Darren Kleine

There’s an old adage: if you’re not paying for a product, you’re probably the product.



The typical selling point of social media platforms to current and prospective users is “free” access to the largest online communities. User data, not fees, is the platform’s commodity.&nbsp;&nbsp;&nbsp;



Personal interests, ranging from shopping habits to political leanings are typically extracted for the benefit of the platform’s bottom line. Advertisers and counterparties glean as much intel from the data as they can and then push their products and ideas right back at the users.&nbsp;



It seems that social media participants are often willing to give up control of personal data in return for a seamless experience that connects with the largest number of potential friends or followers.&nbsp;



Stani Kulechov, founder and CEO of <a href="https://blockworks.co/tag/aave">Aave</a> and <a href="https://blockworks.co/news/aave-launches-alternative-to-traditional-social-media">Lens Protocol</a>, spoke to Blockworks about his aspirations for social media tech in an interview on the <a href="https://www.youtube.com/watch?v=e3l-oZPv0lg">0xResearch podcast</a>. 



Popular platforms provide usability in exchange for “more control over your social capital,” Kulechov says.



<h2 class="wp-block-heading">Lens Protocol’s profiles ‘secured by the blockchain’</h2>



Lens Protocol offers a “composable and decentralized social graph” for building out social network platforms, according to the company <a href="https://www.lens.xyz/">website</a>. The tool takes traditional Web2 actions like profile creation, following, sharing and content amplification and turns them into “protocol guarantees by using <a href="https://blockworks.co/tag/smart-contracts">smart contracts</a> and using the <a href="https://blockworks.co/tag/blockchain">blockchain</a>,” Kulechov says.



“When you create a profile on Lens, that profile is secured by the blockchain,” he says, adding, “if you follow other users, that follower graph is also secured by the blockchain — and these are protocol guarantees.”



To address the challenge of speed versus convenience, Kulechov says that the Lens Protocol stack includes on-chain and off-chain elements. <a href="https://twitter.com/LensProtocol/status/1651604792098308096">Momoka</a> — an “optimistic scaling solution” launched by Aave — creates blockchain transactions, but stores them on a separate <a href="https://blockworks.co/news/sovereign-rollups-blockchain-scaling">data availability</a> layer.&nbsp;



“It&#8217;s basically a full hybrid stack,” he says.



This allows for much greater performance than current <a href="https://blockworks.co/tag/layer-1">layer-1</a> blockchain tech can handle. It’s capable of dealing with the potentially massive flows of traffic that social media applications experience. “With something like Momoka,” Kulechov says, “you can take that big amount of data and just dump it directly to a data availability layer.”



“Do I need a blockchain to create a post or a comment? In those cases, maybe data availability is enough as a solution.”



“It&#8217;s up to the applications and then users to choose what they actually want and need” from the stack, he says.&nbsp;



<h2 class="wp-block-heading">Shifting the dynamics</h2>



The biggest benefit for users, according to Kulechov, is a shift in dynamics, from platforms holding most of the power to a system that is more “user-centric.” The social network service provides users with direct control of their online presence, he says.&nbsp;



“You as a user have oversight of your profile and your follower graph,” he says.



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A user could decide to move to another Web3 social platform without having to start over. “You now have the choice and portability to take your followers and go to another experience or even use an alternative algorithm.”



“And because you&#8217;re tapping into the same user base,” Kulechov says, it will be “easier to bootstrap a <a href="https://blockworks.co/news/web3-social-media-apps-to-watch">social media application</a>,” carrying followers from one place to another, “because you have that portability by default.”



“Because it&#8217;s open, it also means that anyone can compute and create algorithms for discovery, finding content, and finding peers to follow in a more open way.”



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Can Web3 Conquer the Corporate Goliaths of Social Media?

Institutional investment strategy, especially in crypto, advances at a glacial pace. Judiciously allocating funds, family offices and institutions must ensure legal compliance and carefully protect against massive losses that can result from shifting just a percent or two of a portfolio into the wrong asset.



