thesis blockchain

Research Topics & Ideas

Blockchain & Cryptocurrency

If you’re just starting out exploring blockchain-related topics for your dissertation, thesis or research project, you’ve come to the right place. In this post, we’ll help kickstart your research by providing a hearty list of research topics and ideas related to blockchain and crypto, including examples from recent studies.

PS – This is just the start…

We know it’s exciting to run through a list of research topics, but please keep in mind that this list is just a starting point . These topic ideas provided here are intentionally broad and generic , so keep in mind that you will need to develop them further. Nevertheless, they should inspire some ideas for your project.

To develop a suitable research topic, you’ll need to identify a clear and convincing research gap , and a viable plan to fill that gap. If this sounds foreign to you, check out our free research topic webinar that explores how to find and refine a high-quality research topic, from scratch. Alternatively, consider our 1-on-1 coaching service .

Blockchain & Crypto-Related Research Topics

• The application of blockchain technology in securing electronic health records.
• Investigating the potential of smart contracts in automating insurance claims.
• The impact of blockchain on the traceability and transparency in supply chain management.
• Developing a blockchain-based voting system for enhancing electoral transparency.
• The role of blockchain in combating counterfeit goods in the luxury goods market.
• Assessing the security implications of quantum computing on cryptocurrency encryption.
• The use of blockchain for royalty distribution in the music industry.
• Investigating the scalability challenges of Ethereum and potential solutions.
• The impact of blockchain technology on cross-border remittances in developing countries.
• Developing a blockchain framework for real-time IoT device management.
• The application of tokenization in real estate asset management.
• Examining regulatory challenges for cryptocurrency exchanges in different jurisdictions.
• The potential of decentralized finance (DeFi) in disrupting traditional banking.
• Investigating the environmental impact of Bitcoin mining and potential sustainable alternatives.
• The role of blockchain in enhancing data security in cloud computing.
• Analysing the impact of Initial Coin Offerings (ICOs) on traditional venture capital funding.
• The use of blockchain for enhancing transparency in charitable organizations.
• Assessing the potential of blockchain in combating online identity theft and fraud.
• Investigating the use of cryptocurrency in illicit trade and its regulatory implications.
• The application of blockchain in automating and securing international trade finance.
• Analysing the efficiency of different consensus algorithms in blockchain networks.
• The potential of blockchain technology in managing intellectual property rights.
• Developing a decentralized platform for peer-to-peer energy trading using blockchain.
• Investigating the security vulnerabilities of various cryptocurrency wallets.
• The role of blockchain in revolutionizing the gaming industry through in-game assets.

Blockchain & Crypto Research Ideas (Continued)

• Assessing the impact of cryptocurrency adoption on monetary policy and banking systems.
• Investigating the integration of blockchain technology in the automotive industry for vehicle history tracking.
• The use of blockchain for secure and transparent public record keeping in government sectors.
• Analysing consumer adoption patterns and trust issues in cryptocurrency transactions.
• The application of blockchain in streamlining and securing online voting systems.
• Developing a blockchain-based platform for academic credential verification.
• Examining the impact of blockchain on enhancing privacy and security in social media platforms.
• The potential of blockchain in transforming the retail industry through supply chain transparency.
• Investigating the feasibility of central bank digital currencies (CBDCs).
• The use of blockchain in creating tamper-proof digital evidence systems for law enforcement.
• Analysing the role of cryptocurrency in financial inclusion in underbanked regions.
• Developing a blockchain solution for secure digital identity management.
• Investigating the use of blockchain in food safety and traceability.
• The potential of blockchain in streamlining and securing e-commerce transactions.
• Assessing the legal and ethical implications of smart contracts.
• The role of blockchain in the future of freelance and gig economy payments.
• Analysing the security and efficiency of cross-chain transactions in blockchain networks.
• The potential of blockchain for digital rights management in the media and entertainment industry.
• Investigating the impact of blockchain technology on the stock market and asset trading.
• Developing a blockchain framework for transparent and efficient public sector audits.
• The use of blockchain in ensuring the authenticity of luxury products.
• Analysing the challenges and opportunities of blockchain implementation in the healthcare sector.
• The potential of blockchain in transforming the logistics and transportation industry.
• Investigating the role of blockchain in mitigating risks in supply chain disruptions.
• The application of blockchain in enhancing transparency and accountability in non-profit organizations.

Recent Blockchain-Related Studies

While the ideas we’ve presented above are a decent starting point for finding a  research topic, they are fairly generic and non-specific. So, it helps to look at actual studies in the blockchain and cryptocurrency space to see how this all comes together in practice.

Below, we’ve included a selection of recent studies to help refine your thinking. These are actual studies,  so they can provide some useful insight as to what a research topic looks like in practice.

• A Novel Optimization for GPU Mining Using Overclocking and Undervolting (Shuaib et al., 2022).
• Systematic Review of Security Vulnerabilities in Ethereum Blockchain Smart Contract (Kushwaha et al., 2022).
• Blockchain for Modern Applications: A Survey (Krichen et al., 2022).
• The Role and Potential of Blockchain Technology in Islamic Finance (Truby et al., 2022).
• Analysis of the Security and Reliability of Cryptocurrency Systems Using Knowledge Discovery and Machine Learning Methods (Shahbazi & Byun, 2022).
• Blockchain technology used in medicine. A brief survey (Virgolici et al., 2022).
• On the Deployment of Blockchain in Edge Computing Wireless Networks (Jaafar et al., 2022).
• The Blockchains Technologies for Cryptocurrencies: A Review (Taha & Alanezi, 2022). Cryptocurrencies Advantages and Disadvantages: A Review (Qaroush et al., 2022).
• Blockchain Implementation in Financial Sector and Cyber Security System (Panduro-Ramirez et al., 2022).
• Secure Blockchain Interworking Using Extended Smart Contract (Fujimoto et al., 2022).
• Cryptocurrency: The Present and the Future Scenario (Kommuru et al., 2022).
• Preparation for Post-Quantum era: a survey about blockchain schemes from a post-quantum perspective (Ciulei et al., 2022).
• Cryptocurrency Blockchain Technology in the Digital Revolution Era (Astuti et al., 2022).
• D-RAM Distribution: A Popular Energy-Saving Memory Mining Blockchain Technology (Jing, 2022).
• A Survey on Blockchain for Bitcoin and Its Future Perspectives (Garg et al., 2022).
• Blockchain Security: A Survey of Techniques and Research Directions (Leng et al., 2022).
• The Importance and Use of Blockchain Technology in International Payment Methods (Erdoğdu & Ünüsan, 2023).
• Some Insights on Open Problems in Blockchains: Explorative Tracks for Tezos (Invited Talk) (Conchon, 2022).

