Modular Blockchain: What is it and How Does it Work?

Modular Blockchain: What is it and How Does it Work?

16 min read

Every blockchain fulfils essential core functions: achieving consensus, maintaining security, ensuring data availability, and processing transactions. Behind the scenes, the architecture of blockchains and the mechanisms that achieve consensus play crucial roles, though they often don’t make the headlines. That said, the transition of Ethereum from a proof-of-work to a proof-of-stake model has again thrust these topics into the spotlight.

The growth of the blockchain ecosystem has inspired many developers and researchers to pour their energy into creating the perfect foundation for their networks. Traditionally, this has involved relying on what’s known as a monolithic blockchain design, where a single chain is responsible for every function, from processing transactions to executing smart contracts.

Monolithic blockchains, for all their simplicity, tend to hit roadblocks when scaling up and maintaining decentralisation without compromising performance. They often require more robust hardware for validator nodes, hindering widespread participation. Additionally, these chains can struggle to support a diverse range of decentralised applications (dApps) due to their inherent design limitations.

This brings us to the scalability trilemma, the challenging notion that blockchains cannot simultaneously achieve decentralisation, security, and scalability. It’s a puzzle that has baffled many in the blockchain industry.

Enter the modular blockchain, a concept designed to address these challenges head-on. Modular blockchains are designed not as a single chain trying to juggle every task but focusing on a distinct core function. This modular architecture separates the blockchain’s primary responsibilities across multiple layers or modules. Such a system can offer a more scalable and flexible solution, enabling blockchains to upgrade or adapt without sacrificing the foundational principles of decentralisation or security.

Blockchains can efficiently distribute tasks such as transaction processing, data storage, and consensus across separate layers by embracing a modular design. This helps scale the system more effectively and opens up new avenues for innovation within the blockchain ecosystem. Modular blockchains represent a shift towards a more sophisticated, adaptable blockchain infrastructure poised to support the diverse needs of modern digital societies.


Blockchain Layers of Functionality

Let’s take a moment away from monolithic and modular blockchains to look at the concept of “layers” within a blockchain’s structure, breaking down the complex functionality into more understandable segments. These layers are like various departments within a company, each focusing on a specific area of responsibility but working together to achieve the overall objective.


Execution Layer

At the execution layer, this is where transactions are processed, and the state of the blockchain is updated. It’s the most interactive segment for users, where you can sign transactions, deploy smart contracts, and transfer assets. It’s essentially the front office of the blockchain, dealing directly with the inputs from users.


Settlement Layer

The settlement layer could be seen as the arbitration or resolution centre of the blockchain. Here, the outcomes of executions, particularly from rollups (a method used to increase the number of transactions processed), are verified, and any disputes are settled. This layer is exclusive to modular chains and acts to ensure fairness and resolve disagreements.


Consensus Layer

The backbone of the blockchain’s integrity is the consensus layer. Here, a network of full nodes agrees on the validity of transactions and the order in which they’re recorded, ensuring everything is up to scratch. Think of it as the quality control department verifying that every block’s contents meet the network’s stringent standards.


Data Availability Layer

Ensuring that data needed to confirm a transaction’s validity is accessible and stored securely falls to the data availability layer. This layer is crucial for maintaining transparency and trust, particularly in preventing attempts by malicious actors to withhold transaction data. The blockchain’s archive stores the necessary information to keep the system transparent and verifiable.

In a traditional or monolithic chain like Ethereum, all these components are managed within a single layer. This all-in-one approach simplifies the structure but can lead to bottlenecks, especially regarding scalability. As we’ll see in modular blockchains, the division into distinct layers offers a more nuanced and efficient way to manage the diverse demands placed on blockchain systems, from processing transactions to ensuring data integrity and resolving disputes.


What is the Blockchain Trilemma?

blockchain trilemma

Source: DBS

The blockchain scalability trilemma is a significant hurdle faced by blockchain technologies, sparking the debate over different blockchain architectures, notably modular versus monolithic designs. The trilemma suggests that blockchain networks, as we typically envision them, can only excel in two out of three critical areas:

Security: This is the network’s ability to withstand attacks, a fundamental aspect of any blockchain. Naturally, no one would choose a blockchain known to be vulnerable. Therefore, the real balancing act often comes down to finding the right compromise between scalability and decentralisation.

Decentralisation: This concept refers to how distributed the control of the network is, ensuring that no single party (an individual, a company, or a group) can dominate or manipulate the network. For true decentralisation, participating in the network—both in terms of hardware and the effort required to verify transactions—shouldn’t be prohibitive.

