Monolithic vs. modular blockchains: What’s the difference?

The blockchain industry is teeming with diverse blockchain systems. However, most fall within two major categories: monolithic and modular blockchain systems. The two blockchain categories boast a dynamic spectrum of capabilities, strengths and inherent trade-offs. This article highlights the main differences between the two types of blockchain systems.

What are monolithic blockchains?

Monolithic blockchains are considered the first generation of blockchain systems. Emerging at the genesis of the blockchain and cryptocurrency industries, they paved the way for the revolutionary blockchain technologies we know today. The Bitcoin blockchain network is an example of a monolithic blockchain.
The architecture of monolithic blockchains is designed to consolidate all fundamental functionalities within a singular layer of the blockchain structure. The functionalities include transaction execution, consensus mechanisms and data availability. The monolithic chain also fulfills the role of a settlement layer, with transactions undergoing on-chain validation.
Monolithic blockchains use a single database to store all transactions on their network, serving as fully functional platforms for various tasks, including storing and sharing information​. 
However, their design has significant limitations, especially concerning versatility and scalability. The challenges spurred the development of a new generation of blockchain systems called modular blockchains.

How do monolithic blockchains work?

Here’s how Bitcoin, a monolithic blockchain, operates in terms of data availability, execution, consensus and settlement:

Data availability

All transaction data is stored on the Bitcoin blockchain itself. This implies that the transaction history is accessible to every node on the network. The blockchain’s public ledger is fully transparent and accessible to anyone who downloads the full blockchain, ensuring data availability and integrity.

Transaction execution

In Bitcoin, transaction execution entails transaction processing and verification. Once a user initiates a Bitcoin transaction, it is broadcast to the network. This transaction is then picked up by nodes who verify its legitimacy (e.g., ensuring sufficient balance) and incorporate it in a block. This process involves solving a cryptographic puzzle (solved by miners), which is part of the mining process.

Consensus mechanism

Bitcoin uses a proof-of-work (PoW) consensus method. Miners compete in this system to solve a challenging mathematical puzzle. The right to add a new block of transactions to the blockchain belongs to the first miner to solve the puzzle. 
Nodes, on the other hand, maintain copies of the entire blockchain, verify and relay transactions, and contribute to the overall network functionality and security. While some nodes participate in mining, validating transactions and adding blocks, not all nodes are miners. 

Settlement

The process of finalizing transactions on the blockchain is known as settlement in Bitcoin. A transaction is finalized when it is included in a block, and the block is added to the blockchain. Once a transaction is recorded on the blockchain, it cannot be changed because this procedure is irreversible. As a result, the settlement layer is essential to the blockchain since it ensures that every transaction is final and unchangeable.

The benefits of monolithic blockchains

While challenges exist, monolithic blockchains have several distinct advantages, including:

Simplicity

Monolithic blockchains are distinguished by their simple architecture, which unifies all operations into a single layer. Because there are fewer components to handle, their simplicity lowers the development complexity. Additionally, it lessens vulnerabilities, making it more difficult for bad actors to exploit.

Consistency

Since all nodes in a monolithic blockchain operate on the same layer and follow a unified set of rules, achieving consistency and synchronization across the network can be relatively straightforward, contributing to a stable blockchain environment.

Security

Due to their design, monolithic blockchains are resistant to changes and often demand significant resources for modifications. These established chains tend to boast high decentralization, enhancing overall network security. This decentralization minimizes the risk of a single point of failure, making it harder for malicious attacks to exploit centralized weaknesses.

The drawbacks of monolithic blockchains

Monolithic blockchains have several disadvantages:

Inflexibility

Despite their simple architecture, monolithic blockchains face challenges because of their rigidity, which limits flexibility and creativity. This inflexibility creates bottlenecks and delays, particularly noticeable during heavy demand. These limitations frequently lead to expensive fees and network congestion, reducing user engagement and decreasing network efficiency.

Consensus vulnerabilities

Monolithic blockchains use a single consensus method to validate transactions and maintain network security. The overall security of the blockchain is in jeopardy if this mechanism is breached. In such circumstances, attackers could take advantage of this weakness to conduct illicit transactions, jeopardizing the integrity of the ecosystem.
In August 2020, Ethereum Classic, a PoW blockchain and a derivative of Ethereum, experienced several 51% attacks. Attackers, controlling over 51% of the network’s hashing power, reorganized the blockchain and executed double-spending. These incidents underscored critical security challenges in PoW blockchains, demonstrating how attackers could compromise blockchain integrity and reverse transactions.

