"Modular" Ethereum era: PoS, sharding and Rollups
Edit: Southwind
Edit: Southwind
Ethereum development is reaching a new level of maturity. The gap between where Ethereum is currently and its defined roadmap is rapidly closing.
Now we are at the stage where it is clear that Ethereum is developing a modular design architecture. The attributes that make a blockchain a "blockchain" are being differentiated so that each chain can achieve its own optimal vision.
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01. The "trilemma" of blockchain
notorious"Blockchain Trilemma"Scalability:
Scalability:Decentralization:
Decentralization:safety:
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Above: The Impossible Triangle of Blockchain: Each side of this triangle can only realize two properties
Why is this so? Why can't blockchain achieve enough decentralization, security, and scalability all at once?
This is becauseTraditional blockchains are monolithic(monolithic). Blockchains always try to achieve all three of these goals on the main chain (L1). However,When we modularize these components, the limitations of the blockchain trilemma disappear。
As an analogy, think of the division of labor. This economic principle divides a complex task into smaller parts, each of whom can specialize in a specific part of the job, allowing the system as a whole to produce far more output than the same number of workers working alone.
So what exactly does a modular blockchain look like? How does it work? Before explaining this, we need to understandThree Components of Blockchainfirst level title
The underlying components of the blockchain
Decentralization, scalability and security are the three attributes of blockchain. They are the characteristics that the blockchain can contain, but it also needs to have the ability to realize these three attributesunderlying components。A modular blockchain divides these components into separate parts and maximizes them.consensus:
consensus:implement:
implement:Data availability:
Data availability:Data guaranteed to be referenced by blockchain L1 (main chain). All the data that make up block N.
Before diving into the explanation, let's familiarize ourselves with these terms using an analogy. Let's say it's a Wednesday morning and you're heading to your local Wells Fargo branch to deposit a check for $100.
Your account status is your bank balance, which currently holds $69,420.
All account transactions from the time you opened the account to the present day are stored in the data availability layer, a centralized database hosted and secured by Wells Fargo.
When the teller at this branch processes your check, Wells Fargo effectively performs a state transition on this data availability layer, updating your account balance to $69,520.
Now, this new "N+1" status (that's $69,520) is reflected in your Wells Fargo App, Web, and other branches. The reason for this consensus is that all updates happen in a centralized database that is only accessible to those with credentials.
consensus
consensus
As mentioned earlier, consensus (consensus) defines the authoritative authenticity of data stored on the blockchain.
In the category of consensus, it mainly includes two types of consensus, PoW (Proof of Work) and PoS (Proof of Stake). These consensus mechanisms determine how new blocks are added to the blockchain and how consensus participants agree on the correctness of the blocks.
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implement
The execution property of the blockchain involves carrying the state of the blockchain into the next new block.
Block N contains some specific states that represent how data (such as state balances, contract codes, etc.) was transformed from block N-1. Then the verifier grabs some new transactions from the blockchain memory pool (mempool, also known as the transaction pool), and updates the state in block N by producing block N+1, that is, obtains the block N's state, and then change this state based on these transactions fetched from the mempool. The blockchain memory pool (mempool) contains all transactions waiting to be packaged and confirmed by miners/verifiers, just like a group of customers in a bank waiting to obtain banking services.
data availability
data availability
Data availability refers to the data hosted on each blockchain node. If data exists on these nodes, then that data is available to anyone using the blockchain.
It also makes this data very important and expensive. The amount of data available for this is very limited (we call this scarce block space). When you add some data to the blockchain (such as sending a transaction or deploying a contract), you are actually adding that data to all computers (nodes) running this blockchain node, and it is Added permanently. We know that the records on the blockchain are immutable, which means that the data stored in the system is arguably the most valuable data ever created by human beings.
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02. Monolithic blockchain
Monolithic Blockchains are blockchains that attempt to accomplish three things simultaneously on L1 (the main chain): consensus, execution, and data availability. Basically, most blockchains as of now, including the current PoW Ethereum chain, are monolithic blockchains.
The problem with monolithic blockchains is that they suffer from the "blockchain trilemma". Since the L1 layer of the same blockchain is responsible for providing the three underlying components that make a blockchain a "blockchain" (i.e., consensus, execution, and data availability), optimizing one of these properties will impact the other two. Bring constraints:
Want to have faster block times and larger block sizes, providing more block space? Then the number of nodes that can keep up with the blockchain can be reduced. That way, the slow computers of the world won't slow down the blockchain.