Scalability: Scalability is about the network’s capacity to handle a growing volume of transactions efficiently without a corresponding spike in the costs or resources needed for verification. Though increasing block size might seem like a straightforward solution to enhance transaction capacity, it inadvertently pushes the network towards centralisation due to the increased hardware demands on full nodes.

Addressing scalability while striving to maintain robust security and decentralisation has been a complex challenge for blockchain developers. It’s widely acknowledged that optimising a blockchain network to excel in all three areas simultaneously is a tough, if not impossible, task for single-layer, monolithic chains. This dilemma has led to innovative approaches in blockchain design, such as adopting a multi-layered structure that delegates different core functions (consensus, transaction execution, data availability, and settlement) across separate layers.

The idea is not to force a single layer to be a jack-of-all-trades but to allow for specialisation, where one layer might focus on ensuring high transaction throughput and another on decentralisation and security. This approach has given rise to the distinction between modular and monolithic blockchains, proposing a more flexible and efficient framework to navigate the intricate balance between security, decentralisation, and scalability.


What is a Modular Blockchain?

modular blockchain

Source: Celestia

Modular blockchains represent a shift in blockchain design, embracing the concept of modular architecture. This approach breaks down the blockchain system into smaller, interchangeable parts or modules, each dedicated to a specific function.

The brilliance of modular blockchains lies in their ability to focus on a handful of tasks rather than attempting to tackle every aspect of blockchain technology within a single framework. A more scalable and adaptable system emerges by distributing tasks across multiple specialised blockchains. Each component of a modular blockchain is designed to excel in its designated function, contributing to an overall system that is more efficient and flexible than its monolithic counterparts.

This method of unbundling tasks simplifies the development, testing, and maintenance of blockchain systems and significantly enhances their scalability and customisability. Modular blockchains are built on the principle of specialisation, where each module or component is optimised for a specific set of tasks. As a result, developers can assemble these modules into a comprehensive “modular stack,” tailoring the blockchain to meet precise requirements or objectives.

There are multiple approaches to implementing modular blockchain, including rollups, validium, and sovereign rollups.

Rollups host applications and process transactions, then broadcast this data to a layer one (L1) network, acting primarily as an execution layer.

Validiums offer a twist on rollups by processing transactions off-chain before sending them to the L1, with a network of proof-of-stake validators storing data off-chain.

Sovereign rollups stand out by not depending on an L1’s smart contracts for validation; data blocks are directly published onto the rollup. This allows sovereign rollups to act as execution and settlement layers, setting them apart from traditional rollups.

Take rollups as an instance of modular blockchain technology, which specialises in transaction execution. Rollups can efficiently process a high volume of transactions by offloading certain tasks to other specialised modules. An example of this relationship is seen with platforms like Celestia, which provide essential support in consensus and data availability for execution-focused rollups. This synergy between different modules allows for a more scalable blockchain ecosystem, where the collective capabilities of the individual parts lead to a more powerful and effective whole.

Benefits of Modular Blockchains

Modular blockchain systems bring compelling advantages: scalability, ease of launching new chains, and flexibility. These benefits together mark a significant evolution in how blockchain ecosystems can develop and expand.


One of the central challenges in blockchain development is the so-called scalability trilemma, which suggests a blockchain system can excel in two out of three areas—decentralisation, security, and scalability—but not all simultaneously. Traditional, single-layer blockchain architectures often struggle to scale without compromising security or decentralisation.

By their very design, modular blockchains offer a solution to this dilemma. Modular blockchain designs can scale more effectively by separating tasks among different layers, each focusing on a specific function. For instance, rollups, which concentrate on transaction execution, can significantly enhance scalability while maintaining a high level of security by integrating with a parent blockchain for consensus and data verification.

Easier Launch of New Blockchains

Launching a new blockchain can be challenging, particularly building robust security mechanisms. The hurdles are numerous, whether it’s a proof-of-stake chain working to ensure a broad token distribution to prevent centralisation or a proof-of-work chain attracting enough miners to avoid hash rate monopolisation.

Modular design simplifies this process. Developers can concentrate on core functionalities, like execution, and employ other modular components for additional tasks, such as security. This approach not only speeds up the development of new blockchains but also reduces the complexity in ensuring every aspect of the architecture is flawless.


Modular blockchains introduce a level of flexibility that is simply not possible with monolithic designs. Traditional blockchains like Bitcoin, which prioritise decentralisation and security, inherently limit scalability. Conversely, chains designed for high throughput often sacrifice a degree of decentralisation and security.

