Throughout the past few years, bitcoin has offered us a simple, inexpensive and highly secure way for sending payments to anyone, anywhere in the world. Moreover, being open source software, bitcoin is inherently versatile as it is structured in the form of open ended modular stacks whose capabilities are boosted by the functionalities innately provided by the uppermost layers , without needing to rearrange or recode the lowermost layers. Although bitcoin is designed to be somehow rigid permitting very limited possibilities for modifications of the network’s framework, its modular stacks’ structure opens the door for a myriad of development possibilities.
A recently published paper highlighted the frequent misperception of bitcoin by business and economic analysts which uncovers a failure to utilize bitcoin’s pivotal property; modular stacks. Recent advancements in bitcoin’s ecosystem are mutating bitcoin into a platform that is far more versatile and consequential than was intended in the first place, through implementation of a myriad of modular application layers on bitcoin’s infrastructure. If this could ever be made successful, bitcoin and its blockchain could be transformed into pillars of the emerging global crypto-economy.
What is Vertical Modularity?
Vertical modularity is the process of building of digital technologies in the form of stacks of loosely coupled layers of data, software and hardware. Even though a digital stack’s modular logic dictates that each one of the stacked modules can be developed independently of all the other modules provided that its interfaces remain unchanged, the stack’s vertical logic dictates that each layer must depend on the lower layers and support the upper ones. As such, layering provides a special hierarchical structure and development approach on the digital stack. Also, although the lower layers represent the stable and generic layers, the upper ones are more fluid, specialized and customizable.
Vertical modularity boosts the versatility of digital platforms, as it enables the upper layers to increase the uses of the platform without ever having to modify the lower layers, and even more, in most cases, without having to take permission for doing so. Vertical modularity is by far the most universal, consequential design approach for digital platforms. Moreover, many analysts, including the authors of the paper we’re reviewing, believe that vertical modularity will also be the preferred design for the emerging cryptocurrency based economy, or crypto-economy.
Bitcoin’s Design Flaws:
According to the authors of the paper, the following represents the major flaws of bitcoin’s design:
1- Despite the fact that bitcoin is by far as secure Satoshi Nakamoto expected it to be at the network level, it is occasionally insecure at the buyer, seller and/or exchange levels as many cases of cyber-attacks have led to the loss of coins worth of millions of dollars during the past 3-4 years.
2- Bitcoin’s proof-of-work (PoW) process is invariably expensive, energy consuming and very slow and that’s why it can take an hour for the network’s miners to confirm a transaction on bitcoin’s network today.
3- Setting up a ceiling for the upper limit of coins ever issued ( 21 million coins), has led to a deflationary model that doesn’t permit establishing an equilibrium between supply and demand.
4- Bitcoin protocol changes have to be approved by the majority of miners across the network, before they can be actually implemented. Bitcoin miners invested significant amount of money in their mining farms, which consist of specialized computers that would be of rather limited value for any other line of work. Consequently, most miners oppose any protocol modification that can devalue their mining equipment i.e. implementing a proof-of-stake (PoS) algorithm, which is less energy consuming than the current proof-of-work algorithm.
Modular Stacking of Specialized Sidechains on Top of Bitcoin’s Blockchain:
Bitcoin core developers are working on solving the protocol’s design flaws via stacking of new modules, or sidechains, on top of bitcoin’s code, with minor changes to the latter. Sidechains permit shifting to another blockchain, other than bitcoin’s, for different users. They act as cryptoledgers which are stacked on top of bitcoin’s blockchain. Apart from bitcoin’s blockchain, sidechains can be customized for a wide range for tasks. A sidechain can perform a group of specialized tasks without any interference of the blockchain or jeopardy of its security.
In such a way, creating a group of specialized, customizable blockchains could give the bitcoin ecosystem an endless series of upgrades, rather than a single upgrade. To sum up, sidechains can achieve three things:
1. Markedly improving the current performance of bitcoin’s network regarding speed, scalability, privacy and low fees.
2. Markedly boosting the network’s versatility via a wide variety of extensions beyond being a digital currency.
3. Serve as a risk-free sandbox for future experiments that can be later implemented on wider scales.
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