Difficult to upgrade

The inherent rigidity of monolithic blockchains complicates the implementation of changes. This aspect poses a significant obstacle to their adaptation to evolving needs. The difficulty in upgrading monolithic blockchains arises from the interconnected nature of their components. 
Any modification or enhancement to one aspect will likely necessitate alterations in other interconnected elements, leading to a complex and potentially disruptive process.

What are modular blockchains?

Modular blockchain designs fundamentally diverge from their monolithic counterparts by strategically decoupling core functionalities and distributing them across distinct layers. Their architecture is optimized to enhance efficiency and adaptability and support a more expansive range of technologies and features.
Their microservices architecture also fosters adaptability, enabling modifications within individual layers without disrupting the delicate equilibrium of the overall network. The key layers that comprise modular blockchains include transaction execution, data availability, consensus and settlement layers.

How do modular blockchains work?

Although initially designed as a monolithic blockchain, Ethereum transitioned to a modular blockchain with the Merge. Let’s break down how it exemplifies a modular blockchain in terms of transaction execution, data availability, consensus and settlement:

Transaction execution

Following the Merge, the Beacon Chain and shard chains primarily oversee the implementation of smart contracts and their interaction with the system. Most transaction processing and smart contract execution are handled by the smaller, parallel blockchains known as shard chains, while the Beacon Chain serves as the network’s coordinator. This separation increases scalability and processing efficiency compared to a conventional monolithic structure.

Data availability

Data availability is by ensured shard chains. The network ensures that data is always available and never gets stuck in a single chain by spreading the transaction load over several shards. Additionally, the network’s capacity to grow and manage higher transaction volumes is improved by this distribution.

Consensus mechanism

The PoS consensus model used by Ethereum is orchestrated by the Beacon Chain, which is responsible for validating transactions and maintaining the overall security and integrity of the network. 
At its core, the Beacon Chain coordinates validators, which propose and validate blocks by staking their cryptocurrency as collateral. This system operates in epochs and slots, randomly assigning validators to validate blocks, preventing centralized control. Validators’ collateral serves as an incentive for honest behavior, fostering network security and integrity.

Settlement

After the Merge, the settlement layer was incorporated into the shard chains and Beacon Chain to settle disputes and provide transaction finality. It is also essential for bridging transactions across various execution layers and validating proofs from shard chains. The PoS consensus mechanism aids in this process by ensuring that validators (stakers) confirm and agree on the final state of the blockchain, making transactions irreversible once settled.

Benefits of modular blockchains

Developers are increasingly gravitating toward modular blockchains due to their inherent advantages, including:

Scalability

Traditional blockchains often struggle with scalability, especially during usage spikes, causing slowdowns. Modular blockchains tackle this by separating tasks across layers, improving efficiency and enabling simultaneous transaction processing. Additionally, they decentralize data storage, enhancing network resilience.

Security

Establishing a secure validator set is an issue that many new blockchain projects encounter. By leveraging the security infrastructure of the parent chain, modular blockchains provide shared security. As a result, future projects won’t have to worry about setting up independent security.
Furthermore, shared security minimizes unforeseen vulnerabilities by guaranteeing uniform protection across blockchains. This simplified security paradigm accelerates the deployment of new projects.

Adaptability

Modular blockchains address the limitations of monolithic ones, focusing on scalability and versatility. They emphasize interoperability through bridges, facilitating seamless asset and data exchange across networks. This connectivity fosters collaboration among projects within the same blockchain ecosystem.

Drawbacks of modular blockchains

Modular blockchains, like monolithic blockchains, have their weaknesses. The following is an outline of some of them:

Security

Despite their advantages in scalability and efficiency, modular blockchains face notable security challenges, especially concerning bridge vulnerabilities. Bridges, crucial in modular architectures for transferring assets across different blockchain ecosystems, present a concentrated point of risk. They become attractive targets for hackers, as compromising a bridge can lead to substantial asset losses. 

More complex to build

Modular blockchains are intricate, needing various functions for diverse applications. Their setup and upkeep demand more time and financial resources to ensure functionality and security. Adopting these technologies might involve learning new programming languages and principles, potentially slowing development.

Upgrading a modular blockchain is a complex task

Modifying modules in a modular blockchain is intricate, particularly ensuring backward compatibility for seamless integration, and overlooking this risks system inconsistencies, compromising stability. Coordinating upgrades across decentralized nodes poses challenges, requiring clear communication and precise plans for a smooth transition.
The Ethereum network’s shift from monolithic to modular blockchain exemplifies this complexity. The phased upgrade, maintaining compatibility with the existing chain, faced delays due to rigorous testing involving multiple teams and audits. The Merge,