Modular architectures enable custom-built chains to balance these trade-offs more adeptly. A modular system might include chains dedicated to security and data availability, while others focus on efficient transaction execution. This division of labour allows each layer to excel in its area of focus.

For example, a security and data availability layer can afford to focus solely on validating off-chain executions and ensuring data is accessible, thereby enhancing scalability. Similarly, an execution layer benefits from the security features of the overarching blockchain network, much like Layer 2 solutions leverage the decentralisation of Ethereum.

Through modular design, blockchain technology can achieve greater scalability, speed up the deployment of new networks, and offer a more adaptable framework. This addresses longstanding challenges and opens up new possibilities for blockchain applications and their integration into various services and industries.

Drawbacks of Modular blockchains

While modular blockchains usher in an era of scalability, adaptability, and efficiency, they are not without challenges. As we look into the intricacies of modular architectures, it becomes evident that these systems bring about a unique set of complexities and security considerations.

Increased Complexity

One of the primary drawbacks of modular blockchains is their inherent complexity. The ability to interchange or customise various modules within the blockchain architecture might sound appealing, but it also introduces a layer of complexity not present in monolithic chains.

For users, grasping the nuances of modular blockchain technology can be daunting. On the other hand, developers may find it challenging to create new applications atop these multifaceted systems. This complexity can slow the pace of adoption and innovation within the blockchain ecosystem.

Usability and Testing

Unlike monolithic chains, the components of modular blockchains have not been subjected to the same extent of usability testing. Blockchain technology continues to evolve, and with each new development, thorough testing is essential to ensure reliability and user-friendliness.

By their novel structure and operation, modular blockchains require rigorous testing to validate transactions, ensure data availability, and maintain security guarantees across separate layers.

Security Concerns

While modular blockchains present a scalable and efficient solution, they are not immune to security risks. The modular approach necessitates using bridges for transferring assets between different blockchain ecosystems, introducing potential vulnerabilities. These bridges serve as attack focal points, where compromising a single component could jeopardise the entire network.

Additionally, the security of a modular blockchain is heavily reliant on the integrity of its underlying layers. Should one layer falter, the whole system’s security could be compromised.

Complexity in Upgrades

Upgrading components within a modular blockchain is complex, especially when ensuring backward compatibility and system cohesion. The modular design implies that modifications in one module could necessitate adjustments across other functions, making system-wide upgrades a challenging endeavour. This complexity is compounded when coordinating these upgrades across a decentralized network of blockchain nodes, requiring meticulous planning and clear communication to avoid compromising the overall system stability.

The transition of the Ethereum network towards a more modular architecture highlights these challenges vividly. This transition, known as The Merge, required extensive coordination, testing, and validation to ensure that new modular functionalities seamlessly integrated with the existing ecosystem, underscoring the intricate nature of modular blockchain upgrades.

While modular blockchains offer significant advantages in terms of scalability and flexibility, they introduce a new spectrum of challenges that must be navigated carefully. The balance between harnessing the benefits of modular architectures and mitigating their drawbacks will be crucial as the blockchain industry continues to evolve.

Top Modular Blockchain Examples in 2024

Three modular blockchain projects are making waves with their innovative approaches: Celestia, Fuel, and Dymension. Each platform brings unique strengths, addressing key challenges traditionally hindering blockchain development.


Celestia prides itself on simplicity and scalability. By creating a distinct “modular consensus and data availability layer,” Celestia provides a foundation for developers to build new blockchains without the complex task of developing their consensus mechanisms. This streamlines the launch of new chains and broadens scalability by distributing tasks across various layers. With an emphasis on data availability, Celestia ensures that information remains accessible and secure, paving the way for many applications, from scalable dApps to entirely new blockchain ecosystems.


Fuel is dedicated to enhancing transaction execution within the modular blockchain landscape, presenting an “ultra-efficient modular execution layer.” Fuel aims to boost throughput and lower costs by leveraging a cutting-edge form of optimistic rollup technology, offering a high-performance environment for smart contracts and transactions.

This platform doesn’t compromise on security or decentralisation, employing validity and fraud proofs to ensure swift and secure transactions. Fuel’s commitment to simplifying transaction processing while enhancing user experience positions it as a key player in driving the broader adoption of blockchain technology.


Dymension introduces a fresh approach to modular blockchain design, emphasising scalability and flexibility. It facilitates the seamless integration of distinct layers, including consensus, execution, and data availability, enabling the creation of tailored blockchain solutions that meet specific needs, be they for enterprise use or decentralised networks.

