As a crypto investor with experience in the blockchain industry, I strongly believe that modularity is the future of blockchain technology. The scalability trilemma has long been a significant impediment to the widespread adoption of decentralized applications, and monolithic designs like Ethereum’s cannot meet today’s demands without making trade-offs.
As an analyst, I’d put it this way: Ethereum, the pioneering blockchain platform for smart contracts, was built as a self-contained unit managing its own execution, settlement, consensus, and data storage. However, with the surge of decentralized applications (dApps), the demand for blockspace has outpaced its supply. This scarcity hinders the scope of potential applications, significantly limiting their utility and impeding broader adoption.
The challenge of balancing decentralization, security, and scalability in public blockchains is referred to as the scalability trilemma. In essence, it’s a dilemma that makes it difficult for these systems to achieve peak performance in all three areas at once. To tackle this issue, modularity has emerged as a potential solution, allowing essential components to be offloaded and optimized to handle critical functions more effectively.
As a blockchain analyst, I’d like to share my perspective on the modular blockchain thesis. This approach emphasizes role specialization within the blockchain ecosystem. Instead of having all functions centralized in a single Layer 1 (L1) chain, we propose distributing tasks such as execution and data availability across specialized networks. By breaking down these functions into distinct layers, we can customize blockchains for optimal performance in various sectors. This customization leads to increased efficiency, enhanced decentralization where required, improved security, and expanded scalability.
With various applications in mind, these functions can take on distinct forms. A flexible network might be configured for distributing oracle price data, offering zero-knowledge proof capabilities, supplying information, or enhancing the executional layer atop another existing blockchain.
The need for modularity in the crypto industry
Ethereum serves as a prime illustration of the evolving trend towards modularity. Initially, it began as a monolithic network, mirroring Bitcoin‘s approach. However, Arbitrum, a layer-2 solution, embodies the triumph of rollups in shifting computationally demanding tasks off-chain while preserving on-chain settlements. This design choice has gained popularity among various projects due to its cost savings and improved resource utilization for transaction processing.
The story doesn’t end there. With the increasing number of networks aimed at enabling developers to uncover and maximize modularity’s potential, Celestia stands out as an innovative response to a pressing issue: the substantial expense incurred when storing data availability (DA) back to Ethereum. Although rollups enhance throughput, their transaction costs remain elevated due to the underlying storage expenses of the settlement layer. One way to address this predicament is by introducing an alternative DA layer.
As a crypto investor, I’ve come to understand that the traditional monolithic design of blockchains is no longer sufficient to meet today’s demands without making compromises. Take Ethereum, for instance. It’s known for its robust security and smart contracts, but it continues to struggle with processing transactions efficiently and dealing with high gas fees.
To expand on solving the structural issues of blockchain technology, it’s evident that extra features are essential for facilitating new applications and promoting the shift towards web3. Some of these supplementary services include oracle solutions, decentralized Remote Procedure Call (RPC), Zero-Knowledge proof networks, and AI, among others. However, blockchains themselves cannot provide native support for these services due to increased overhead, hardware demands, or technological discrepancies. Instead, the modular architecture design allows for a plug-and-play approach where these features can be easily integrated like interchangeable Lego blocks.
One issue that we’ll continue to explore in this field is the challenge of maintaining confidentiality. The majority of popular blockchain systems currently operate in a transparent manner and cannot provide on-chain confidentiality without relying on resource-demanding hardware for their validators when employing cryptographic techniques such as zero-knowledge proofs (ZKP) or fully homomorphic encryption (FHE).
The current four layers of blockchain technology (execution, settlement, data availability, and consensus) are essential. However, adding a confidentiality layer on top of existing decentralized applications (dApps) is necessary to facilitate new use cases that cannot be achieved on transparent blockchains. Inco represents an innovative solution as the fifth layer—confidential computing—by incorporating advanced encryption techniques such as fully homomorphic encryption into Ethereum and other blockchains, without altering their underlying protocols.
In the rapidly evolving world of web3 technology, there’s a growing trend towards using modular protocols. With decentralization becoming more prevalent, it’s expected that these protocols will eventually replace monolithic chains as the norm. Instead of relying on one large, vertically integrated system, projects will be able to pick and choose from interchangeable modules, much like Lego blocks, to build their unique stacks according to their requirements. This modular approach offers greater flexibility and efficiency compared to trying to handle every aspect within a single monolithic chain.
As a analyst, I would describe it as follows: I’ll enable unlimited expandability by leveraging Ethereum for security, Rinia (previously known as Move) as the execution layer, Celestia for ensuring data accessibility, and Infitas (previously known as Inco) for confidential computing. The vision is to foster a harmonious ecosystem where these distinct modules can coexist and thrive together.
The field of blockchain technology is set for substantial growth starting in 2024 and beyond with the emergence of modular architectures. In this setup, certain essential functions such as settlement, consensus, confidentiality, data availability (DA), or execution are assigned to separate and distinct blockchain systems.
As a crypto investor, I’m always on the lookout for promising projects and talented leaders in the space. One individual who has caught my attention is Remi Gai, the founder and CEO of Inco. With an impressive background in engineering at tech giants like Google and Microsoft, Remi has also made his mark as a successful entrepreneur. He was a founding member of Parallel Finance, a DeFi protocol suite on Polkadot that amassed over 500 million dollars in TVL with backing from industry heavyweights such as Polychain, Sequoia, Founders Fund, and Coinbase Ventures.
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2024-05-19 15:18