It wasn’t that long ago that the Ontario teachers’ pension fund saw <a href="https://blockworks.co/news/ontario-teachers-fund-sank-95m-in-failed-ftx-empire">95 million dollars swept away</a> in the <a href="https://blockworks.co/tag/ftx">FTX</a> aftermath — a mere 0.05% of the fund’s total assets. While a <a href="https://blockworks.co/tag/uniswap">Uniswap</a> trader might casually blow <a href="https://blockworks.co/news/pepe-memecoin-red-flags-abound">a few bucks on a memecoin</a> without legal or financial consequences, things can go south in a much bigger way when a trusted custodian invests a small percentage of hundreds of billions of dollars.



It’s no wonder then, that it can take quite a while for larger entities to adjust their risk profiles, particularly when it comes to the volatile and legally fuzzy world of crypto.&nbsp;



Albeit at a cautious rate, institutional investors are “starting to exit the bear market mentality,” says Bitwise Chief Investment Officer Matt Hougan, as he spoke to Blockworks on the <a href="https://www.youtube.com/watch?v=BI28p72iOSc&amp;t=193s">0xResearch podcast</a>. “Even though the market has been trading sideways for a while, they&#8217;ve woken up to the fact that it&#8217;s the best performing asset class in the world.”



He acknowledges concerns around regulation persist but says as institutions begin “putting their toe in the water,” he expects to see asset flows shift back into crypto over the next few months.



As a relatively safe bet, <a href="https://blockworks.co/tag/bitcoin">bitcoin</a> — perceived to be the most secure and established of all crypto networks — has been the focus of most large-scale investment in the past, but appetites seem to be changing, he says.&nbsp;



Hougan sees a preference for ether (<a href="https://blockworks.co/price/eth">ETH</a>) emerging with “the family office and institution side thinking about just a very small allocation” in crypto.



“Now, I would say there&#8217;s actually more interest in ETH than there is even in bitcoin from many of the institutions that we talk to.”



<h2 class="wp-block-heading">One step further on the risk curve</h2>



Whereas interest used to be “bitcoin-only,” Hougan says ether is now getting attention as an asset that is “one step further on the risk curve.”



<a href="https://blockworks.co/tag/defi">DeFi</a> protocols are not yet on the radar, Hougan says, but investment in <a href="https://blockworks.co/tag/layer-2-2">layer-2</a> solutions might be “just around the corner.”



“But the big change,” he says, “has been from bitcoin, to bitcoin and ETH.”



Those who are deeply entrenched in the crypto market “live a few years ahead of where the institutional market is,” Hougan says, “so that&#8217;s a tired story for us, but it&#8217;s a brand new story for many of these folks.”



<h2 class="wp-block-heading">You have to allocate when it hurts</h2>



Bitwise crypto research analyst, Ryan Rasmussen says more clients are asking about the crypto market due to its outstanding performance during the first quarter. 



“To not have an allocation to crypto,” Rasmussen says, is “becoming a business risk for them as financial advisors, as institutional investors.”



“So I do think it&#8217;s a good time for them to allocate. You don&#8217;t want to see it pop another 20, 30, 40% and still not have the appropriate allocation.”



Hougan adds, “You have to allocate when it hurts. You have to allocate when it&#8217;s ugly.”



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“If you wait for us to get <a href="https://blockworks.co/tag/regulation">regulatory clarity</a> and for the macro uncertainty to vanish,” he says, “you&#8217;ll definitely have missed.”



Hougan suggests investors can find success “by having a little bit more information about the market than what most of the market sees.”



“You can succeed by looking abroad and <a href="https://blockworks.co/news/mica-could-get-crypto-banked">seeing regulatory progress</a>, even as we see regulatory <a href="https://blockworks.co/news/galaxy-regulatory-headache-not-going-away">challenges in the US</a>. You can succeed by realizing the sort of <a href="https://blockworks.co/tag/rollups">technological revolution taking place with layer-2s</a> and the Ethereum blockchain, when the market isn&#8217;t focused on that.”



“But it&#8217;s always going to be painful when you&#8217;re buying at the right time. It&#8217;s never easy — and that&#8217;s true right now.”



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Moving Up the Risk Curve: Institutional Investors Cautiously Consider ETH’s Potential

Outside a recent faux pas that fueled a <a href="https://blockworks.co/news/pepe-trending-deletecoinbase">#DeleteCoinbase</a> trend and prompted an <a href="https://blockworks.co/news/coinbase-apologizes-pepe-newsletter">apology tweet</a> to assuage incensed customers, the US-based crypto exchange is successfully executing its growth strategy, according to Bitwise CIO Matt Hougan and crypto research analyst Ryan Rasmussen.