As you can see, these research topics are a lot more focused than the generic topic ideas we presented earlier. So, in order for you to develop a high-quality research topic, you’ll need to get specific and laser-focused on a specific context with specific variables of interest.  In the video below, we explore some other important things you’ll need to consider when crafting your research topic.

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If you’re still unsure about how to find a quality research topic, check out our Research Topic Kickstarter service, which is the perfect starting point for developing a unique, well-justified research topic.

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A Systematic Overview of Blockchain Research

Blockchain has been receiving growing attention from both academia and practices. This paper aims to investigate the research status of blockchain-related studies and to analyze the development and evolution of this latest hot area via bibliometric analysis. We selected and explored 2451 papers published between 2013 and 2019 from the Web of Science Core Collection database. The analysis considers different dimensions, including annual publications and citation trends, author distribution, popular research themes, collaboration of countries (regions) and institutions, top papers, major publication journals (conferences), supportive funding agencies, and emerging research trends. The results show that the number of blockchain literature is still increasing, and the research priorities in blockchain-related research shift during the observation period from bitcoin, cryptocurrency, blockchain, smart contract, internet of thing, to the distributed ledger, and challenge and the inefficiency of blockchain. The findings of this research deliver a holistic picture of blockchain research, which illuminates the future direction of research, and provides implications for both academic research and enterprise practice.

1 Introduction

With the era of bitcoin, digital cash denoted as BTC makes it possible to store and transmit value through the bitcoin network [ 1 ] . And therewith, blockchain, the technology underlying bitcoin, which adopts a peer-to-peer network to authenticate transactions, has been gaining growing attention from practices, especially Libra, a global currency and financial infrastructure launched by Facebook, and digital currency electronic payment. Currently, blockchain is also an increasingly important topic in the academic field. Blockchain research has considerably progressed, attracting attention from researchers, practitioners, and policy-makers [ 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 ] .

Considering the huge potential benefits that blockchain would bring in various aspects of industries, for instance, finance and economy [ 10 , 11 , 12 ] , internet of things [ 13 , 14 , 15 ] , energy [ 16 , 17 ] , supply chain [ 18 , 19 ] , and other areas. It is often compared with the Internet and is even referred to as a new form of the Internet. As a result, the number of publications in the blockchain is growing rapidly. According to an initial search on the Web of Science Core Collection, over 2000 scientific papers published are related to blockchain.

Under the circumstances where the number of research publications in the blockchain is quickly increasing, although studies have tried to provide some insights into the blockchain research via literature reviews [ 20 , 21 , 22 , 23 , 24 ] . Comprehensive scientometric analysis of academic articles published in influential journals are beneficial to the further development of blockchain research. This research conducts a bibliometric visualization review and attempts to deliver an overview of the research in this fast-growing field.

The objectives of this research are as follows. First, we intend to build an overview of the distribution of blockchain-related research by time, authors, journals, institutions, countries (regions), and areas in the blockchain academic community. Second, we probe the key research topics of blockchain study, for which purpose, we conduct keyword co-occurrence analysis. Third, we picture the intellectual structure of blockchain study based on co-citation analysis of articles and author co-citation analysis. Finally, we identify the direction for the evolution of blockchain study. We adopt Citespace to detect and visualize emerging trends in blockchain study. To achieve these targets, we posed the following research questions:

Q1: What is the distribution pattern of blockchain publications and citations over recent years? Q2: Which are the main international contributing countries (regions) and institutions in blockchain research, and the collaboration network among them? Q3: What are the characteristics of the authorship distribution pattern? Q4: What are the key blockchain subjects based on the number of publications? Q5: Which are the major journals or conferences for blockchain-related research? Q6: Which are the most influential papers in blockchain research based on the number of citations? Q7: Who are the most influential authors in blockchain research according to the author co-citation network? Q8: What are the research trends in blockchain? Q9: What are the most supportive funding agencies for blockchain research?

Our intended contributions in this research are twofold. First, it is an attempt of adopting co-citation analysis to provide comprehensive and up-to-date developing trends in the lasted hot area, blockchain. Second, this study depicts a state-of-the-art blockchain research development and gives enlightenment on the evolution of blockchain. The findings of this research will be illuminating for both academic researchers, entrepreneurs, as well as policymakers.

The rest of the article is organized as follows. The literature review mainly summarizes related work. The “Data and methodology” section describes the data source and methodological process. The “Results” section presents the main results based on the bibliometric analysis as well as statistical analysis. “Conclusions and implications” conclude this research provides answers to the aforementioned research questions and poses directions for further work.

2 Literature Review

Scientometric analysis, also known as bibliometric network visualization analysis has been widely adopted in numerous areas to identify and visualize the trends in certain fields. For instance, Bonilla, et al. analyzed the development of academic research in economics in Latin America based on a scientometric analysis [ 25 ] . Li, et al. conducted research on emerging trends in the business model study using co-citation analysis [ 26 ] . Gaviriamarin, et al. applied bibliometric analysis to analyze the publications on the Journal of Knowledge Management [ 27 ] .

Since the birth of bitcoin, as the foundation of which, blockchain has gained an increasing amount of attention in academic research and among practices. The research papers focus on the blockchain are quite abundant and are continuing to emerge. Among a host of papers, a few studies investigate the research trend of blockchain-based on a bibliometric analysis [ 22 , 23 , 28 , 29 , 30 ] .