Dymension simplifies the development of new chains supported by shared security and interoperability by addressing the blockchain scalability trilemma with its modular architecture. This accelerates the deployment of blockchain applications and ensures they can scale effectively, meeting the industry’s most pressing demands.


Polkadot enables different blockchains to communicate and share value seamlessly, similar to a web of interconnected networks. It introduces the concept of “parachains,” specialised blockchains that operate independently yet are secured by Polkadot’s central Relay Chain. This design facilitates a shared security model and interoperability among different blockchains, allowing them to leverage each other’s strengths.


Cosmos is often described as the “Internet of Blockchains,” focusing on bridging the gap between disparate blockchain networks. By providing a modular framework through the Cosmos SDK, it empowers developers to create blockchains that can interact within the Cosmos ecosystem. The Cosmos Hub, the pivotal chain in this network, ensures seamless communication and transaction flow across various blockchains, enhancing the ecosystem’s cohesiveness and functionality.


Avalanche captures attention with its distinctive architecture, aimed at conquering the blockchain scalability trilemma. It comprises three main chains: the Exchange Chain (X-Chain), the Platform Chain (P-Chain), and the Contract Chain (C-Chain), each serving a specific purpose and working in harmony to achieve high transaction throughput, robust security, and decentralised governance. Avalanche’s approach allows for a scalable, efficient processing of transactions, making it a notable contributor to the modular blockchain space.


StarkNet introduces a layer of innovation with its decentralised, permissionless ZK-Rollup solution on Ethereum. By processing transactions off-chain and consolidating them into proofs submitted to Ethereum, StarkNet offers a path to scalability without sacrificing Ethereum’s security. This technology represents a leap forward in making blockchain systems more efficient and accessible, focusing on enhancing transaction throughput and reducing costs.


Optimism specialises in scaling Ethereum through the use of Optimistic Rollups, significantly reducing fees and increasing transaction speed. It simplifies the execution of smart contracts and dApps by assuming transactions are valid by default, with disputes handled through a streamlined fraud-proof system. This method optimises for both security and efficiency, showcasing a practical solution to Ethereum’s scaling challenges.

Each of these projects contributes uniquely to the modular blockchain narrative, showcasing the diverse approaches within the sector to solving some of blockchain technology’s most pressing issues. From Polkadot’s interconnected networks to Optimism’s efficient scaling solutions, the modular blockchain ecosystem is rich with innovation, driving forward the vision of a more scalable, secure, and flexible blockchain infrastructure.

The Future of Modular Blockchains

The future of modular blockchains shines brightly, kickstarting a new era of scalability, security, and interoperability. The quest to navigate the blockchain scalability trilemma has been at the forefront of innovation within the blockchain community, especially since Ethereum co-founder Vitalik Buterin introduced the concept. The challenge lies in enhancing scalability without undermining the principles of decentralisation or compromising on security, a vital balance for the widespread adoption of decentralized finance (DeFi).

The journey towards achieving this balance has seen significant milestones, with the mainnet launch of platforms like Celestia marking a pivotal moment for testing the capabilities of modular structures at scale. This, along with the ongoing development and imminent launch of other modular blockchain projects, signals a future where the potential applications of modularity in the crypto universe are bound to expand.

One of the most compelling aspects of modular blockchains is their inherent versatility and ability to foster interoperability among diverse blockchain systems. This flexibility opens up possibilities where decentralised applications (dApps) can be tailored to operate more efficiently by selecting specific layer designs that best suit their operational needs. Theoretically, the ability to mix and match these layers for optimal performance could revolutionize how dApps are developed and deployed, enhancing their efficiency and effectiveness.

As the ecosystem matures and more projects come to fruition, the promise of modular blockchains could lead to a more interconnected, efficient, and versatile blockchain future, unlocking new possibilities for developers, users, and enterprises alike.

Frequently Asked Questions

How do modular blockchains differ from monolithic blockchains?

Unlike monolithic blockchains, which handle all tasks within a single layer, modular blockchains distribute these tasks across different layers or modules. This separation allows for specialized optimization of each function, potentially leading to better performance and scalability.

Why are modular blockchains considered more scalable?

Modular blockchains can handle more transactions and operations efficiently by dividing and specializing tasks across multiple layers. This division allows for parallel processing and optimization of each function, which can significantly increase the overall capacity and performance of the blockchain.

Can modular blockchains improve security?

Yes, by separating functions into different layers, modular blockchains can enhance security. Each layer can be independently secured and optimized, reducing the risk of systemic failures. Additionally, the specialization of layers allows for more focused and robust security measures.


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