Want to confirm transactions faster? The number of nodes can be reduced so that the total number of computers (nodes) required to perform calculations is lower. In this way, we will not have a bunch of redundant computers to perform the same calculation work; but it also means that we can only trust a few nodes, and believe that these few nodes that perform heavy calculation work will not affect the network lie.
Want to optimize security and decentralization? You can reduce the supply of block space and reduce the hardware requirements of nodes, so that everyone can participate in the network to become a node, but in this way, your transaction will take longer to confirm.
Monolithic blockchains have gotten us this far, but now they are hitting the limits of scalability.
The era of monolithic blockchains is coming to an end.
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03. Modular blockchain
Modular Blockchains take the three major components (consensus, execution, and data availability) of the current monolithic blockchain L1 and divide them. Just like the division of labor,Separating these three components allows us to optimize each and produce a better product where the whole is greater than the sum of its parts.
(1) Implement modular execution through Rollups
Rollups process transactions orders of magnitude faster than the L1 main chain!By creating an off-chain transaction execution environment independent of Ethereum L1, and updating the state of L1 after the transaction is processed,Rollups are not responsible for consensus and data availability.
Rollups chains do not need to focus on consensus and data availability like the highly decentralized L1 chains; instead, Rollups chains are free to make any sacrifices in terms of consensus and data availability, because Rollups chains are closely linked to Ethereum L1 in a cryptographic way . In other words, a Rollup is created by initiating a transaction on Ethereum L1 based on a set of rules that the Rollup promises to obey. From the moment the Rollup chain initializes, it makes a cryptographic promise to Ethereum L1 that it will abide by these rules.
The "initial promise" of Rollups sets itself limits on how transactions are managed (i.e., Rollups promises to submit mathematical proofs that all transactions are legal), and how the security of Ethereum L1 can be bridged onto Rollups without The slow consensus and limited data availability of L1 will be ported to Rollups.
In this initial Rollup transaction, any user is given the ability to withdraw their funds from the Rollup. This is called the "escape hatch", which means that when a Rollup network crashes or becomes malicious , the user can jump out of the escape hatch through an L1 transaction.A crashed Rollup network is like a broken elevator, only now the elevator has become a walking ladder.
Regardless of whether Rollup is online and running normally, there is a "bridge" between Rollup and Ethereum L1, which allows the settlement guarantee of Ethereum L1 to extend to Rollups.
This bridge connects the security and decentralization of Ethereum L1 to Rollups' transaction execution environment.
With this bridge, each module of Ethereum complements the other; the security module (PoS) is added to the scalability module (Rollups). The properties of one module feed into the properties of another, which is how Rollups achieves both scale and decentralization without compromise.
The maintenance cost of Rollups is almost zero, and the Rollups network requires only a small number of nodes to be active at any given time, and these nodes do not need to undertake expensive consensus mechanisms for security.Ethereum L1 provides security and maintains decentralization, so Rollups need not.
Some types of Rollups can even have as high performance as a centralized server. In fact, further innovations in Rollups will allow them to have higher performance than centralized databases.
(2) Modular security through PoS validators
The PoS consensus mechanism creates an invisible object responsible for providing security for the system, namelyVirtual currency staked on the PoS network. This way of validating the blockchain using the native currency of the blockchain decouples the link between the physical (mining) hardware and the security of the network.
Through the PoS mechanism, no specific computer is required to be responsible for network security, and now all computers can be used to be responsible for network security. Since ETH can be staked on any internet-connected computer, this demonstrates the value of providing security for the asset itself.
In the PoS consensus, the previous physical (mining) capital cost of maintaining the PoW network is transformed into the cost of purchasing PoS tokens, thereby improving the capital efficiency of assets. Unlike physical mining hardware, PoS assets do not degrade over time, so PoS validators basically do not need to sell assets to cover operating costs.
In the case of the Ethereum PoS beacon chain, this reduces the economic cost of running a validator node to 32 ETH and a computer, which increases the potential total number of validators on the blockchain. While 32 ETH is still expensive (worth about $128,000 at the time of writing), this is already an order of magnitude lower than the minimum viable PoW mining operation (tens of millions of dollars). Additionally, decentralized staking pools like Lido and Rocketpool allow users to pool any amount of ETH to stake, making the 32 ETH limit no longer a hard limit.