Table 1 presents a summary of these bibliometric studies that summarized some findings on blockchain research, yet very few investigated the co-citation network and the evolution of popular topics in a timeline view. The number of papers these articles analyzed is relatively small, which may be because they used simple retrieval formula in searching blockchain-related articles, and it could pose a threat to bibliometric analysis. Therefore, this research aims to conduct a comprehensive analysis of the status of blockchain research, which is beneficial to future research and practices.

An overview of existing bibliometric studies on blockchain research

Note: NP = number of publications; WOS = Web of Science Core Collection; CNKI = China National Knowledge Infrastructure Databases; EI = EI Compendex, an engineering bibliographic database published by Elsevier; Scopus = Elsevier’s abstract and citation database.

3 Data and Methodology

This section elaborates steps to conduct a comprehensive bibliometric-based analysis: 1) data collection, 2) methodological process. The overall approach and methodology are shown in Figure 1 , the details could be seen as follows.

Research methodology

3.1 Data and Collection

As the leading database for science and literature, the Web of Science Core Collection has been widely used in bibliometrics analysis. It gives access to multidisciplinary information from over 18,000 high impact journals and over 180,000 conference proceedings, which allows for in-depth exploration of the complete network of citations in any field.

For the sake of acquiring enough articles that are relative to the blockchain, we select keywords from Wikipedia and industry information of blockchain, and some existing research literature [ 1 , 20 , 23 , 30 ] . Moreover, in consideration of that, there are a host of blockchain research papers in various fields, in fact, although some papers use keywords in abstract or the main body, blockchain is not the emphasis of the researches. Therefore, in order to get more accurate research results, we choose to conduct a title search instead of a topic search. Table 2 presents the retrieval results with different keywords in the titles, we find that among publications that are relative to the blockchain, the number of Proceeding Papers is the biggest, which is closely followed by articles, and a few reviews. Based on the comparison of five search results in Table 2 . In addition, for accuracy and comprehensiveness, we manually go through the abstract of all the papers form conducting a title search, and choose papers that are related to blockchain. Finally, a dataset with 2451 articles is used in the subsequent analysis.

The dataset we choose has good representativeness, although it may not completely cover all papers on the blockchain, it contains core papers, and in bibliometric analysis, core papers are enough to provide a holistic view for a comprehensive overview of blockchain research.

Blockchain research article characteristics by year from 2013 to 2019

Note: Document type include: Article(A), Proceedings Paper(P), Review(R); Timespan = 2013 ∼ 2019, download in May 31, 2019; Indexes = SCI-EXPANDED, SSCI, A&HCI, CPCI-S, CPCI-SSH, ESCI, CCR-EXPANDED, IC.

3.2 Methodological Process

The bibliometric approach has received increasing attention in many research domains. In this study, the methodological process mainly includes three methods: 1) descriptive statistical analysis, 2) article co-citation, author co-citation, and cluster analysis on co-cited articles; 3) time-zone analysis on co-cited keywords.

Descriptive statistical analysis displays an overall status of the research development in the target field, which mainly presents an overview by publication years, document types, the research area of published journals, number of citations, and in terms of most cited paper, influential author, institutions and countries. Co-citation analysis helps to identify the frequency of co-cited papers and authors and provides crucial insights into the intellectual structure of certain research fields [ 31 ] . Time-zone analysis helps to understand the flow of information and research trends in the target area [ 32 ] .

Various visualization tools have been designed and developed as computer software such as Citespace and VOSviewer. In this study, we use Citespace for co-citation analysis and timezone analysis, VOSviewer is adopted for social network analysis and visualization, we also apply other tools such as Excel and Tableau for basic statistical analysis and the visualization of the bibliometric results. Notably, in Citespace, core nodes are displayed as “citation tree-rings”, which contain abundant information of an article, for instance, the color of a citation ring denotes the year of corresponding citations, and the rule of colors in Citespace is the oldest in dark blue and newest in light orange with a spectrum of colors in between, the thickness of a ring is proportional to the number of citations in a time slice [ 33 ] . Figure 2 illustrates the details of the citation tree-rings. In addition, Citespace adopts a time-slicing mechanism to produce a synthesized network visualization [ 34 ] .

Citation tree-rings [ 33 ]

4.1 Distribution by Publication Year

Table 3 illustrates several characteristics of blockchain-related publications sorted by the year of publication. The annual number of articles and countries has been growing continuously since the proposing of Nakamoto’s paper in 2008 [ 1 ] , and the first blockchain research paper was published in 2013. By examining the published papers over time, there were only eight articles published in 2013. Afterward, with a continuous increase, a peak of 1,148 articles was published in 2018, and the number of publications is likely to grow ever since. Meanwhile, the annual number of countries taking part in blockchain research has also rapidly increased from 6 to 93 between 2013 and 2017, whereas the average number of Times Cited for single articles declined from 34.00 to 1.73 between 2013 and 2018. Over the observation period, 97 countries took part in the research on the blockchain with a sample of 44 in the H-index of our paper.

Statistical description of Blockchain research article from 2013 to 2019

Note: NP = number of publications; No.CO = number of countries; AV.TC = average number of Times Cited.

Figure 3 presents the cumulative numbers of published articles and citations from 2013 to 2019. There was a drastic increase in the number of papers published annually after 2016. As for the cumulative number of citations, there was no citation of blockchain literature before 2013, and 272 citations in 2013. By 2018, this number has grown over 10,000, which implies a widespread influence and attention of blockchain study in recent years.

Cumulative growth in blockchain publications and citations, 2013–2019

The exponential growth is a typical characteristic of the development of research fields [ 35 ] . The model can be expressed as:

where C is the cumulative number of articles or citations, Y is the publication or citation year, α , and β are parameters. In this study period, the cumulative articles and citations in the filed grow exponentially by R articles  2 = 0.9463 and R citations  2 = 0.8691 respectively. This shows that the research quantity curve of the blockchain is like an exponential function, which means the attention of academic circles on the blockchain has been increasing in recent years.