Hougan says the company’s past quarter was one of the best of a publicly traded company he had ever witnessed. He says that during that time, it grew its revenues aggressively and set itself up “to be a giant in the future.”



“I thought it was a transformational quarter for Coinbase,” says Hougan, speaking to Blockworks on the <a href="https://www.youtube.com/watch?v=BI28p72iOSc">0xResearch podcast</a>. 



Dramatic cost-cutting measures have enabled Coinbase to “stick around,” he says, through bull and bear market conditions. Due to their fiscal prudence, Hougan says the company has “guaranteed, with their $5 billion balance sheet, that they are going to be here for the next cycle as well.”



Hougan adds that international expansion has “paved the way” to launch derivatives exchanges, opening up multiple local markets for the business.



The launch of the <a href="https://blockworks.co/news/coinbase-launches-l2">Base layer-two protocol</a> is another prong in their growth strategy, which the company <a href="https://help.coinbase.com/en/coinbase/other-topics/other/base">says</a> is a “key step in bringing Coinbase’s products, users, and assets into the decentralized cryptoeconomy.”



Hougan suggests the company roadmap is “one of the most ambitious” in the market.&nbsp;



“It&#8217;s a smallish mid-cap company, and it could be one of the most important financial institutions in the world in the next 10 years if crypto plays out the way we think it will,” he says.&nbsp;



“I think this quarter really sets them up to sort of fill that role.”



One sword is “hanging over them,” Hougan admits. <a href="https://blockworks.co/news/sec-crippling-digital-assets">Negative regulatory conditions</a> could potentially end in massive fines and restrictions on how they conduct business in America.&nbsp;



Still, he feels Coinbase is “one of the most attractive public equities on the market today.”



Rasmussen says Wall Street “largely misunderstands Coinbase&#8217;s business model.” He explains that most coverage portrays the company alongside traditional brokerages and regional banks, which exhibit very different risk profiles when compared to Coinbase.



A large portion of the market sees the company as “just a trading firm,” he says, assuming it only handles spot trading and depends entirely on volume for its revenue model. “And yes, that is obviously a big portion of their business,” he acknowledges, but the possibility for <a href="https://blockworks.co/news/coinbase-abu-dhabi-bermuda-derivatives">expanding into derivatives</a> is an opportunity that could fill a “hole in the market” left by the <a href="https://blockworks.co/tag/ftx">FTX</a> collapse. 



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“There&#8217;s a huge appetite for crypto derivatives outside the US.”



Rasmussen believes Wall Street and most institutional investors are “missing the mark” in their outlook at Coinbase as a business, with the <a href="https://blockworks.co/news/coinbase-international-futures-institutional-traders">derivatives play</a> likely to be “hugely profitable.”&nbsp;



Hougan puts the market’s perception of Coinbase into perspective. “It&#8217;s so cheap. It&#8217;s so small.”&nbsp;



“You X out the cash of Coinbase and it has the same market cap as <a href="https://blockworks.co/tag/dogecoin">dogecoin</a>. It&#8217;s got a lower market cap than <a href="https://blockworks.co/tag/cardano">cardano</a>. It&#8217;s half the market cap of <a href="https://blockworks.co/tag/xrp">XRP</a> once you exclude the cash. Those are ridiculous comparisons.”



“This is the most important company in crypto and it&#8217;s trading on par with dogecoin.”



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Ambitious Quarter Sets Up Coinbase To Be Future Giant

Building blockchain-based applications tends to involve compromise at some point. Companies need to decide what to sacrifice — speed, cost, security and so forth — to achieve their particular priorities. 



A service may choose to build on a layer-1 blockchain like <a href="https://blockworks.co/tag/solana">Solana</a> over <a href="https://blockworks.co/tag/ethereum">Ethereum</a> for speed and cost advantages, but miss out on the network effect advantages of Ethereum. Alternatively, they might select a layer-2 rollup like <a href="https://blockworks.co/tag/arbitrum">Arbitrum</a> or <a href="https://blockworks.co/tag/optimism">Optimism</a> to stay in the Ethereum ecosystem, but give up some of the advantages of existing directly on a <a href="https://blockworks.co/tag/layer-1">layer-1</a> solution. 



