Companies are only just beginning to reap the benefits of modularization.
Challenges of Modular Approach
Despite the apparent benefits of modular blockchains over their monolithic forebears, there are still significant obstacles to acceptance and efficient use:
Increased Complexity
Complex modular architecture adds computational and development expenses due to its intricacy. Coordinating, integrating, and scaling numerous moving parts is more complicated than a centralized system. Unfortunately, this results in challenging tradeoffs for engineers as well.
Lack of Standards
Standards for protocol communication between chains, data formats, governance procedures, or cryptographic proofs in modular blockchain technology need to be defined because it is still in its early stages of development. Using and coordinating would be better if there were consistent guidelines.
Bridging Security
The ability for chains to communicate with one another depends on bridge modules, but these modules also open up new attack vectors, such as simplified functionality, that can be exploited. Current security standards are subject to change.
Governance Centralization
Low voter turnout, more significant influence by whale holders, and on-chain governance in its early stages have all worked against the ideal of decentralization. It could be helpful if better incentives and distribution methods for governance allowed for more user representation.
Many of these difficulties will be overcome by pioneers in the space race to adoption through real-world usage experience, testing, upgrades, and community collaboration. However, this is only the beginning. The future of modular blockchain depends on new developments and insights from real-world applications to fulfill its theoretical potential.