The PoS network eliminates the hardware requirements for verifying the network, making ordinary consumer-grade devices powerful enough to participate in the verification of the blockchain. This optimizes the connection between the blockchain network and the hardware. By minimizing the role of hardware devices, the accessibility of the blockchain can be maximized, and it provides the possibility for the largest number of people to participate in blockchain verification. PoS minimizes the capital requirements to participate in validating the network.
Since the launch of the Ethereum PoS beacon chain, Ethereum now has two homogeneous pools. When the old and new chains are merged, the two pools become a modular network security pool, also known as the " Validator Pool”, which will be the source of Ethereum’s security.
The developers of Ethereum said that they hope to see 10 million ETH pledged to be considered "safe": pledge 10 million ETH, and each validator pledges 32 ETH, which is equivalent to 312,500 validators in the network.
Granulating Ethereum's security into individual validator instances allows the beacon chain to direct those validator instances wherever those resources are needed, giving Ethereum maximum choice in how it allocates its security resources.
Due to the availability of a pool of modular security resources (that is, the validator pool), this enables Ethereum to achieve modularization of data storage capabilities through sharding.
(3) Maximization of data availability: fragmentation
Sharding will maximize the block space available in L1!
All blockchains have their security provision available. Bitcoin's security is the supply of SHA256 hashes that the world (miners) can generate; PoS Ethereum's security is the supply of Ethereum validators present in the validator pool.
PoS Ethereum has a quorum of all validators"Validator Pool", all validators in the pool are randomly selected to validate Ethereum blocks. This will make the Ethereum network more secure when more validators come online and offer their security to the Ethereum network (i.e. stake 32 ETH and promise to abide by the validation rules).
Ethereum can also be made more scalable when shards are added to the network. Sharding technology (sharding) allows for "security redistribution" on more shard chains, rather than completely centralizing the security of the entire system on one chain.
Having 30,000 validators (32 ETH each staked) to secure a monolithic blockchain is an overkill and an inefficient allocation of resources. And if these verifiers are allocated to multiple shard chains (64 shard chains will be launched initially), Ethereum L1 can create 64 Ethereum scale.
This makes Ethereum's scalability positively correlated with its security, and while monolithic blockchains approach the limit of the "blockchain trilemma," implementing sharded blockchains reverses the trade-off between scale and security. relationship, turning its limiting factor into a growth factor.
Ethereum will initially implement 64 shard chains, but the goal is to increase to 1024 shard chains. As Moore's Law progresses and all home computers become more powerful, the number and capacity of shard chains will increase.
Achieving 64 shard chains at first does not mean that we have increased the capacity of Ethereum by a factor of 64, but that we have increased the number of "Ethereum chains" by a factor of 64, but the size (capacity) of each chain will be About 1/3 of what it is now, so the overall size will be about 18 times larger instead of 64 times.
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04. Optimize the synergy between modules
The beauty of modular design is that,Optimizations in each module amplify optimizations in other modules. There are three synergies:
As more validators come online, modular PoS security is able to redistribute validators across more shard chains and can securely support more data.Better decentralization ➡️ Greater scale。
More shard chains on L1 will have a greater impact on the execution ability of Rollups. Rollups can compress and add large amounts of data to the L1 shard chain, so any extra space provided by the shard chain can have a huge impact on the space available on Rollups.Larger scale ➡️ Faster execution。
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Bigger Scale, Faster Execution
By sharding Ethereum into 64 different data availability tiers, we create more room for Rollups to deploy batches of tens of thousands of transactions. Sharding L1 will have a huge impact on the scalability of Rollups on L2. Since Rollups compress transactions into compact packets, any increase in data on L1 creates orders of magnitude more space on L2.
This is exactly when Ethereum was able to achieve tiny transaction costs. Implementing sharding on Ethereum will open the floodgates for all Rollups: the increase in available block space can drastically reduce the cost of Rollups on shards.
Compressed Rollup transactions now have a larger supply of block space available. Rollups will amortize L1 transaction costs among all its users. For example, if deploying a large transaction package on Ethereum L1 needs to pay 1 ETH, then the cost of this 1 ETH will be distributed among thousands of transactions in this transaction package. When we have 64 shard chains that can be used to deploy transactions, the cost per transaction should drop by several orders of magnitude.
