Friday, August 26, 2022

Detailed Post on Modular Blockchains

  • A blockchain is a decentralized ledger which you can use to  communicate without a need of central authority. You don’t need postman, you don’t need bank, you don’t need the government and you definitely don’t need these companies running AWS servers.

    These Blockchains fundamentally have 4 different elements, 

    1. Consensys

    2. Execution

    3. Data Availability and

    4. Settlement

    Consensus is related to the mechanism whereby validators/miners can come to agreement on the order of transactions (also known as messages) for a specific block. The idea is that all the nodes of this decentralized ledger need to agree on a certain state of the chain. 

    Next we have execution, execution refers to the computation required to make state changes from the set of transactions in a new block. It basically means that once there is agreement on order of transactions we need to ensure the execution of those transactions takes place and these transactions are added to those decentralized ledger. 

    Third is Data Availability, 

    These transactions need to be communicated with applications or end users for that matter, now there should be a way for that data to be available from these nodes to the user, which is what data availability is 


    There would be a need to verify and confirm these blocks which happens in settlement layer, it’s about ensuring that no bad actors push the wrong blocks on chain. 

    In a monolithic blockchain all of these are handled by the chain itself, whereas modular chains tend to outsource each of these functions to a separate workgroup. So let’s understand the pros and cons of modular and monolithic chains in depth, 

    Monolithic chains allow developers to easily integrate, they really do not have think of all the parameters while they are building and can focus just on business logic of things although the downside is that there are high chances congestion as we have seen previously. Now chains like solana have solved these issues by increasing validator requirements and increasing number of transaction in a single block, this may have solved congestion but it comes at the cost of decentralization.  

    Now let’s see how different modular chains handle this, 

    1. Polkadot 

    1. Collators are responsible for ordering and executing transactions on a specific parachain

    These transactions are then posted as proofs on the main relay chain for Polkadot

    1. Settlement takes place on this relay chain. 

    Over here execution / ordering is separate from the settlement layer. This is similar to chains optimistic rollups chains like optimism. 

          b.  Celestia
    Celestia aims to build a layer-1 proof-of-stake blockchain that provides data availability and consensus so the developer needs to take care of execution and settlement. Celestia allows developers to build their own plug and play roll-ups to order and execute transactions on top of Celestia’s data availability and consensus layer, here the basic idea is to give applications more control over how they want the architecture of decentralization looks like.

      C. Cosmos
    Validators of an app-chain are responsible for execution, consensus, data availability and settlement, but the app chain’s settlement layer is not shared which is in the case of monolithic chains. Cosmos basically allows the app chain to easily integrate with all the elements of the public blockchain in the way they seem fit. Using IBC these chains can communicate with each other so that token / value transfer can take place. The major negative aspect for this is that the community building is required for each app chain and they cannot utilize the already existing community for validation and quick prototyping which is the case for other monolithic chains. 

    So why cosmos has been gaining popularity? 

    A great case for cosmos is the self sovereignty it allows for app chains, take example of LUNA. LUNA was built on top of cosmos an on April 5th, 2022, LUNA reached a market-cap of over $40 billion. By Friday, May 13th the LUNA market-cap catered to less than $10 million, and nearly all on-chain value was completely destroyed.The rest of the Cosmos ecosystem — Cosmos Hub, Osmosis, Akash, Regen, etc. — kept steadily producing blocks during the UST collapse and after Terra halted. Before I jump to saga, I want to draw your attention to Astroport and Crescent. Astroport relied on terra for security while Crescent on staking and validator set. Both of these chains tokens lost 80-90% of their token value post Terra crash.

    Saga is part of Cosmos ecosystem it provides economic security and validator set for other developers to build on. 

    1. Permissionless deployment of code

    2. Customization of self-sovereign blockchain 

    3. No upfront cost to launching a chainlet

    4. Predictable developer pricing for gas fees 

    5. Dedicated blockspace for a developer’s applications, ensuring high throughput, easy upgradability and congestion relief. 

    In other words, applications deployed on Saga reserve their own dedicated blockspace, which is a feature that is not possible in monolithic blockchains. Applications deployed on Saga enjoy independence, meaning that block production on one chainlet is independent of the block production on other chainlets, a feature not shared in modular frameworks like Polkadot. Saga chainlets are self-sovereign and do not rely on a shared settlement, which is the case in Ethereum. In other words, Saga chainlets are as much a part of the Cosmos multi-chain ecosystem as any other application-based chain.