On a <a href="https://www.youtube.com/watch?v=65fDsrpEifw">recent episode of the 0xResearch podcast</a>, founder of Eclipse Laboratories Neil Somani suggests that it doesn’t need to be this way. Rollup solutions like Eclipse aim to provide interoperability and customizability so developers can have their cake and eat it, too. 



Somani acknowledges that monolithic layer-1s like Solana and Ethereum do hold one important advantage for the moment: “The one thing that the monoliths have right now is network effects. They have a lot of liquidity on these chains. There&#8217;s developers who already write for those platforms and they identify with the brand.”



But with the advent of rollup technology, the desire for yet another layer-1 to join the crowded space is diminishing, he says. “The disadvantage is that there aren&#8217;t many reasons why a new chain would choose to be a monolith over being a rollup, assuming that the rollup tech is fully built.” 



Next-wave apps that are “really pushing the frontier” in the future, like consumer-level apps and fully on-chain games, will need customizations “at the execution layer,” according to Somani.



“They&#8217;re much better off having their own chain.”



Problem being, he says, layer-1 solutions are difficult to deploy, very expensive, cumbersome, and require teams to ensure reliability. “So, by deploying a rollup, they can avoid a lot of those pitfalls.”



<h2 class="wp-block-heading">A little history lesson</h2>



Somani explains a bit of the history of layer-1 development to provide context for the Eclipse-designed modular customization approach. “Ethereum gas fees were historically very high, and there have been many attempts to solve for that.”



Polygon and Binance Smart Chain, which were essentially <a href="https://blockworks.co/tag/evm">EVM-compatible</a> forks, sprung up to solve the gas problem when it first reared its ugly head a few years ago. They “precipitously took off,” purely because of timing with the gas crunch and the fact that no EVM-compatible layer-1 alternative existed.



Fast layer-1 monoliths like Solana stepped in along with the alternate vision of rollups like Arbitrum and Optimism. “These are all basically solving the problem of limited block space, solving for high gas fees.”



Other solutions like the Cosmos-centric appchain vision never really took off in the same way, Somani says. The value of <a href="https://blockworks.co/tag/cosmos">Cosmos</a> “isn&#8217;t really about lower gas fees” as there’s plenty of layer-1 solutions, like Solana, that already solve this problem. Instead, “it&#8217;s actually more about the customizability that having an appchain gives you.”



Each approach has its own advantage over the others. “Like Cosmos, you get customizability. Solana, and these alt L1s, you get low gas fees. And then the rollups get the benefit of sharing the security of Ethereum.”



<h2 class="wp-block-heading">Pick and choose</h2>



Somani sees Eclipse combining these “core properties” into a modular system that lets users “pick and choose and say, I want really low fees, but I also want to be in the Ethereum ecosystem. Or maybe I want to be in the Cosmos ecosystem, and I&#8217;m okay with a beefier execution node. I just want as much throughput as possible.”



“So we allow people to make those trade-offs by dividing up these different concepts or properties of a blockchain into these modules.”



Somani says the approach follows the same vision as Celestia, <a href="https://twitter.com/CelestiaOrg/status/1574799746509590528?s=20">a modular data availability layer solution</a>. Prior to building Eclipse, Somani says that Nick White, chief operating officer at Celestia Labs, reached out to him and explained what he saw as <a href="https://blockworks.co/news/blockchain-goes-modular">the future of blockchain technology</a>.



White broke down the complexities of blockchain into a few key properties, Somani says. Firstly, it has to execute transactions. Secondly, it has to order transactions and make them available for verification across the network in processes that are referred to as ‘consensus’ and ‘<a href="https://blockworks.co/news/sovereign-rollups-blockchain-scaling">data availability</a>,’ or ‘DA.’ Finally, it has to verify that state transitions were executed correctly in a process termed ‘settlement.’



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“Eclipse just takes those three concepts and separates them very cleanly,” Somani says.



