Unpacking Celestia: An Introduction to Modular Blockchains

Coinbase Cloud is happy to provide Day 1 support for Celestia, the first of its kind: a modular blockchain network. It is arguably the largest ecosystem of a pre-mainnet release. Celestia solves the scalability problem of blockchains without sacrificing decentralization by separating out execution from consensus and introducing data availability sampling to solve the data availability problem. Celestia also enables builders to deploy blockchains as easily as deploying smart contracts for anyone to be able to create their own sovereign rollups/blockchains for a multitude of use cases that can scale to the masses.

Blockchains are characterized by a few core functionalities that enable their widespread use in various applications. Those include:

• Execution: Transaction execution and state update

• Consensus: Agreement over transactions and their ordering

• Data Availability: Prove data was published to the network

• Settlement: Dispute resolution and bridging

Blockchains that perform all of these functions are considered monolithic and comprise the majority of blockchain systems. However, as these systems have become more broadly adopted, high gas fees during peak usage periods have become a significant concern, affecting both current and future users.

Scalability of Blockchains

Blockchains need to evolve in order to support billions of users. While many systems have already scaled, blockchains must do so while retaining their distinguishing characteristics: open, decentralized verification by any individual. This brings us to the "Scalability Trilemma" or what makes a “perfect” blockchain.

Source: Why sharding is great

To make a “perfect” blockchain, there are 3 elements:

• Security: How resistant is the network from attacks from a large number of participating nodes?

• Decentralization: Is there a high barrier of entry to participate in and verify the network?

• Scalability: How can the network grow and service more users without compromising on performance and decentralization?

We don’t want to compromise on security, so the tradeoff is between decentralization and scalability. 

There are two primary approaches to address this. The first to enhance the “base layer” or “L1'' which encompasses all basic blockchain functionalities. The second approach, known as “modularity”, involves   abstracting some of the functionality into specialized “layers” or chains. 

Challenges with Monolithic Blockchains

Traditional blockchains are often monolithic, meaning they handle all aspects of the blockchain process within a single system. However, monolithic chains face a few key challenges:

1. Monolithic chains can process large volumes of transactions, but often require specialized hardware. This raises the barrier of entry and participation requirements for nodes verifying the chain. Over time, this leads to centralization, with only those who can afford the necessary hardware able to participate. 

2. Deploying a monolithic chain requires bootstrapping a sufficiently decentralized validator set, which is challenging. 

3. Dapp developers are confined to the pre-defined frameworks/rules of the monolithic chain they’re building on, limiting innovation.

In contrast, Celestia and rollups fall into the modular category. In the Ethereum ecosystem, rollups often use Ethereum for data availability, but they can utilize other blockchains for this task. Celestia is an example of an external blockchain that provides data availability services for rollups. By specializing in Data Availability exclusively, Celestia can drive down costs for rollups to post data to Celestia, increasing their throughput and cost effectiveness.

Celestia: The First Modular Blockchain Network

Source: Monolithic vs. Modular Blockchains

Solving Scalability While Maintaining Decentralization

Scalability in blockchains refers to the ability to handle a growing number of transactions without increasing the cost of verifying the chain.

In a typical blockchain, validators produce blocks which are distributed to the entire network, including both full nodes and light nodes. Full nodes fully verify what they receive by downloading and executing all the transactions in it. Light nodes, due to limited resources, only monitor block headers and cannot verify the full contents. This leads them to rely on the consensus being trustworthy.

One of the biggest scalability problems in blockchains is state bloat. As more transactions happen, the information on transaction execution grows, making it more expensive to run a full node. This results in full nodes decreasing, light nodes increasing, and the blockchain becoming centralized around validator nodes.

Decoupling execution from consensus (allocating dedicated resources for execution) and introducing fraud and validity proofs help alleviate this bottleneck. Light nodes can execute these proofs to verify that the contents of the block are valid without needing to download the whole block and execute the transactions. But there’s still a problem: What about proving the absence of transactions?

Data Availability Problem

For full nodes to generate proofs, they must download and execute all transactions. However, if a block producer withholds some of the transactions used to construct a block—a tactic known as a "data withholding attack"—there's an issue. Full nodes will notice this attack, but light nodes won’t and will unintentionally fork away from full nodes. The only method to confirm a transaction's absence is to download all the transactions. But light nodes, restricted by their resources, can't do that, reintroducing centralization.

Data Availability Sampling

Celestia figured out a solution to this problem through a process called Data Availability Sampling. While we won't delve into the specifics of Celestia's implementation here, Data Availability Sampling is a mechanism that allows light nodes to verify data without needing to download the entire block data. Light nodes conduct multiple rounds of random samplings of small portions of block data. As they complete more rounds of sampling, their confidence in the data's availability increases, until it reaches a specified threshold. Once it reaches said threshold, that block data is considered available. The more light nodes participate in sampling, the more data the network can handle which enables the block size to increase without increasing the cost to verify the chain.

Celestia decouples execution from consensus. Celestia uses Tendermint consensus to order transactions, but unlike typical blockchains, Celestia doesn’t do anything regarding validity of transactions and it doesn’t execute these transactions. One of the biggest value props of Celestia is being able to easily deploy your own execution-specialized blockchain (rollup). Transaction validity rules are enforced by rollup nodes. Rollup nodes monitor Celestia to identify and download transactions that belong to them. Celestia calls these rollups sovereign rollups. Sovereign rollups publish transactions to another blockchain (like Celestia) for ordering and data availability, but these rollups handle their own settlement.

Source: An Introduction to Sovereign Rollups

Builder Flexibility and Ease of Rollup Deployment

When builders are deploying to a monolithic blockchain, they are confined to the rules and setup of that blockchain with very little flexibility. With Celestia, builders building rollups have more flexibility in their execution setups. This can spur creativity, optimizing execution for various applications. We can see builders experiment with different up and coming VMs and potentially create a competitive market for VM research on scalable execution.

Another issue pointed out with monolithic blockchains is the overhead of bootstrapping a secure validator set. Tools like Rollkit help builders deploy rollups on top of Celestia in record time while also having these rollups inherit security from a data availability layer by posting blocks to it.

Sovereign Communities

Sovereign rollups can also enable communities owning an independent chain. If a part of the community has a different vision from another part of the community, they can fork the rollup and organize around that community. This may sound a bit scary because we’ve seen hard forks in the past result in security dilution. But this isn’t the case with Celestia because the forks will end up using the same data availability layer while retaining the security benefits.

Wrapping Up

Celestia is a modular data availability layer that makes it easy for builders to launch their own blockchain. Celestia keeps decentralization and openness top of mind with their architecture, design choices and innovations. In addition, the cost of deploying your own blockchain has decreased significantly and the flexibility granted could accelerate execution layer research and creativity. We’re excited to watch their ecosystem launch and grow in 2023 and beyond.

• Stake on Celestia with Coinbase Cloud by getting in touch with our team

• Check out their bustling ecosystem

• If you want to get started with building on Celestia, check out their docs