Power of (Modular) Chains

Blockchain Superiority

Deep within heart of hearts, politicians know that decentralized blockchain based applications may replace centralized applications transferring some influence and oversight over the financial system from politicians to open source computer software. Uncertainty regarding political influence emerging from decentralization is the Occam’s razor explanation for why lawmakers are increasingly suggesting stricter regulation and bans on various crypto projects. Although Presidents, Governors, Mayors, Senators and other representatives prefer using market forces to destroy ideas threatening their influence, a politician will never hesitate to use the power of law if necessary.

The reality is that Dapps threaten central power clusters similar to how the renewable energy push has crushed oil and gas companies. The difference between oil workers and politicians is that the former lost jobs in a justifiable democratic fashion, while politicians use rule of law as a tool for holding power and influence.

Mass adoption of Dapps likely decreases revenues for middlemen like banks, credit card companies and stock exchanges. In return for political favors, these middlemen rent seekers benefiting from the economic status quo use a portion of revenues to lobby politicians that expand laws which creates an economic environment that further expands profits.

“For example, if consumers send money peer to peer via Dapps instead of banks, politicians supporting banks will stop receiving donations. Slimmer middleman profit margins therefore mean decreasing political donations, which in turn limits political power and influence.”

Similar to how the evolution of internet and open source software provided individuals with a voice and ability to execute new ideas without going through big gatekeepers for capital to fund ideas, advances in cryptography and computer hardware expands power and economic pie for individuals at the cost of limiting power and pie for decision makers.

“The bitcoin blockchain network is worth over 500 billion dollars and has never failed or been hacked since inception in 2009 proving that blockchain with a foundation in solid compute code is more secure and reliable than any centralized server based network ever has been in history.”

The final step for decentralized blockchain applications to outcompete their centralized brother is scaling blockchain networks without sacrificing security to increase both transaction speed and public trust. Achieving rapid adoption means decentralized applications must generate a truly superior user experience.

Despite blockchain bans and regulations across China, EU and US, decentralized application adoption is likely to explode as average smartphone users understand its power.

With blockchain, no middleman is needed in Dapp Games like poker!

Difference Between Decentralized and Centralized Applications

Decentralized applications run on distributed peer to peer blockchain networks rather than on corporation controlled centralized servers, which means Dapps have no single point of weakness. Without an Achilles heel, decentralization limits malicious corporations from the ability to manipulate information stored on central servers.

Imagine a politician using Bank of America debit and credit cards to buy drugs. If the same politician enjoys a professional relationship with Bank of America a conflict of interest may arise. For example, the politician may create beneficial policy for Bank of America in return for having transaction history hidden or deleted from Bank of America’s central server.

Conflict of interest that may create political moral hazard behavior is impossible on immutable blockchains without democratic approval among elected blockchain validators.

It is true that decentralized applications rely on cryptography allowing some users to commit criminal acts while remaining anonymous, which is prevented by mandatory identification on centralized apps like Facebook and Gmail. Many anti-blockchain evangelists therefore argue that cryptography based applications is a tool for criminals to circumvent justice, which in combination with blockchain’s environmental impact is why many politicians publicly state that blockchain technology is a threat to society.

The fact that politicians are worried about blockchain’s criminal and environmental impact on society in combination with blockchain’s current adoption timeline makes the technological adoption of blockchain based application almost identical to that of the early Internet of the 1990s.

Unlike blockchain technology, the Internet was created through public funding rather thn private initiative. Although lawmakers actually outlawed the Internet in the beginning of the 1990s, they later accepted public use of the internet with the caveat that no private person or company was allowed to make money on the internet by selling goods and services. It therefore took many years for the public to trust the internet with personal information like credit card information.

Imagining life today without the Internet impossible. Developing public trust and convincing lawmakers that blockchain benefits outweighs consequences is therefore super important and understanding why some stakeholders like politicians may want to limit adoption requires investor patience. If blockchain adoption follows in the Internet's footsteps, the road to adoption will be bumpy, but ultimately a life without blockchain may soon also be difficult to imagine.

