This article was compiled and organized by BlockWeeks
In the fourteen-year history of cryptocurrency, developers and observers have proposed all kinds of theories, doctrines, and technologies in an attempt to crack blockchain's "scalability trilemma"—that is, no public chain can simultaneously achieve maximum decentralization, security, and scalability. Although different projects have proposed and implemented a variety of solutions with their own trade-offs, market demand for a simpler and more comprehensive solution still exists, and to date no solution has been proven truly successful.
In recent years, a new argument called "blockchain modularity" has begun to rise. With the launch of the Celestia blockchain, the crypto industry will see this theory put into large-scale practice for the first time this year. Celestia is a Layer-1 blockchain specifically optimized to support Layer-2 rollups, while rollups themselves handle general-purpose blockchain computation. Because Celestia itself does not natively support general-purpose computation, but instead outsources the responsibility for smart contract execution to other Layer-2 networks, the theoretical idea is that Celestia can become the backbone of a highly scalable, interoperable network of rollups and, most importantly, realize this modular vision without sacrificing decentralization and security.
The Proposal of Modularity: Unbundling Rather Than Stacking
The core claim of modularity theory is that the core functions of a modern blockchain—execution, settlement, data availability, and consensus—should themselves be split apart and placed in different layers or networks, so that each layer can be individually optimized and pushed to the extreme without sacrificing the fidelity of any layer. This report will systematically sort out the theory of blockchain modularity and provide a comprehensive overview of the various components of the modular blockchain technology stack.
The Blockchain Trilemma: Three Tracks That Are Hard to Max Out Simultaneously
Decentralization
Decentralization refers to the degree to which participation in and reinforcement of network rules is distributed and public. Traditionally, it is measured by the number of independent node operators on the blockchain. Node operators are individuals or entities that run software to verify finalized blocks and transactions on the network, which is different from miners or validators—the latter run software to produce and append new blocks to the chain. In many cases, miners and validators, in addition to running the software used for block production, must also run full nodes at the same time in order to obtain the latest view of the network state. Secondary indicators for measuring a chain's degree of decentralization also include client diversity and token supply distribution.
Security
Security refers to a blockchain's resilience against coordinated attacks. The ways malicious actors can undermine a chain's security include halting or disrupting block production, rewriting transaction history, and censoring the execution of certain types of activity on the network. A chain's ability to resist these attacks depends on the total amount of value that stakeholders have invested or locked into the network. Taking Bitcoin as an example, the total amount of computing power consumed per second by stakeholders makes the cost of an attacker disrupting the network prohibitively high. Miners are responsible for advancing the Bitcoin blockchain, and most types of attacks require amassing more than 51% of miner hash power in any given period. On Ethereum, the total amount of staked ETH provides the network with protection against reorganization attacks—that is, attacks that attempt to rewrite on-chain history. Validators currently have a threshold of a 32 ETH deposit (this threshold may be adjusted in the near future), and they are responsible for advancing the Ethereum blockchain; attacking the network requires manipulating at least two-thirds of staked ETH. Manipulating one-third of staked ETH would prevent Ethereum from achieving chain finality, but would not prevent block production or undermine the chain's liveness.
Scalability
Scalability is the third and final property in the trilemma, and perhaps the one that technical experts have focused most on improving over the past decade. When Bitcoin launched in 2009, the maximum block size was 1MB. The fixed small block cap limited the amount of data that could be packaged in each time interval, essentially limiting the network's transaction throughput. Although the 2017 Segregated Witness (SegWit) upgrade effectively raised the block size cap to 4MB, the property of "limiting the maximum block size" still set a ceiling on network throughput.
As of 2023, Bitcoin processes about 7 transactions per second (TPS), a huge gap compared with centralized payment channels—for example, Visa's TPS is as high as 24,000. To improve scalability without sacrificing decentralization properties, the Bitcoin community has focused on Layer 2 technologies. Correspondingly, the Ethereum community has chosen a "rollup-centric" roadmap.