4.2 Distribution and International Collaboration Among Countries/Regions

A total of 97 countries/areas have participated in blockchain research during the observation period. Table 4 shows the number of articles for each country (region) contributing to publications. Remarkably, an article may be written by several authors from different countries/areas, therefore, the sum of articles published by each country is large than the total number of articles. As can be seen from Table 4 , the USA and China play leading roles amongst all countries/areas observed, with publications of 532 (20.94%) and 489 (19.24%) articles respectively, followed by the UK, which published 214 (8.42%) articles.

Blockchain research country (region) ranked by number of articles (top 25)

Note: NP = number of publications; No.TC = number of total Times Cited; AV.TC = average number of Times Cited; No.CA = number of Citing Articles.

From the perspective of citations, according to country/area distribution in Table 4 , we also find that USA-authored papers were cited by 1,810 papers with 3,709 (36.57%) citations, accounting for 36.57% of total citations. Meanwhile, articles from the USA also have a very high average number of citations per paper with a frequency of 6.97, which ranks third among the top 25 countries/ areas. Interestingly, the articles from Austria and Singapore appeared with the highest average number of citations per paper, with a frequency of 7.44 and 7.16 respectively, whereas the number of publications from these two countries was relatively low compared with the USA. The second was China, following the USA, papers were cited by 753 articles with 1,357 (13.38%) citations. Although the number of articles from China is close to the USA, the average number of citations per paper is lower with a frequency of 2.78. The subsequent countries include the UK, Germany, and Italy. The results indicate that the USA is the most influential country in blockchain.

International collaboration in science research is both a reality and a necessity [ 36 ] . A network consisting of nodes with the collaborating countries (regions) during the observation period is shown in Figure 4 . The network is created with the VOS viewer in which the thickness of the linking lines between two countries (regions) is directly proportional to their collaboration frequency. We can see from Figure 4 that the USA has the closest collaborative relationships with China, the UK, Australia, Germany, and Canada. China has the closest collaborative relationships with the USA, Australia, Singapore, UK, and South Korea. UK has the closest collaborative relationships with the USA, China, France, and Switzerland. Overall, based on the collaboration network, collaboration mainly emerges in highly productive countries (regions).

International collaboration network of the top 25 countries (territories), 2013–2019

4.3 Institution Distribution and Collaboration

A total of 2,190 institutions participated in blockchain-related research, and based on the number of publications, the top 25 of the most productive institutions are shown in Table 5 . Chinese Academy of Sciences had the highest number of publications with 43 papers, followed by the University of London with 42 papers, and Beijing University of Posts Telecommunications ranked third with 36 papers. The subsequent institutions included the University of California System and the Commonwealth Scientific Industrial Research Organization (CSIRO). In terms of the number of total Times Cited, Cornell University is cited most with 499 citations, and the average number of Times Cited is 20.79. Massachusetts Institute of Technology followed closely with 407 citations and with an average number of Times Cited of 22.61. The University of California System ranks third with 258 citations and an average number of Times Cited of 8.06. ETH Zurich ranked fourth with 257 citations and an average number of Times Cited of 10.28. It is notable that the National University of Singapore also had a high average number of Times Cited of 12.56. These results indicate that most of the influential institutions are mainly in the USA and Europe and Singapore. The number of publications from institutions in China is large, whereas few of the papers are highly recorded in average Times Cited. Papers from the National University of Defense Technology China took the highest of average Times Cited of 7.79.

Blockchain research country (territory) ranked by number of articles (top 25)

To further explore data, the top 186 institutions with at least 5 articles each are chosen for collaboration network analysis. The collaboration network map is shown in Figure 5 , the thickness of linking lines between two institutions is directly proportional to their collaboration frequency. As seen from the cooperation network in the Chinese Academy of Sciences, Cornell University, Commonwealth Scientific Industrial Research Organization (CSIRO), University of Sydney, and ETH Zurich cooperated widely with other institutions. This shows that collaboration between institutions may boost the research of blockchain which echoes with extant research that proposes with-institution collaboration and international collaboration may all contribute to article quality [ 37 ] .

Collaboration network for institutions, 2013–2019

4.4 Authorship Distribution

The total number of authors who contribute to the publications of blockchain is 5,862. Remarkably, an article may be written by several authors from different countries (regions) or institutions. Therefore, the total number of authors is bigger than the total number of articles. In fact, during the observation period, the average number of authors per paper is 2.4 articles. Reveals the distribution of the number of authors with different numbers of papers. As seen from the results, most of the authors had a tiny number of papers, i.e., among 5,862 authors, 4,808 authors have only one paper, 662 authors have two papers, and 213 authors have three papers.

According to the participation number of articles, the most productive author in the blockchain is Choo, Kim-Kwang Raymond from Univ Texas San Antonio, who took part in 14 articles in blockchain, followed by Marchesi, Michele from Univ of Cagliari, who took part in 13 articles related to blockchain. The third most productive author is Bouri, Elie from the Holy Spirit University of Kaslik, and David Roubaud from Montpellier Business School. Miller, Andrew, Shetty, Sachin, and Xu, Xiwei ranked fourth, who took part in 10 articles related to blockchain.

The distribution of number of author with different numbers of articles

Note: No.AU = number of author; No.AR = number of articles.

Figure 6 displays the collaboration network for authors. The thickness of the linking lines between the two authors is directly proportional to their collaboration frequency. As we can see from Figure 6 , it indicates the most productive authors cooperate widely with others.

Collaboration network for authors, 2013–2019

4.5 Distribution of Subject Categories

Table 7 presents the top 25 blockchain categories ranked in terms of the number of articles published. As can be seen from Table 7 , among the top 10 categories, six are related to the Computer Science field, which indicates that blockchain-related researches are more abundant in the field of Computer Science compared with other research fields. Besides, there are also publications in the category of Business & Economics with 385 records.

