Blockchain Evolution
Abstract
This research traces the historical development of blockchain technology, from Bitcoin's inception as the first monolithic blockchain in 2008 to the rise of modular architectures and Layer 2 scaling solutions. It highlights key milestones, including Ethereum's introduction of smart contracts and the challenges posed by scalability and transaction efficiency. The research further explores innovations like sidechains, the Bitcoin Lightning Network, Plasma, and rollups, addressing data availability and interoperability issues.This concise overview establishes a current understanding of the blockchain landscape and serves as a foundation for future research.
Bitcoin: The First Monolithic Blockchain
The research of a cryptographic system for payments has been a topic of interest for many years, starting with theoretical principles described by David Chaum in 1983 [1], following by many theoretical and practical implementations, until 2008, when Satoshi Nakamoto published a research paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System" [2] and a year later in 2009 successfully combined previously theoretical ideas - proof-of-work [3], decentralized consensus [4, 5] and cryptographic chain of blocks [6] - into a fully functional and decentralized currency system: Bitcoin. Satoshi's implementation effectively created what we now call the "blockchain" in its modern form.
It was the first monolithic blockchain implementation, that sparked a revolution, leading to the mass creation of public blockchain platforms. All built upon the foundational monolithic design of the Bitcoin blockchain, while playing around with different parameter configurations, incorporating slight code modifications within their stacks, with some even extending the scope of the technology through custom improvements such as smart contracts or even tailored virtual machines with custom state/storage transition systems [7].
Such experiments lead to the development and launch of Ethereum in 2015, which still maintained the monolithic design of the Bitcoin blockchain. Additionally, it introduced Ethereum Virtual Machine (EVM) and smart contract capabilities to build decentralized applications, which extended the scope of the technology and enable developers to do more with the blockchain [8].
Sidechains & Off-chain solutions
With the rise of the popularity of the blockchain and first major surge in on-chain users the limitations of the monolithic blockchain architecture became apparent. The most notable limitations were the long block creation time and scalability of the monolithic blockchain, which was not able to handle the increasing number of transactions and users. Users soon found out that in times of high network congestion, transactions could get stuck, leading to delays and additional costs for transaction acceleration[7]. This challenges sparked interest of researchers to find solutions to improve the scalability and efficiency of the blockchain.
One group of the researchers focused on the sidechain solutions, which open a two-way peg between the main blockchain and the sidechain, allowing users to move assets between them. This approach was aimed at reducing the load on the main blockchain by moving some of the transactions off main chain, allowing developers to experiment with new features without jeopardizing the security or performance of the main chain [15].
Another group of researchers focused on the off-chain solutions, such as the Bitcoin Lightning Network (introduced in 2016), which enabled off-chain transactions and reduced the load on the main blockchain by posting only the final state of the transactions on the main chain [7, 9].
Modular Blockchain Architectures
At similar time the research on how to upgrade / replace individual components of the monolithic blockchain architecture was gaining more attention. This lead into two directions:
The upgrade of core components of the monolithic blockchain, such as the consensus mechanism, to improve the scalability and efficiency of the blockchain.
The most known was the replacement of the consensus mechanism on Ethereum blockchain, from Proof of Work to Proof of Stake, which was introduced in 2022. This change was aimed at improving the scalability and efficiency of the blockchain, by reducing the energy consumption and increasing the transaction throughput. It also laid down the base for the future upgrades which will also further enhance the scalability issues [10, 11].
The development of modular blockchain architectures, enabled developers to select key features of multiple monolithic blockchains and connect them into a new, modular, blockchain. This approach is designed to be more flexible, scalable, and efficient, allowing developers to build and deploy blockchains with greater ease and efficiency [11]. Additionally, the architecture of the blockchain was becoming more clear which enabled to separate the core components into multiple layers, such as execution, settlement, consensus, and data availability, which can be combined in different ways to create a custom blockchain stack [11, 12, 13].
Cosmos was one of the pioneers in the field of modular blockchain architectures, introducing the Cosmos SDK in 2019, which enabled developers to build custom blockchains with their own consensus mechanisms, and state machines. They also introduced the Inter-Blockchain Communication (IBC) protocol, which enabled their blockchains to communicate with each other and transfer assets between them. This was a major step towards interoperability between blockchains, which is essential for the future of blockchain technology [14].
Recently, a growing number of blockchain projects, like Celestia and Fuel, have been re-architecting the traditionally monolithic blockchain structure to adopt a more modular design. These projects aim to address the critical challenges of scalability, efficiency, and flexibility by decomposing the blockchain into distinct, interchangeable components. This modular approach enables developers to assemble a customized blockchain stack by selecting and combining specific modules to suit different use cases. By decoupling key elements—such as consensus, execution, and data availability—blockchains can achieve enhanced performance while retaining the ability to adapt to a wider range of applications and environments [22].