“We let you deploy some customized execution chain, whether it&#8217;s EVM, <a href="https://www.blockworksresearch.com/research/nitro-solanas-vm-enters-the-cosmos">SVM</a> or some other virtual machine down the line. You get to pick your consensus and DA layer.”&nbsp;



“You can customize the DA layer,” he says, “and then you build in those additional customizations on top of the execution layer to facilitate whatever kind of application you&#8217;re building.”



“Maybe you&#8217;re a game and you need VR apps. You need verifiable random functions. Maybe you&#8217;re doing an NFT mint and you don&#8217;t want to charge gas. Now you can make it gasless. Maybe you want to do something special in the mempool like <a href="https://blockworks.co/news/mev-searcher-battle-for-profit">redistribute MEV</a>. These are all options available to you when you have your own chain.”



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Have Your Cake and Eat it Too? Customizable Rollups Across Blockchains

Think of the go-to apps on your phone. The ones you navigate with muscle memory. The apps you use so much that you forget you checked them just a minute ago.



Maybe for you, it’s Twitter — or at least it was until Elon took over. Or TikTok. Snapchat? Discord? Instagram? OK, maybe Facebook? Really? Facebook?



Perhaps you take your mobile device more seriously — you’re more into productivity — so it’s Gmail, Calendar and Docs or Office. Or you’re into streaming video with Netflix and YouTube or music with Spotify and Apple. Or gaming with Candy Crush and Two Dots.



Chances are, even if you’re deeply involved in the <a href="https://blockworks.co/tag/web3">Web3</a> world, your most frequently-used apps are firmly entrenched in the corporate establishment of Web2.



It’s true, there’s plenty of places to go if you want to be a degen and <a href="https://blockworks.co/newsletter/issue/31217083">trade meme tokens</a> or sweep NFT floors, but where are all the everyday-life Web3 apps?



On the <a href="https://www.youtube.com/watch?v=dnKc5IvD88Q">latest episode</a> of the 0xResearch podcast, <a href="https://blockworks.co/tag/solana" target="_blank" rel="noreferrer noopener">Solana</a> co-founder Anatoly Yakovenko bemoans the lack of consumer-level apps living in the Web3 ecosystem. 



“There&#8217;s no application that we can point to and say, ‘This is general consumers using crypto and getting value out of it’” or “‘these are the business models that are creating value for the world.’”&nbsp;



<h2 class="wp-block-heading">Unlocking value for the consumer</h2>



Yakovenko explains, “We&#8217;re trying to attract folks that have that mindset, that really want to unlock value for the general consumer.” He mentions one app in development that he foresees providing genuine usage on a broader scale.



Hivemapper, an app that Yakovenko says is “competing with Google Street View,” is a <a href="https://blockworks.co/news/qa-solana-founders-raj-anatoly">decentralized mapping network that uses a crypto-integrated dashcam</a>.&nbsp;&nbsp;



“People are effectively mining tokens by creating these constantly updated streets,” resulting in rapid updates that he says are “coming in 200 times faster than Google’s.”



“There&#8217;s 60 million kilometers of road in the world. They&#8217;re over a million already.” That amounts to about two percent of the world’s roads, he says, adding, “They&#8217;re moving really quickly.&#8221;



“That could be very substantive technology, built using decentralization that we can point to and say, ‘Hey, look, this is competitive with a two trillion dollar company.’” 



“But it&#8217;s still not consumer stuff,” Yakovenko admits.



Yakovenko goes on to mention apps that he is excited about, like <a href="https://twitter.com/blockworksres/status/1646901463380283393">BackPack</a>, which “can be understood as an operating system for all <a href="https://www.xnft.gg/">xNFTs</a> developed on-chain” and “grants access to decentralized applications built on-chain” and Dialect — a “smart messaging” protocol soon to be launched on the <a href="https://blockworks.co/news/solana-launches-saga-phone">Solana Saga app store</a>.



“BackPack and Dialect are new approaches to crypto,” he says. “They&#8217;re trying to basically build something similar to WeChat, where you have social and finance all mixed together.”



<h2 class="wp-block-heading">The meaning of success in Web3</h2>



Yakovenko points out the broad chasm between the meaning of success in the massive Web2 market and Web3. “A moderately successful social network that&#8217;s struggling to raise money in Silicon Valley with 20 million users would be the biggest success in crypto,” he chuckles.