The Four-Layer Division of Labor in the Modular Technology Stack
Under the modular framework, the execution layer is responsible for processing transactions and running smart contracts; the settlement layer is responsible for providing dispute resolution, bridging, and finality guarantees for rollups; the data availability layer is responsible for storing and proving that transaction data is publicly available; and the consensus layer is responsible for reaching agreement on data ordering. Celestia's positioning is precisely to separate consensus and data availability from execution and settlement, allowing the execution and settlement layers to focus on optimizing themselves.
Celestia: The First Big Test of Modularity Theory
The Celestia protocol itself is extremely lean, and as a blockchain its functionality is also quite limited. Therefore, Celestia's long-term success depends to a large extent on adoption by the applications and protocols that use it as a data availability layer (DA layer). Compared with Celestia's own launch, the execution layers launched alongside it (such as Eclipse and Argus) and settlement layers (such as Neutron and Dymension) are the key to attracting end users and capital. Celestia does not natively have smart contract deployment or transaction execution capabilities, nor does it natively support cross-rollup bridging or dispute resolution. Therefore, Celestia's adoption depends on the adoption of the execution layers and settlement layers built on top of it. As a blockchain, Celestia's main advantage is that, compared with existing chains such as Ethereum, it is optimized to perform the data availability function at lower cost and higher speed.
The Celestia network has set up an incentive program in which participants can take on different tasks such as validators, bridge nodes, storage nodes, and light nodes in exchange for points, which may be redeemable for mainnet tokens in the future. In September, the Celestia Foundation announced the allocation details of the native token TIA, and the team plans to launch the protocol on mainnet later that year. At present, many projects are already building on top of Celestia.
The broader context is that the modular division of labor has given rise to diverse data availability solutions. Execution layers can choose to publish batched transaction data to an independent DA layer or to monolithic chains such as Ethereum, or they can publish it to a permissioned network of computer nodes. Node operators are responsible for storing copies of the published data and providing that data to execution layer nodes upon request. Compared with the previous DA solutions, this kind of "data availability committee" (DAC) is easier to implement because it only requires coordinating a limited number of nodes.
Unresolved Questions and Risks
Innovations around data availability sampling (DAS) have improved blockchain's ability to scale for DA, while also opening up new design space for highly scalable, application-centric execution layers. But in this dynamic, several assumptions remain to be tested: the fee architecture restructured to protect each layer from fraud and attacks, the level of scalability that execution layers can achieve, and decentralized governance models—the latter being a problem as old as the blockchain trilemma.
Modularity is an exciting path forward for blockchain scalability, and it attempts to address the decentralization and security issues that project teams are already betting on and building for. However, the key to realizing this modular vision lies in blockchain developers continuing to innovate at every layer of the technology stack, not only the DA layer, but also the execution layer and settlement layer. The Celestia team will launch its DA layer this year, but what will truly prove modularity theory right is the innovation and projects built on top of the Celestia DA layer. In this regard, what is most worth observing and evaluating in the coming years is precisely the adoption of the execution layers and settlement layers connected to Celestia.
Ongoing research topics also include the impact of MEV and re-staking on the modular technology stack. In addition, rising transaction finality latency and declining composability between dApps built on application-specific rollups are "third-order consequences" produced by unbundling blockchain functions, and settlement rollups in particular are trying to mitigate these problems. Because modular projects as a whole are still in their early stages, the competitive landscape between rollups and emerging DA layers is difficult to predict; but early analysis does show a high likelihood that dApp activity will concentrate toward a single settlement layer and DA layer. The evolution of modularity theory has already caused many general-purpose blockchains, including Ethereum, to undergo a paradigm shift in addressing the trilemma and pursuing long-term scalability.
Conclusion
Much work remains to be done before the benefits brought by modularity are fully realized and rigorously evaluated. But the growing consensus among blockchain developers in the crypto field around modularity theory confirms the powerful potential of these ideas to reshape blockchain technology in the coming years.