L2 Scaling Solutions
Plasma
In 2017, the Plasma white paper, authored by Joseph Poon and Vitalik Buterin, introduced a foundational concept for what would later evolve into rollups. Plasma chains were described as independent blockchains anchored to a "root chain," such as Ethereum Mainnet. These chains are capable of executing transactions off-chain, while only submitting a single verifying transaction and state commitments to the root chain.
Although Plasma chains share architectural similarities with sidechains, their security model differs significantly. Unlike sidechains, which maintain their own security, Plasma chains inherit security from the root chain.
This off-chain computation model allowed for overcoming the inherent limitations of the root chain, such as transaction speed and gas costs, thereby creating opportunities to address scalability and promote user growth.
A critical issue with Plasma chains, however, lies in data availability. Since only minimal state commitments are posted on-chain and the majority of transaction data is retained off-chain by the operator, Plasma chains can be vulnerable to scenarios where the operator acts maliciously. This makes it difficult to construct fraud proofs or challenge dishonest actions [16, 17].
Rollups
Rollups address these limitations by ensuring that all transaction data is published on-chain, resolving the data availability problem. Additionally, rollups overcome interoperability issues present in Plasma chains. While Plasma chains were designed as independent blockchains and are not fully compatible with one another or other scaling solutions, rollups integrate directly with the root chain, inheriting its security and maintaining compatibility with existing smart contracts and decentralized applications. This not only minimizes fragmentation but also enhances interoperability within the root chain ecosystem [18].
Today we have two main types of rollups: optimistic rollups and zk-rollups:
Optimistic rollups rely on fraud proofs to ensure the validity of transactions. They operate on an "optimistic" assumption that most transactions are honest, only resorting to on-chain verification in the event of a dispute, during the challenge period.
Zk-rollups on the other side prove a transaction authenticity without revealing any transaction details. Unlike optimistic rollups they assume all transactions are false until proven valid through Zero-Knowledge Proofs. This approach offers a higher level of security and privacy, but at the cost of higher computational requirements.
Both architectures have their strengths and weaknesses, and the choice between them depends on the specific use case and requirements of the application. Optimistic rollups are more suitable for applications that require lower computational overhead and are willing to accept a higher level of trust in the system, while zk-rollups are better suited for applications that prioritize security and privacy over performance [19].
Zk technology is currently expensive, but we expect costs to decrease significantly in the future. This will make it a viable solution for scaling blockchains, as it offers a high level of security and privacy, while also reducing the computational overhead associated with on-chain validation.
App-Chains
App-Chains or application specific blockchains are specialized blockchains, designed to meet unique requirements of a particular business need. Compared to rollups, which are a more of multi-purpose blockchains, app-chains are tailored to specific applications or use cases, providing a more focused and efficient solution. They allow developers to customize various parameters, including transaction speeds, dedicated mempool rules, lower gas fee spikes, and increased capacity to handle more users and transactions. App-chains operate independently, reducing the risk of cascading failures from other systems, and offer higher performance and less congestion compared to generalized chains like Ethereum. Developers can also experiment with new economic and governance models without adversely impacting the main chain.
While the idea of customizable app-specific chains has roots in the Cosmos SDK, the concept of app-chains has not yet gained traction to the same extent as rollups. The most notable examples of app-chains are Thorchain, Osmosis, Trader Joe, Acala network build upon solutions like Polkadot Parachains, Cosmos Zones, Avalanche Subnets [20, 21].
The reason for that probably lies in the complexity of developing and maintaining app-chains, as they require a deep understanding of the specific use case and a significant investment in development and maintenance. However, as the technology matures and the demand for specialized blockchain solutions grows, we can expect to see an increase in the adoption of app-chains in the future.
At some point we believe the app-chains will overcome the rollup technology, as they will provide more flexibility and efficiency in developing and deploying specialized blockchain solutions. But we are still few years away from that point, before that some other technologies will need to mature, such as interoperability solutions, which will enable seamless communication between different chains - both in vertical and horizontal integrations.
Conclusion
The history of blockchain infrastructure has been marked by a series of architectural innovations, from the monolithic design of Bitcoin to the modular architectures of Cosmos and the scaling solutions of rollups. As the industry continues to evolve, we are witnessing a shift towards off-chain compute and on-chain validation through ZK technology. While ZK technology is currently expensive, we expect costs to decrease significantly in the future, making it a viable solution for scaling blockchains.
At the same time there is a lot of research on modular blockchain architectures and interoperability solutions. Many new research papers are focusing on interoperability today. The development of interoperable chains and app-chains will be key to unlocking the full potential of rollups and app-chains. We expect interoperability to be fully solved within the next 1-2 years, with several different specifications emerging that rollups and app-chains will implement according to their needs and requirements.
References
[7]: Zhou Q., Huang H., Zheng Z., Bian J. 2023. "Blockchain Scalability"
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