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But it’s something he aspires to see come to fruition: “We can all then point to it,” he says, hoping to soon see an application where “there’s real consumers, they’re doing stuff. They’re making payments. The whole loop works and it’s growing.”



“If we get one of those successes, I think that would be revolutionary.”



“Once you have that many users that are actually using this stuff on a monthly [or] daily basis,” he says, “business models that make sense will just become very obvious and fast to optimize.”



While that one killer consumer app may soon be on the way, it doesn’t seem to be here yet. As of now, “all of that is missing from crypto,” he says. 



“I&#8217;ve been working on this for over five years and we still can&#8217;t point to that one use case.”



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Web3 Has Been Around for a While. So, Where Are All the Apps?

Rollups are relatively new tools in the quest to scale Ethereum’s ecosystem that seem to be garnering attention in blockchain developer circles lately. In the quest to reduce fragility and centralization, key tools in the ecosystem — called sequencers — stand out as a particular point of vulnerability.



The innovation of blockchain <a href="https://blockworks.co/news/sovereign-rollups-blockchain-scaling">rollups</a> offers speed and efficiency by taking over certain tasks and lightening the burden on layer-1 networks, but current technical priorities and limitations tend to <a href="https://blockworks.co/news/mev-the-relays-problem">leave decentralization further down the priority list</a>.



Ben Fisch, CEO of Espresso Systems, and Josh Bowen, CEO of Astria, spoke to Blockworks about their aspirations to <a href="https://blockworks.co/news/shared-sequencing-blockchain-rollups">decentralize sequencing</a> via modular design on the <a href="https://www.youtube.com/watch?v=vJSoiRDrsKM">0xResearch podcast</a>.



Host Dan Smith explains, “If we look at the reality of rollups today, we find that they&#8217;re mostly siloed and centralized.”



A sequencer performs the specialized task of processing and ordering transactions in blocks for them to be added to a particular chain. Every rollup essentially runs its own proprietary sequencing solution, for now. Bowen explains the purpose of a “shared sequencer” network:&nbsp;



“You can have this decentralized block production at the sequencing layer of a rollup, but it can be utilized by one or more rollups rather than each rollup having its own kind of decentralization process.”



Fisch comments, “if we just focus on the rollups that exist today, no one has fully decentralized their sequencers and no rollups are interoperable with each other.”



“When it comes to ordering data and making it available, Ethereum is inefficient and expensive,” he says, “and so naturally, every project that was building a rollup found it more convenient and cheaper to run its own centralized sequencer.”



Bowen says, “There should be more rollups than there are now. Now we have like a handful, you know, five to ten.”&nbsp;



“If we want to have more,” he says, “we don&#8217;t want to continually have this phased approach” where every developer builds their own centralized sequencer. “We view this as fundamentally unscalable.”



By making a shared sequencer mechanism available to developers at a rollup’s inception, developers can build the tool in a decentralized state from the get-go, he suggests.



<h2 class="wp-block-heading">Economic specialization</h2>



“We think about modularity as this kind of economic specialization,” Bowen says. Rollup developers have to focus on such a broad variety of tasks — decentralization is simply not very high on the list of priorities. “We can provide that as a service to you because it&#8217;s not your focus — but it could be our focus.”&nbsp;



Fisch advocates a “heterogeneous system,” where “there is a strong network effect of having all rollups share a common sequence.”&nbsp;



“The value,” Fisch says, “is in everyone sharing a common protocol that&#8217;s doing the right thing to enable what they need. And that is the benefit of shared sequencing.”



“We&#8217;re trying to get a lot of rollups to share this common infrastructure.”&nbsp;



Of course, economic incentives have to be considered, Fisch points out. “Will rollups running on a shared sequencer be able to see as much value accrual as they would have on their own?”&nbsp;



That’s a problem, he says, that “needs to be addressed through economic mechanism designs and allocation of value that&#8217;s being generated by the sequencer.”



“As long as each rollup has the governance to be able to decide whether or not to continue using the sequencer,” he says, “then it has leverage in deciding whether to opt-in to a fair protocol or not.”