The top 25 blockchain categories ranked by the number of publications

Figure 7 illustrates the betweenness centrality network of papers of the above categories by using Citespace after being simplified with Minimum Spanning Tree network scaling, which remains the most prominent connections. We can see from Figure 7 , the centrality of Computer Science, Engineering Electrical Electronic, Telecommunications, Engineering, and Business & Economics are notable.

Categories involved in blockchain, 2013–2019

4.6 Journal Distribution

The research of blockchain is published in 1,206 journals (conferences), the top 25 journals (conferences) are displayed in Table 8 . Blockchain research papers are concentrated in these top journals (conferences) and with a concentration ratio of nearly 20%. The major blockchain research journals include Lecture Notes in Computer Science, IEEE Access, Economics Letters, Future Generation Computer Systems, and Finance Research Letters, with more than 20 articles in each one. Meanwhile, the major blockchain research conferences include IEEE International Conference on Hot Information-Centric Networking, International Conference on Parallel and Distributed Systems Proceedings, International Conference on New Technologies Mobility, and Security, and Financial Cryptography and Data Security, with at least 14 articles published in each of these.

The top 25 blockchain publication journals (conferences)

Note: NP = number of papers; No.TC = number of total Times Cited; Italic represents conference.

4.7 Intellectual Structure of Blockchain

Since the notion of co-citation was introduced, there are a host of researchers have adopted the visualization of co-citation relationships. The work is followed by White and Griffith [ 38 ] , who identified the intellectual structure of science, researches then broaden the unit of analysis from articles to authors [ 39 , 40 ] . There are two major types of co-citation analysis, namely, article cocitation analysis and author co-citation analysis, which are commonly adopted to visualize the intellectual structure of the research field. In this study, we explore the intellectual structure of blockchain by using both article co-citation analysis and author co-citation analysis. We apply Citespace to analyze and visualize the intellectual structure [ 41 ] .

In this study, mining spanning trees was adopted to present the patterns in the author cocitation network, a visualization of the network of author co-citation is demonstrated in Figure 8 . In the visualization of the co-citation network, pivot points are highlighted with a purple ring, and landmark nodes are identified with a large radius. From Figure 8 , there are six pivot nodes and landmark nodes: Nakamoto S, Buterin V, Eyal I, Wood G, Swan M, Christidis K. These authors truly played crucial roles during the development of blockchain research. Table 9 shows the ranking of author citation counts, as well as their prominent publications.

Network of author co-citation, 2013–2019

The top 15 co-cited author ranked by citation counts

Nakamoto S, as the creator of bitcoin, authored the bitcoin white paper, created and deployed bitcoin’s original reference implementation, is not surprised at the top of the co-citation count ranking, and has 1,202 citations in our dataset. Buterin V, a Russian-Canadian programmer, and writer primarily are known as a co-founder of ethereum and as a co-founder of Bitcoin Magazine, follows Nakamoto S, receives 257 citations. Eyal I, an assistant professor in technion, is a third of the ranking, with a representative article is “majority is not enough: Bitcoin mining is vulnerable”. Wood G, the ethereum founder, and free-trust technologist ranks fourth with 244 citations. The other core author with high citations includes Swan M, Christidis K, Bonneau J, Szabo N, Zyskind G, Castro M, and Meiklejohn S, with more than 150 citations of each person, and the typical publications of there are present in Table 9 .

To further investigate the features of the intellectual structure of blockchain research, we conducted an article co-citation analysis, using cluster mapping of co-citation articles networks to complete a visualization analysis of the evolution in the research field of blockchain. According to the article co-citation network, we adopted Citespace to divide the co-citation network into several clusters of co-cited articles. The visualization of clusters of co-cited articles is displayed in Figure 9 .

Clusters of co-cited articles, 2013–2019

As we mentioned earlier in the “Data and Methodology” section, the colors of citation rings and links are corresponding to the different time slices. Therefore, the deeper purple cluster (Cluster #1) is relatively old, and the prominent clusters (Cluster #0 and #2) are more recent. Cluster #0 is the youngest and Cluster #1 is the oldest. Cluster labels are identified based on burst terms extracted from titles, abstracts, keywords of bibliographic records [ 26 , 41 ] . Table 10 demonstrates six predominant clusters by the number of members in each cluster.

Results show that the research priorities of the clusters keep changing during the observation period. From the earlier time (Cluster # 1), bitcoin and bitcoin network are the major priorities of researchers, then some researchers changed the focuses onto cryptocurrency in blockchain research. Notably, more researchers are most interested in blockchain technology and public ledger recently.

According to the characteristics of pivot nodes and landmark nodes in the co-citation article network. The landmark and pivot nodes in co-citation articles are shown in Figure 10 , Five pivot nodes are Nakamoto S [ 1 ] , Wood G [ 44 ] , Kosba A [ 51 ] , Eyal I [ 12 ] and Maurer B [ 55 ] . The main landmark nodes are Christidis K [ 45 ] . Swan M [ 2 ] , Zyskind G [ 48 ] Nakamoto S [ 1 ] , Kosba A [ 51 ] , Notably, some nodes can be landmark and pivot at the same time.

Landmark and pivot nodes, 2013–2019

Summary of the largest 6 blockchain clusters

Details of the largest cluster (Cluster #0, top10)

Details of the largest cluster (Cluster #1, top10)

Details of the largest cluster (Cluster #2, top10)

As seen from Table 10 , Cluster #0 is the largest cluster, containing 36 nodes, for the sake of obtaining more information about these clusters, we explored the details of the largest clusters. Table 11 illustrates the details of the Cluster 0#.

We also explored Cluster #1 and #2 in more detail. Table 12 and Table 13 present the details of Cluster #1 and Cluster #2 respectively, it is notable that the most active citation in Cluster #1 is “bitcoin: A peer-to-peer electronic cash system”, and the most active citation in Cluster #2 is “bitcoin: Economics, technology, and governance”. The core members of Cluster #1 and Cluster #2 deliver milestones of blockchain research related to the bitcoin system and cryptocurrency.

