Modularity in the world of blockchain technology, specifically within Ethereum, is sparking a transformation in the way products and services are built. This modularity is a reaction to the scaling limitations of traditional blockchains and involves breaking down core functions of the main chain and auctioning them off to other blockchains through rollup technology. This new approach has led to a proliferation of blockchains, with developers creating unique architectures to suit their specific use cases. While this modular model allows for customization and optimization of components, it has also resulted in fragmentation within the ecosystem, with users being siloed and trapped between intermediaries. Despite the appeal of customization, this fragmentation has made it difficult for users to interact efficiently across different platforms and has led to the consolidation of economic activity into fewer permissioned systems.
Bitcoin has taken a different approach to modularity, focusing on interoperability through Lightning as the backbone for connecting different protocols. By optimizing for local and permissionless interactions, protocols like Cashu and Fedimint enable the deployment of financial services across different economic hubs while remaining connected through the Lightning Network. Nostr, a social network based on Bitcoin principles, is enhancing interoperability by providing a set of rules that maximize connectivity between different Bitcoin projects. Standards like Nostr Wallet Connect are creating new opportunities for Bitcoin applications to interface with the network, enabling seamless communication between users, services, and applications. Projects like Mutiny exemplify this modular Bitcoin vision by allowing users to connect with various services and features that leverage Nostr as a discovery service, empowering users to access endorsed applications through their social network.
However, Bitcoin’s modular model also comes with risks, such as the potential for centralization among providers like Lightning Service Providers and regulatory concerns surrounding ecash mints. The success of Bitcoin’s modular approach depends on maintaining low barriers to entry for market participants and ensuring market options remain accessible to all. As both the Ethereum and Bitcoin worlds continue to evolve, there may be opportunities for collaboration and interoperability between the two approaches. The tension between platform-based models in Ethereum and more open, permissionless protocols in Bitcoin mirrors the early days of the internet, with commercial interest potentially favoring platforms that capture portions of the network effect. Ultimately, the development path for Bitcoin should prioritize interoperability and permissionless access to avoid the consolidation of services into walled gardens and financial silos.