OpenSea is a decentralized market place application earning around a 2% cut of transactions, which is so low and unheard of in TradFi.

The Most successful Dapp so far & Polynaya

Bitcoin has now survived over 13 years without suffering from a single hack attack, which means blockchain trust is expanding. However, although bitcoin’s blockchain is highly secure, decentralized and excellent for bitcoin ownership proof, the network is slow and not great for more than security and decentralization in current form.

Visually, the bitcoin blockchain equals a two dimensional Excel spreadsheet distributed globally on smartphones and computers across simultaneously displaying owners of bitcoin in column A and corresponding value in column B.

For every new transaction, the bitcoin spreadsheet updates on all computers simultaneously, which means all spreadsheets on all computers everywhere show the exact same bitcoin owner and ownership amount at the same time all the time.

Since the bitcoin blockchain relies on Nakamoto consensus and mathematical cryptography, governments or institutions are unable to change the transaction history of that so-called immutable bitcoin spreadsheet.

Column A will therefore always show current owners of bitcoin and column B will always show corresponding amounts owned, which is an extremely useful tool to protect against property theft in finance and first principles use cases of blockchain technology.

However, security is not enough for blockchains to expand the technology and replace traditional payment systems because banks fulfill the same functionality as blockchain and people trust banks (until they don’t).

Blockchains must therefore become useful, fast and reliable without sacrificing security for people to trust them in everyday life.

The anonymous yet influential Ethereum researcher Polynya believes Ethereum is the ultimate solution for increasing blockchain transaction speed without sacrificing security and decentralization.

In the many research papers written by Polynya, he outlines how and why a modular blockchain is the winning approach.

In computer science, modularity is the degree to which a system's components like the different aspects of a blockchain may be separated and recombined to increase flexibility and efficiency.

Modularity therefore seems like an excellent approach to increase blockchain speed while maintaining security and decentralization. Modular blockchains transform a two dimensional bitcoin blockchain spreadsheet into a multidimensional spreadsheet, which is what creates that additional flexibility.

Modularity implies nothing negative about the importance of two dimensional spreadsheets, but imagine using Excel without short-cuts, tabs and macros to automate calculations.

The Bitcoin Blockchain is like an immutable version of above on everyone's computer always

What is modularity in Blockchain actually though?

Modular blockchains separate core functions of a blockchain into different layers to speed up transaction capacity while maintaining the highest level of decentralized security that is possible.

Modularity also exists outside of the digital world. For example, famous entrepreneur Ingmar Kamprad brought modularity to the furniture business. Instead of selling a full couch, Ingmar created a furniture empire by separating the components of the couch and then packaged these components to build that couch, which simplified the shipping process lowering costs to both IKEA and customers while maintaining the same high quality of the end-product.

A monolithic blockchain is basically furniture packaging before IKEA introduced modularity to the furniture business. Transforming monolithic blockchains into modular blockchains is therefore similar to how IKEA transformed the process of ordering furniture.

Instead of making blockchains like Ethereum incorporate high security, decentralization and speed all at once in a singular execution layer, the modular blockchain approach layers the most important functions to generate faster and cheaper transactions without sacrificing quality and security.

Visual example of Modularity

Where Monolithic Blockchain may Fail

The blockchain trilemma states that blockchains have to sacrifice security, speed or decentralization to achieve the other two components.

In my opinion, achieving decentralization is by far the most important objective in the trilemma because without decentralization blockchains are just marginal improvements to our current centralized application system.

The remaining hurdle to overcome is then increasing both speed and security without negatively impacting decentralization.

The bitcoin blockchain has already proved blockchain security, which leaves speed as the remaining objective to achieve for our two most decentralized blockchains, bitcoin and ethereum, to generate blockchain adoption.

In addition to increasing high speed, blockchain networks must also maintain high minimum speed, which occurs when blockchains are maximally congested. Network congestion is triggered by mass use at the same time overwhelming the network.

Blockchains are not unique when it comes to suffering from network congestion. For example, websites may become congested when new products are released. In a modern society, network congestion creates a blockchain user experience comparable to traffic jams during rush hour in a big city.