Table 14 lists the first 10 most cited blockchain research articles indexed by the Web of Science. These articles are ranked according to the total number of citations during the observation period. Among these articles, the publication of “blockchains and smart contracts for the internet of things” by Christidis is identified as the most cited paper of 266 citations. The paper also has the highest average number of citations per year.

The top 10 cited blockchain articles

4.8 Keywords Co-Citation Analysis

According to Callon, et al. [ 77 ] co-word analysis is a useful way of examining the evolution of science. In our study, among 2,451 articles related to blockchain, we obtained 4,834 keywords, 594 keywords appeared 3 times, 315 keywords appeared 5 times, and 130 keywords appeared 10 times. Table 15 presents the most important keywords according to frequency. As seen, ‘blockchain’ ranks first with an occurrence frequency of 1,105, followed by ‘bitcoin’ of 606. The other high occurrence frequency keywords include: ‘cryptocurrency’, ‘smart contract’, and ‘iot’ (internet of thing).

The top 25 keywords ranked by frequency

For the sake of further exploration of the relation amongst the major keywords in blockchain research papers, we adopted the top 315 keywords with a frequency no less than 5 times for co-occurrence network analysis. The keywords co-occurrence network is illustrated in Figure 11 . In a co-occurrence network, the size of the node represents the frequency of the keywords co-occurrence with other keywords. The higher the co-occurrence frequency of the two keywords, the closer the relationship between them.

The keywords co-occurrence network, 2013–2019

We can see from Figure 11 , the size of blockchain and bitcoin are the largest among all keywords. This means, in general, blockchain and bitcoin have more chances to co-occurrence with other keywords. Besides, blockchain is closer with a smart contract, iot, Ethereum, security, internet, and privacy, whereas bitcoin is closer with digital currency and cryptocurrency.

Figure 12 displays the time-zone view of co-cited keywords, which puts nodes in order from left to right according to their years being published. The left-sided nodes were published in the last five years, and on the right-hand side, they were published in recent two years. Correspondingly, some pivot nodes of keywords are listed in the boxes. We hope to show the evolution of blockchain in general and the changes of focuses in blockchain study.

The time-zone view of co-cited keywords, 2013–2019

The results suggest that, in 2013, when blockchain research begins to surface, bitcoin dominated the blockchain research field. Reasonably, the bitcoin is the first cryptocurrency based on blockchain technology, and the influential essays include quantitative analysis of the full bitcoin transaction graph [ 54 ] ; a fistful of bitcoins: Characterizing payments among men with no

names [ 50 ] ; and bitcoin meets google trends and Wikipedia: Quantifying the relationship between phenomena of the internet era [ 69 ] . Afterward, as various altcoins appeared, cryptocurrency and digital currency are widely discussed in blockchain-related research. The high-citation article is Zerocash: Decentralized anonymous payments from bitcoin [ 74 ] and privacy, which is the prominent characteristic of cryptocurrency. In 2015, blockchain and smart contract become a hotspot, the core publications include blockchain: A blueprint for a new economy [ 2 ] ; decentralizing privacy: Using blockchain to protect personal data [ 48 ] ; at the same time, some researchers also focus on the volatility and mining of cryptocurrency. In 2016, a growing number of researchers focus on the internet of things. The most popular article is blockchains and smart contracts for the internet of things [ 45 ] . In 2017, distributed ledger and blockchain technology become a research focus point. From 2018 onward, research focus on the challenge, and the inefficiency of blockchain appear.

4.9 Funding Agencies of Blockchain-Related Research

Based on all 2451 funding sources we analyzed in this study, the National Natural Science Foundation of China (NSFC) has supported the biggest number of publications with 231 papers, followed by the National Key Research and Development Program of China, which supported the publication of 88 papers. Comparatively, the National Science Foundation of the USA has only supported 46 papers. It is remarkable that the “Ministry of Science and Technology Taiwan” supported 22 papers, which is more than the European Union. Table 16 illustrates the top 20 funding agencies for blockchain research ranked by the number of supported papers. The results indicate that China is one of the major investing countries in Blockchain research with the biggest number of supporting articles.

The top 20 funding agencies of blockchain-related research

5 Conclusions and Implications

5.1 conclusions.

This research comprehensively investigates blockchain-related publications based on the Web of Science Core Collection and provides a quick overview of blockchain research. In this study, a coherent comprehensive bibliometric evaluation framework is adopted to investigate the hot and promising blockchain domain. We outline the core development landscape of blockchain, including the distribution of publications over time, by authors, journals, categories, institutions, countries (territories), intellectual structure, and research trends in the blockchain academic community. Combining the results of statistical analysis and co-cited articles, authors, and keywords, we formulate the answers to the following research questions:

RQ1 What is the distribution pattern of blockchain publications and citations over recent years?

The published blockchain papers significantly increased since 2013, when the first blockchain paper was published. An increasing number of articles were published since. In 2018, 1,148 articles were published at the peak, and the number of publications is likely to continuously grow. As for the cumulative number of citations, there were only 272 citations in 2013. By 2018 this number has grown to more than 10,000, which implies a widespread influence and attention attracted by blockchain study in recent years.

RQ2 Which are the main international contributing countries (regions) and institutions in blockchain research, as well as collaboration networks among them?

A total of 97 countries (regions) participated in blockchain research during the observation period. USA and China play the leading roles among all countries (regions), with publications of 532 (20.94%) and 489 (19.24%) articles respectively, followed by the UK, Germany, Italy, and Australia. From the aspect of citations, USA-authored papers were cited by 1,810 papers with 3,709 (36.57%) citations, accounting for 36.57% of total citations. Articles from the USA also have a very high average number of citations per paper with a frequency of 6.97. Although the number of articles from China is close to the USA, the average number of citations per paper is lower with a frequency of 2.78. The results indicate that the USA is the most influential country in the field of blockchain.

