Small blocks vs. big blocks: Unveiling the ultimate blockchain architecture
By Daniel Garde?es, marketing responsible at Vottun.
What makes a blockchain decentralized? Why do decentralized blockchains face more challenges in terms of scalability?
In this article, we will explore the main four different types of blockchain designs that exist today. Among other elements, we will analyze each design with its pros and cons, and I will give my opinion on which one I believe is the best in the long run.
The Blockchain Trilemma
There are several ways to approach the design of a blockchain, largely because the blockchain trilemma has not been resolved to date.
The blockchain trilemma refers to the fact that a monolithic blockchain cannot be decentralized, secure, and scalable simultaneously. For example, Bitcoin is extremely decentralized and secure, but it can only support a few transactions per second and is therefore not very scalable on its layer 1. On the other end, we have Solana, a much more centralized blockchain but with infinitely more scalability.
But, what makes a blockchain decentralized?
In my view, the two most important elements for a blockchain to have the possibility of being truly decentralized are:
Let’s remember that, being a distributed network, all nodes of the blockchain must execute all transactions, so the maximum capacity of each individual node is its maximum capability.
This is why, if the blockchain has a lot of power at layer 1, as in the case of Solana, the hardware requirements to run the blockchain will be too high for a regular user to run a full node on their computer, and therefore the blockchain will be more centralized since only actors with specialized hardware will be able to have nodes and validators.
This does not mean that Solana’s design is incorrect; it is simply a different approach from that of classic decentralized blockchains like Bitcoin and Ethereum.
The 4 Dominant Models of Blockchain Design.
There is much debate about what is the best design for a layer one blockchain.
We can categorize these designs according to two parameters: whether the blockchain has an embedded VM (virtual machine) or not, and according to the block size (small or large).
Whether or not a blockchain has a virtual machine determines if it’s possible to create advanced programming logic at the blockchain layer one. As we’ll see, Ethereum and Solana are designed for people to create applications at their layer one, while Bitcoin and Celestia are not.
On the other hand, block size greatly influences the computing capacity of the blockchain and the hardware requirements of its nodes. In simplified terms, the computing capacity of a blockchain is determined by the size of its blocks multiplied by the number of blocks it generates per minute.
A blockchain with large blocks like Solana will require specialized and powerful hardware accessible to only a few users, typically specialized data centers. In contrast, the small block sizes of Bitcoin and Ethereum allow almost any user to run a full node on their consumer-level hardware.
Next, we’ll see what each design consists of and their pros and cons:
Bitcoin (Non-VM, Small Blocks):
Bitcoin is the first blockchain in history. It features small blocks and does not have a virtual machine implemented. Having small blocks allows virtually any user to download a Bitcoin node onto their computer, enabling them to verify the blockchain firsthand and contribute to the decentralization of the network.
By not having a virtual machine, Bitcoin’s blockchain architecture is extremely simple, making it less vulnerable to bugs and system failures.
Thus, it is an extremely decentralized and secure blockchain, but with many limitations in terms of scalability and programmability.
Ethereum (VM, Small Blocks):
Ethereum was the first programmable blockchain, meaning it had a built-in virtual machine (in this case, the EVM, Ethereum Virtual Machine). As you can see in image 2, Ethereum blocks are small, which allows it to be a decentralized blockchain but at the cost of having very little layer 1 computing capacity, which is a problem for a smart contract platform.
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Fortunately, Ethereum has rollups, layer 2 scalability solutions that execute transactions on their own blockchains and send a cryptographic proof to Ethereum for security, in addition to using it as a data availability layer.
In other words, while layer 1 of Ethereum can be used to execute transactions, this is not its primary function; it serves as a settlement layer and data availability layer, while the execution layer is delegated to its layer 2 blockchains, such as Arbitrum or Optimism.
Scaling through rollups allows Ethereum to maintain its decentralization, thanks to having small blocks, while also scaling through other execution layers.
The drawback of this system today is that there are several rollups, and users, applications, and liquidity are fragmented. However, there are several solutions in progress that we may discuss another time.
Celestia (Non-VM, Big Blocks):
Celestia is the newest blockchain on the list and is a very special case. Broadly speaking, Celestia has been created to fulfill practically the same vision that Ethereum has with its rollup-centric roadmap, but with the necessary characteristics for this purpose from the outset.
It is a blockchain with large blocks intended to be used as a data availability layer by other layer 2 blockchains. It is important to note that unlike Ethereum, Celestia is not a settlement layer, as it does not have a built-in virtual machine to create the necessary smart contracts for it.
In fact, similar to Bitcoin, no smart contracts of any kind can be created on Celestia, allowing the blockchain to have an extremely specialized architecture for its intended purpose, which is to serve as a data availability layer.
Solana (VM, Big Blocks):
Finally, we have Solana, the blockchain sensation of the moment. Unlike the modular approach of Ethereum and Celestia, Solana is a monolithic blockchain whose goal is to scale at layer 1.
One of the reasons it achieves this is by having very powerful nodes, which enable the chain to execute a high number of transactions per second. The main advantage of this design is that there is no liquidity fragmentation, and the user experience is extremely smooth and simple.
Therefore, we are talking about a layer 1 blockchain with a virtual machine (the SVM or Solana Virtual Machine) and large, extremlly frequent blocks capable of accommodating many transactions.
But, envisioning a future where everyone is on-chain, is it possible to rely solely on a monolithic layer 1 blockchain? What capacity will the nodes of this blockchain need to serve all this demand?
Which architecture does the market prefer today?
According to the market capitalization of the native crypto assets of each blockchain, we can see that the market currently considers blockchains with small blocks, such as Bitcoin and Ethereum, to be more valuable.
However, in recent months, the market has started to value Solana, which has experienced exponential growth both in the price of its native token, “SOL,” and in applications built on the blockchain and TVL in DEFI.
On the other hand, Celestia has the disadvantage of being the newest project and lacks the network effect that others, especially Bitcoin and Ethereum, have. This is a clear disadvantage because if its value proposition is not clearly superior to that of Ethereum, it is difficult for it to gain market share. Probably for this reason, along with inflationary tokenomics in the short term, the circulating market cap of Celestia is notably lower than that of the other three.
On the other hand, many people believe (and I think not without reason) that something like Bitcoin and Ethereum is very difficult to replicate today because bootstrapping a decentralized blockchain with low computing capacity is extremely complicated in terms of user adoption.
Conclusions
From my personal point of view, the blockchain design that makes the most sense today is Ethereum’s, as it manages to keep layer 1 decentralized for use as a store of value and for important transactions, while also utilizing rollups for everyday use by the average user.
That said, and setting aside personal preferences, the other three designs are also extremely interesting, and it remains to be seen how things evolve in the coming years.
Based on the information and technology we have today, it is likely that the modular approach makes the most sense, as blockchains excel at generating consensus and providing a trust-minimized environment but are poor for computing.
As we cannot predict the future, and there are many interesting blockchain environments, at Vottun we have decided to be multi-blockchain and offer our developers and users the possibility to use any blockchain.
In the coming years, we will see which design becomes definitive, or if several options end up coexisting, probably specialized in specific use cases; store of value for Bitcoin, decentralized finance on Ethereum, NFTs and gaming on Solana, etc.