Once this is achieved, Rollups will be free to stop limiting the amount of block space they can use (as is currently the case with the Arbitrum One network) and let the Rollups engine really kick in.
The combination of sharding and Rollups will allow computing resources to become assets of the network rather than liabilities. More computers, regardless of their computing power, will always be able to contribute their resources to the network, and make those resources efficient, regardless of how much that computer can contribute. A computer can be a Rollup validator and help compress and send Rollup data to L1, or it can contribute its resources to L1's validator pool and help start more shard chains.
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economic sustainability
economic sustainability
A modular Ethereum is an economically sustainable Ethereum. This is the realm of cryptoeconomics, and we need to get the economics of it right in addition to cryptography.
In economics, Gresham's law is a monetary principle that states that "bad money drives out good money." When people get two different currencies, they store the one that has value and spend the one that has no value.
In the case of fiat currencies, we will see that people will move to the currency with the least depreciation, which is the dollar; while in the cryptocurrency world, we will ask "which cryptocurrency has increased in value the most?"
Bitcoiners are very excited about Bitcoin because it is the first cryptocurrency that promises to maintain its purchasing power through a hard issuance cap (only 21 million BTC in total). As the economy surrounding Bitcoin grows, Bitcoin is expected to become more scarce. Same BTC supply, but in a larger economy, this equates to BTC being more scarce.
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Transaction Fee = Currency Premium
Translating Gresham's law into cryptoeconomic terms is:The transaction fees that the network needs to collect are more than the fees paid to validators by issuing new coins.
Cryptoeconomic networks pay network security providers (i.e., miners or validators) by using transaction fees and minting new coins. The more transaction fees a blockchain network can collect, the fewer new coins it needs to issue.
That is,The more transaction fees collected, the fewer coins need to be issued。
This is where the scalability problem of monolithic blockchains comes in. Many blockchains promise low transaction fees and high throughput. But by doing so, these blockchains also promise to never create a meaningful market for fees. This is because, if you want block space to be cheap, then you must not rely on transaction volume to pay for the security of the network; therefore, you must rely on minting new coins, which, in Gresham's law terms, will making it a "bad currency".
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Let's compare Polygon PoS and Solana.
The Polygon PoS network collects about $50,000 in transaction fees per day, or $18 million per year. Meanwhile, Polygon is distributing over $400 million in annual inflation rewards. This has contributed to its mind-boggling 95% net annual loss.
As for Solana, it collected as little as $10,000 in transaction fees per day for a long time, but as the speculative frenzy picked up, the network’s transaction fee revenue has increased significantly to $100,000 per day, or $36.5 million per year. But Solana is handing out an even more staggering $4 billion in annual inflation incentives, resulting in a net loss of 99.2%.
Solana would need to reach 154,000 TPS with current transaction fees to break even, which is simply impossible given current hardware and bandwidth.
The bigger problem, however, is that these additional transaction volume increases don't come for free - they add greater bandwidth requirements, greater state bloat, and overall higher system requirements.
A key feature of economic sustainability is that its effects compound in both directions.
A constrained L1 (such as the current Ethereum network) will establish a strong fee market. By placing limits on the available block space, blockchain decentralization (by reducing hardware requirements for participating nodes) and fee income (by limiting the supply of available block space) can be increased.
As far as Ethereum is concerned, scarce block space can create higher fee income for the blockchain, which in turn leads to a higher ETH burning rate, thus making ETH more scarce and more valuable.
The more valuable a currency is, the fewer new coins need to be minted to achieve the same level of security. So when the value of the currency is high, it's actually less expensive to spend on network security. In the paradigm of low security spending costs, the blockchain network will further reduce the net new issuance, because you only need to issue fewer new coins. This will further increase the scarcity and value of this asset.
In contrast, those blockchain networks that claim to provide cheap fee environments are unable to collect any meaningful fee income. If the network is unable to collect sufficient fee income, it must pay for security by minting new coins (i.e. paying rewards to miners/validators who secure the network by minting new coins). If the network maintains security by minting new coins, that currency will inflate and depreciate over time.
Over time, inflation increases the supply of this currency and decreases its value. Devaluation means that the network must issue more new coins to pay for security costs. In this way, further additional issuance will lead to further growth in supply and further depreciation of the currency, which is the beginning of a vicious inflationary cycle.