A total of 2,190 institutions participated in blockchain-related research. Among them, the Chinese Academy of Sciences has the highest number of publications with 43 papers, followed by the University of London, Beijing University of Posts Telecommunications, University of California System, Commonwealth Scientific Industrial Research Organization (CSIRO), Beihang University, University of Texas System, ETH Zurich. In respect of the number of total Times Cited and the average number of Times Cited, Cornell University is cited the most with 499 citations, and the average number of Times Cited is 20.79. followed by the Massachusetts Institute of Technology, University of California System, and ETH Zurich. The number of publications forms institutions in China is large, whereas few papers own high average Times Cited.

In terms of collaboration networks among different institutions, we found that the Chinese Academy of Sciences, Cornell University, Commonwealth Scientific Industrial Research Organization (CSIRO), University of Sydney, and ETH Zurich cooperated widely with other institutions.

RQ3 What are the characteristics of the authorship distribution?

The total number of authors who contribute to the publications of blockchain is 5,862. the average number of authors per paper is 2.4. Among 5,862 authors, 4,808 authors have only one paper, 662 authors have two papers, and 213 authors have three papers. Based on the number of participated papers, the most productive author in the field of blockchain is Choo, Kim-Kwang Raymond from Univ Texas San Antonio, who participated in 14 articles in the field of blockchain, followed by Marchesi M, Bouri E, David R, Miller A, Shetty S and Xu X.

RQ4 What are the core blockchain subjects and journals based on the number of publications?

Blockchain-related researches are more abundant in the field of Computer Science compared with other categories. Other major fields include Engineering, Business & Economics, Telecommunications, and Business & Economics.

RQ5 What are the major journals or conferences for blockchain-related research?

The research of blockchain is published in 1,206 journals (conferences), the major blockchain research journals include Lecture Notes In Computer Science, IEEE Access, Economics Letters, Future Generation Computer Systems, and Finance Research Letters. Meanwhile, the major blockchain research conferences include IEEE International Conference on Hot Information-Centric Networking, International Conference on Parallel and Distributed Systems Proceedings, International Conference on New Technologies Mobility and Security, and Financial Cryptography and Data Security.

RQ6 What are the most influential papers in blockchain research based on the number of citations?

Ranked by the total number of citations during the observation period, the publication: “blockchains and smart contracts for the internet of things” by Christidis and Devetsikiotis [ 45 ] is identified as the most cited paper with 266 citations, which also has a highest average number of citation per year, followed by decentralizing privacy: Using blockchain to protect personal data [ 48 ] with 169 citations and 33.80 average number of citations per year.

According to the number of times co-cited, the top five influential publications are as follows: Bitcoin: A peer-to-peer electronic cash system [ 1 ] , A next-generation smart contract and decentralized application platform [ 42 ] , Majority is not enough: Bitcoin mining is vulnerable [ 12 ] , Ethereum: A secure decentralised generalised transaction ledger [ 44 ] , Blockchain: Blueprint for a new economy [ 2 ] .

RQ7 Who are the most influential authors in blockchain research according to the author co-citation network?

Some authors played a crucial role during the development of blockchain research, Nakamoto S, as the creator of Bitcoin, and the author of the bitcoin white paper, created and deployed bitcoin’s original reference, therefore is not surprised at the top of the co-citation count ranking and got 1,202 citations in our dataset. Buterin V, a Russian-Canadian, programmer, and writer, primarily known as a co-founder of Ethereum and as a co-founder of Bitcoin Magazine who follows Nakamoto S and receives 257 citations. Other core authors with high citations include Eyal I, Wood G, Swan M, Christidis K, Bonneau J, Szabo N, Zyskind G, Castro M, and Meiklejohn S.

According to co-cited articles clusters, the research priorities in blockchain-related research keep changing during the observation period. Bitcoin and bitcoin network are the main priorities of researchers, then some researchers changed to focus on cryptocurrency in blockchain research.

RQ8 What are the research trends of blockchain?

The research priorities in blockchain-related research evolve during the observation period. As early as 2013, when the research on blockchain first appears, bitcoin dominated the blockchain research field. Then only one year later, as various altcoins begin to appear, cryptocurrency and digital currency are widely discussed in blockchain-related research. In 2015, blockchain and smart contracts become a hotspot till 2016 when a growing body of researches begin to focus on the internet of things. In 2017, distributed ledger and blockchain technology become the research focal point. From 2018 onward, research focus on the challenge and inefficiency of blockchain.

RQ9 What are the most supportive funding agencies of blockchain research?

The most supportive funding agency of blockchain research is the National Natural Science Foundation of China (NSFC) which has supported the publication of 231 papers. The results indicate that China is one of the major investing countries in Blockchain research with the biggest number of supporting articles.

Given the potential power of blockchain, it is noticeable that governments, enterprises, and researchers all pay increasing attention to this field. The application of blockchain in various industries, the supervision of cryptocurrencies, the newly rising central bank digital currency and Libra, are becoming the central issues of the whole society.

In our research, we conducted a comprehensive exploration of blockchain-related research via a bibliometrics analysis, our results provide guidance and implications for academic research and practices. First, the findings present a holistic view of research in the blockchain domain which benefits researchers and practitioners wanting to quickly obtain a visualized overview of blockchain research. Second, according to our findings of the evolution and trends in blockchain research, researchers could better understand the development and status of blockchain, which is helpful in choosing valuable research topics, the distributed ledger, the discussions on the inefficiency and challenges of blockchain technology, the supervision of cryptocurrencies, the central bank digital currency are emerging research topics, which deserve more attention from the academic community.