<h2 class="wp-block-heading">Minimize the monopoly</h2>



“We want to minimize monopolistic actors within the system,” Bowen says.&nbsp;&nbsp;



“If you wanted to be a Google, how did you make money? Well, you made a network of facts and then you became the centralized point of ingress for the internet, essentially. That&#8217;s a very valuable monopolistic position to hold.”



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“If the shared sequencer network is extracting rent for you,” Bowen asks, “if you don&#8217;t think you&#8217;re getting your value, it should be relatively easy for you to leave, right?”



“Fundamentally, we don&#8217;t want to be ‘capturing,’” he says. “We&#8217;re trying to move from this Web2 world where you say, ‘I&#8217;m going to establish a thing. I am going to honeypot users, and then I&#8217;m going to extract rent.’”



“The relatively standard phased approach — we don&#8217;t want that.”



“I would rather buy that as an off-the-shelf service.” Bowen says.



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Shared Sequencers: The Quest for Decentralization Continues

Anyone who has ever enjoyed playing with LEGO inherently understands the key advantage of modular systems.&nbsp;



Limited only by imagination, rearranging simple blocks transforms a car into an airplane… or a submarine… or a spaceship…or whatever you like.



Rather than just creating a single-purpose static object, the modular nature of building blocks allows for a world of infinite possibilities. 



Solutions to blockchain technology’s current scaling limitations might be found in the same building block concept.



Nick White, chief operating officer at Celestia Labs, spoke to Blockworks on the <a href="https://www.youtube.com/watch?v=tGEYrSjEz6A">0xResearch podcast</a> about the current scalability problem of blockchains: “Originally with Harmony, we were trying to solve that using sharding,” White says, “but I ended up realizing that sharding was not the right approach when I read this white paper called Lazy Ledger back in 2020.” 



The paper, White explains, gave him a new vision for building blockchains “in a modular way,” which he suggests could solve the core problems of blockchain infrastructure and provide a foundation for building scalable and decentralized solutions.



Modular blockchain design allows for a much greater quantity of transactions to be verified, White says, “so you preserve the core value proposition of what a blockchain is while still being able to increase the capacity of the network.”



In a monolithic, one-size-fits-all blockchain, all transactions are packaged into a block and then committed to a new state of the chain, White explains. In the future, when billions of users are sending billions of transactions, this would require enormous quantities of data to be verified one by one by downloading the block, re-executing every transaction, and comparing it to the state of the block to which it commits. It’s pretty impractical on a large scale.



Modular blockchain systems break this into separate, more manageable tasks. Instead of re-executing and verifying every transaction individually, rollups, for example, can perform verifications with off-chain computations and simply prove they are correct.&nbsp;



“But…for that whole construction to be secure, you still have to know that the block data was available.” So instead of downloading all transactions on a monolithic chain, White says, “you just have to make sure that they&#8217;re there, that they were published on the internet.”&nbsp;



“Nodes can check that in a very, very light way.” Celestia’s modular solution, White says, allows the verification of block data by downloading less than 1% of the block.&nbsp;



<h2 class="wp-block-heading">A different approach to modularity</h2>



Andrew Levine, CEO of Koinos Group, explains that his company takes a different approach to the building block solution. “When we talk about modularity,” Levine says, “we mean more of the classical, computer science meaning.”&nbsp;



The Koinos node is highly modular, he explains, with all of the system logic of the blockchain such as the consensus algorithm, resource management and decentralized governance implemented as separate smart contracts. Each component can therefore be upgraded without the need for a hard fork.



“In other words,” Levine says, “the system is implemented as distinct modules each of which can be independently updated without impacting the overall system.”



In this case, the blockchain itself may technically be “monolithic” in nature because the ordering of transactions and execution are completed together, but it’s much easier to perform upgrades due to its modular design. This, Levine argues, delivers a general purpose layer-1 protocol that is easy to use and capable of scaling to the masses.



<h2 class="wp-block-heading">Looking ahead</h2>



Like an assembly of building blocks, modular blockchain networks will plug into data layers as part of one unified ecosystem, White says, with light nodes making the experience accessible and easy to use.



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Looking ahead, White imagines everyone in the world with a smartphone will easily connect to a verifiable network of applications for payments, DeFi, or any other Web3 activities they desire. 



“Modular blockchains,” White believes, “are actually paving a way to get there.”



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