For many ages, blockchain architects and developers struggled to create a system that would be more effective, cheap, secure, and scalable to be able to bring more users into Web3 and lead to the mass adoption of decentralized technologies. Modular blockchains, Fuel specifically, are one of the next steps on the way to these goals.

Why so? What are modular blockchains per se and how do they differ from L1s? In this article, we’ll try to explain it in simple words so even a newbie can figure that out.

P.S. We even provide a small dictionary, so you won’t have to look up all the unknown words.

How do blockchains work?

To begin with, to get the idea of the modular blockchain, we need to dive a bit deeper into how ordinary blockchains work. What are the main processes that are happening behind the scenes when you send a token to your friend? What actors are involved?

Generally, there are 4 main tasks that blockchains perform. They’re called execution, data availability, consensus, and settlement. Don’t freak out of the terms! Let’s try to get what each of them is.

Execution

When you do a lot of transactions on the blockchain, you usually don’t think of what is happening behind the scenes, you see the result — a certain amount of tokens on your wallet account, or an NFT sold from your collection. This result of your transactions, the outcome that you see in the end is performed by the part of the code which is responsible for the execution.

Settlement

Because blockchains are decentralized, many people can try to make transactions, but not everyone plays by the rules. Even those who manage the validator nodes, like referees, can sometimes allow wrong transactions onto the blockchain. Imagine someone with bad intentions running a validator node. They might approve a transaction that spends more money than they actually have. They let these bad transactions into the blockchain by saying they’re okay. To fix this, blockchains use a system called settlement. It helps undo fraudulent transactions and punish those who did it.

💡 A node — is a device that participates in a blockchain protocol by running its software. It can be a special computer, or even phones for some chains. Blockchains typically have multiple different node types that carry out tasks that differ on the difficulty level. Full nodes have bigger capacity and can carry out difficult tasks like storing blocks. Light nodes, like phones, mostly participate in consensus and sending and receiving transactions.

Consensus

Whenever users want to submit several transactions to the blockchain, the following should be decided: a) what order they should take, b) by which validators should they be processed. Unless this is decided, blockchain can’t start processing those transactions. The part of the code which is responsible for this action is called consensus.

For example, user N wants to swap tokens on the DEX, user U wants to buy the NFT, and user X is sending his friend some tokens. As a result of the consensus, their transactions will be put in a line like this: first, user U will get her NFT, second, user N will be able to swap tokens, and third, user X will be able to send his tokens to a friend.

💡 A validator — is a full node that is part of the validator set (validators group) in a PoS (Proof-Of-Stake) blockchain. Validators participate in consensus by voting on proposed blocks, and when elected leader they produce and propose blocks to the validator set.

Data Availability

This mechanism in a blockchain is responsible for the unique transparency that Web3 has. You have probably used sites like https://etherscan.io. The part of the code that allows you to check on those transactions, see what they consist of, and be sure that data is correct is called data availability.

The technology that allows us to do it includes data availability sampling and fraud or validity proofs, you’ll come across those terms quite often if you study modular blockchains more closely.

How is Modular different from L1s?

While traditional Layer 1s like Solana or Sui are performing all of these tasks (execution, data availability, consensus, settlement) at once, modular blockchains usually specialize in one or two of them. For example, the Fuel network is the execution layer for modular blockchains, also called rollups. The other chain, Celestia is a consensus and data availability network (those two functions often go together), which makes them compatible.

💡 A rollup — is a type of blockchain that offloads some work to layer 1. Rollups host applications and process user transactions. Once those transactions get processed, they are then published to layer 1. It’s layer 1’s job to order those transactions and check that they are available, at minimum. Over time, two primary designs emerged for rollups: optimistic and zk rollups.

There can also be different variations among them, but all of them should allow the ecosystem to work properly, and perform all the tasks that traditional L1s do alone. For instance, we can have an ecosystem that would consist of 3 layers: execution, data availability and consensus, and settlement layers. Or 2 layers: traditional layer 1 blockchain plus execution layer (yes, you can mix it up like this as well). This combination of chains is called a modular stack.

Of course, some of the modular layers can also have all the needed infrastructure for them to function like a traditional blockchain, but their specialization is what makes them stand out. In those tasks, they are especially good and fast, the way that other networks would love to use that technology.

Summary

Now we’ve learned what types of tasks blockchains have to perform and how modular/ L1 blockchains differ from each other. In short, L1s proceed with all the tasks ( execution, settlement, data availability, consensus) by themselves, while modular blockchains specialize only in 1–2 of them. If you keep this in mind, you may say that you understand how modular blockchains work!

But what are the advantages/disadvantages of those approaches? We’ll talk about it in our next article. See you there! If you have any questions regarding the material please contact our team on social networks: Discord / Telegram.