However, instead of driving like a snail or inability to buy new sneakers, blockchain congestion prevents transaction settlements or creates super expensive transactions.

Developers are working extremely hard on approaches to solve blockchain congestion because if transactions are slow or expensive compared to centralized application users will stop using Daps.

Celestia is another type of blockchain that use modularity

Solving Congestion

Computer scientists focused on decentralization favor lowering network transaction costs and congestion by bringing IKEA’s furniture approach to the blockchain space. These developers want to separate consensus mechanisms, execution and data availability – all core blockchain functions - into different layers with Sharding, Rollup and ZK proof methods so that more decentralized blockchains like Ethereum executes transactions quicker than fintech platforms while remaining censorship resistant to negative political influence.

· Note, system developers with a centralization preference are willing to sacrifice decentralization and censorship resistance for faster transaction speed. These developers prefer monolithic blockchains like Avalanche, Near, Solana and Binance. The difference between these monolithic blockchains and current technology giants is marginal, but these centralized blockchain apps are capable of creating some of the most user-friendly Dapp/web3 networks in the world. Monolithic blockchains have flexibility to add more core blockchain function into each layer compared to modular blockchains. By relaxing decentralization requirements, monolithic blockchains require fewer validators, which make validators sensitive to pressure from influential politicians and powerful institutions.

I believe the modular blockchain is the superior approach simply because modular blockchains are at least as fast as their monolithic cousins without sacrificing decentralization, which I consider the core concept of blockchain technology.

The easiest approach to understand the application of blockchain modularity through sharding, rollups and ZK proofs is through a visualizing example.

Sharding, rollups, and ZK proofs is the equivalent to solving congestion during rush hour traffic by creating a new highway that only allows self-driving electric taxi cars or niche vehicles needed to transport goods or lots of people like trucks, buses and tractors. Through improving technology, applying careful regulation and increasing highway options, commuters can reach their desired destination safer, faster and cheaper, while conserving energy and reducing the number of cars on the road.

How Sharding, Rollups and ZK proofs solve rush hour congestion in blockchain:

· Sharding opens new highway lanes, which conserves energy and limits congestion

· Rollups equal new regulation by providing flexibility for niche blockchain use cases

· ZK proofs cryptographically enhance security similar to self-driving car technology

I will write a separate one pager that in depth analyzes the technical aspects of Sharding, Rollups and ZK proofs. Knowing the technology behind these three modular foundation pillars is great, but understanding why and what each pillar achieves for blockchain technology is most important. Specially, for early adopters or those investing in crypto.

The blockchain trilemma

Conclusion:

Blockchain has the potential to revolutionize private ownership of capital like internet revolutionized information sharing. Private ownership of capital allows people to safekeep resources, transact cheaply and invest without going through financial gatekeepers like banks and other fintech institutions.

However, private rather than institutionalized ownership of capital may limit current political powers. Anti-crypto lawmakers therefore suggest that bans and strict regulations will prevent what they consider shit products from reaching consumers.

However, protecting the consumer argument easily fails to deliver a guilty verdict in a court of justice as shitty products would never create trillions of dollars in value and last more than 13 years in the first place!

Computationally intensive cryptography only underpins proof of work, not other types of consensus mechanisms in blockchain technology like proof of stake, but proof of work tokens like bitcoin should incentivize a renewable energy push, which at the same time solves lack of energy issues in other areas of our economy.

It is true that criminals use crypto for illicit activities, but these criminals use USD as well!

Unlike the current fiat system, blockchain based currencies may create a system where those engaging in illegal behavior are unable to transact with people adhering to laws and regulation. Blockchain may therefore disincentivize criminality!

The future for blockchain is either modular or monolithic, although both of these paths may replace current internet technology.

However, the key difference in my opinion between Web3 and current technology is the decentralization aspect and without that component only see blockchains as a tool to create faster and more secure databases, which is not as revolutionary as the internet.

I therefore believe a modular and layered approach to blockchain development is the future and is where I will spend my money when investing in digital assets.