While speculation during a bull market can mask this effect for a while, the laws of economics cannot be escaped. A currency that is issued a new currency will not hold its value as a currency that is destroyed, and the two approaches will lead to very different futures.
There is a direct correlation between the throughput of L1 and the health of the network's native currency.
If you increase the throughput of the blockchain, you increase the inflation of the asset. Unfortunately, when you increase the throughput of the blockchain, you also decrease the ability of ordinary people to be validators.
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05. Connect it all
Ethereum has a constrained L1, but with strong decentralization and efficient security. The limited block space of the current Ethereum network constrains L1, creating an expensive fee market that adds a monetary premium to ETH.
Sharding will increase the available L1 block space for Ethereum while increasing the security of the network. As Ethereum's validator pool expands (i.e., the number of validators increases), the number of viable shard chains will also increase, making Ethereum a more scalable network while increasing its decentralization.
At the same time, Rollups create an unconstrained execution environment that packages and compresses transactions into the smallest possible data package. This unlocks new types of economic activity and allows a vibrant cheap economy to flourish, which in turn increases the amount of net economic activity settled on L1. As more economic activity develops on Rollups, fees on Rollups will drop as they are amortized across a wider range of participants. As more shard chains are added to Ethereum, and as those shard chains become larger and larger, fees on Rollups will drop further according to Moore's Law.
The beauty of modular design is that optimizations in each module amplify optimizations in other modules:
Increased decentralization of the network through PoS, which in turn increases the number of shard chains added to Ethereum;
Adding more shard chains on Ethereum L1 can increase the size of L2 Rollups by several orders of magnitude;
Growth in the size of Rollups will unlock new viable economic activities, which will ultimately increase the overall fee Rollups pay to L1;
Paying more overall fees to L1 will incentivize more people to become validators, making the Ethereum L1 validator pool larger, which in turn allows the network to create more shard chains.
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Optimally executed monolithic blockchain
In every bull market, a new batch of blockchains will choose to sacrifice decentralization to optimize the execution properties of the blockchain. These blockchains increase the block size, restricting the joining of more nodes, thereby providing a network with low fees for a prosperous bull market.
During bull markets, the Ethereum and Bitcoin networks can become extremely congested because they are optimized for decentralization, which opens up opportunities for monolithic blockchains that optimize transaction execution.
But as mentioned above, monolithic blockchains optimized for transaction execution have some drawbacks:They fail to collect fees in a meaningful way and sacrifice decentralization.
If this optimally performing monolithic blockchain transforms itself into a L2 network on a different L1 chain, that chain can actually perform better optimally while not having to deal with security and decentralization aspects of bondage. In this way, the network's native assets no longer need to be issued to pay security fees, because their integrity will now come from another L1 chain.
Removing inflation from a money supply scheme would have a huge impact on the long-term supply of its native asset.
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reasonable conclusion
The cryptocurrency world is rife with tribalism and politics. One's statements are often influenced by one's tribe, and incentives and motivations are driven by pre-existing beliefs and biases.
Thankfully, code and math are immune to these factors. We could rewrite the entire article above without using the word "Ethereum", making it an unknown roadmap for a modular blockchain.
In fact, this architecture (i.e. modular architecture) is not unique to Ethereum alone. Rollups are not just something exclusive to Ethereum. For example, Tezos is also embracing a Rollup-centric roadmap; NEAR is also designing data availability shards; Celestia is also building a security & data availability layer for Rollups.
The point is, if we went back in time, or jumped to a different parallel universe, and re-rolled the dice 10,000 times, the cryptocurrency industry would find itself coming to modular design conclusions 99.9% of the time.
This is the most reasonable conclusion for the development of blockchain technology. The only reason this conclusion is “politically relevant” to Ethereum is that Ethereum is the only ecosystem so far that has funded the related R&D work enough to allow us to achieve this goal.
Over time, we will see all L1s blockchains either evolve into a modular design structure (i.e. limit L1 block space, push execution to Rollups, and increase the number of nodes) and be globally non-sovereign Either they will ditch the consensus and data baggage and simply move their execution environment to another blockchain that is more decentralized (i.e. become another blockchain's L2 network) .
The modular blockchain design also illustrates the need for decentralization as a key attribute of the blockchain, enabling all other functions. Ethereum solves the scalability trilemma by adding decentralization, rather than sacrificing it. The benefits of modularity described above can only be obtained by optimizing for decentralization.
If you embrace decentralization, you can own anything.