5.2 Limitations and Future Work

As with any research, the design employed incorporates limitations that open avenues for future research. First, this study is based on 2,451 articles retrieved from the Web of Science of Core Collection, although the Web of Science of Core Collection is truly a powerful database for bibliometric analysis, we can’t ignore the limitation brought by a unique data source. Future research can deal with this limitation by merging the publications from other sources, for instance, Scopus, CNKI, as well as patent database and investment data of blockchain, and it could help to validate the conclusion. Second, we mainly adopt the frequency indicator to outline the state-of-the art of blockchain research, although the frequency is most commonly used in the bibliometric analysis, and we also used H-index, citation to improve our analysis, some other valuable indicators are ignored, such as sigma and between centrality, therefore, it’s beneficial to combine those indicators in future research. Besides, it should be noted that, in co-citation analysis, a paper should be published for a certain period before it is cited by enough authors [ 26 ] , the newest published papers may not include in co-citation analysis, it’s also an intrinsic drawback of bibliometric methods.

Supported by the National Natural Science Foundation of China (71872171), and the Open Project of Key

Laboratory of Big Data Mining and Knowledge Management, Chinese Academy of Sciences

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Blockchain and supply chain finance: a critical literature review at the intersection of operations, finance and law

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• Ilias Ioannou   ORCID: orcid.org/0000-0001-5301-1684 1 &
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In the current environment, where the Covid-19 pandemic has exposed the vulnerabilities of the incumbent paper-based trade and supply chain finance systems, digital transformation pledges to alleviate the friction on international trade. Here, we provide a timely review of state-of-the-art industry applications and theoretical perspectives on the use of blockchain as the medium toward digitalisation for supply chain finance systems. We argue that blockchain technology has an innovation promoting role in supply chain finance solutions through reducing inefficiencies and increasing visibility between different parties, which have hitherto constituted the main challenges in this sphere. Based on a review of the academic literature as well as an analysis of the industrial solutions that have emerged, we identify and discuss the financial, operational and legal challenges encountered in supply chain financing and the promise of blockchain to address these limitations. We discuss the bottlenecks as well as the benefits of blockchain and identify some necessary conditions required for the emergence of blockchain-enabled trade and supply chain financing, such as the establishment of co-opetition among supply chain actors, integration with IoT systems for data quality, and reform of regulatory and legal frameworks. We conclude by identifying promising research directions about the implementation process, inviting further research into the transformation of business models toward a more collaborative nature.

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1 Introduction

An important but still relatively undervalued use case of blockchain technology is Supply Chain Finance (SCF). Up to \(80\%\) of international trade transactions require trade and SCF to provide liquidity and risk mitigation [ 42 ]. The financing of trade transactions was estimated by the European Commission to be worth USD 10 trillion in 2017 alone [ 98 ]. It includes both various methods for the discharge of the payment obligation as well as techniques and practices for the optimisation of the working capital invested in supply chain transactions, such as receivables purchase techniques or accounts payable-centric finance. However, the ingrained reliance of trade and supply chain financing on paper-based documentation has driven up costs and caused inefficiencies. Fragmented processes, discordance of regulations, and the increased risk of fraud contribute together to a USD 1.5 trillion supply-demand gap in the financing of trade [ 2 ], which, if left unresolved, is expected to exceed USD 2.4 trillion by 2025 [ 155 ].

While SCF is difficult to obtain for many stakeholders in an ordinary business environment, the ongoing pandemic and global recession magnify the existing pain points and barriers in SCF and pose new ones of unprecedented scale [ 73 ]. Most of the problems being faced today originate from the paper medium used in SCF and relate to the delivery and the handling of physical documents, the lack of staff, the inability to print, and business closures due to lockdown restrictions [ 96 , 108 ]. Moreover, the necessity of validating the originality of documents and the legal matters that emanate from jurisdictions requiring wet-ink signed payment obligations and transport documents have challenged the industry’s capacity to deal with this unrivalled disruption on a global scale [ 73 ]. The existing gap in the financing of trade, which according to the International Financing Corporation of the World Bank Group is now anticipated to exceed USD 4 trillion [ 74 , 121 , 139 ], is set to double.

In essence, SCF techniques aim to reliably establish the creditworthiness of the buyer of goods and approve that the sellers of goods have manufactured and shipped them [ 9 ]. The past five years have witnessed a proliferation of research, initiatives and discussions regarding blockchain as the medium toward digitalisation of the supply chain [ 85 , 86 , 87 , 120 ]. Significant advancements have been made and the obstacles are gradually being removed, improving the efficacy of information flow in the supply chain and increasing the flexibility of the financial supply chain [ 17 , 33 , 48 ], both of which run alongside the physical supply chain [ 157 ]. The aim of this review is to complement the literature’s interest in the usability of blockchain in international trade and to identify the main drivers and challenges of digital transformation within the trade and supply chain finance industry.

In this context, there are several reasons for undertaking a critical literature review on the interface of blockchain and supply chain finance. First, the industry has expressed a keen interest in adopting new technologies and SCF is well oriented in innovative financing solutions. Second, the growing body of academic literature [ 23 ] and the emerging range of supply chain financing systems deserve a review, which will illuminate the benefits and the limitations of blockchain SCF procedures. Third, whilst previous research focuses either on blockchain implementation in supply chain operations [ 15 , 160 ] or on analysing supply chain financing solutions [ 10 , 54 , 158 ], this is the first specialised review combining the literatures on both blockchain and SCF, and it uncovers knowledge from companies that are pioneering blockchain in their SCF products.

We focus on three research questions in providing an overview of the research on blockchain technology in SCF:

What are the key operational, financial, and regulatory barriers holding back innovation in SCF?

How can blockchain technology support digital SCF integration and could it give rise to new and innovative SCF solutions?

What are the implementation challenges of blockchain adoption in SCF?

The remainder of this paper is organised as follows. Section 2 summarises the basic concepts related to SCF and blockchain technology, providing an account of the various SCF techniques as well as an introduction to blockchain foundations. The findings of our analysis of the literature are provided in Sect. 3 , revealing the state-of-the-art developments in both theory and practice. To that end, Sect. 4 discusses the insights the literature offers for the barriers and pain-points of SCF systems, the ways blockchain can alleviate these, and the implementation challenges for the adoption of blockchain-based SCF systems. This section goes on to identify promising research directions using a cross-disciplinary perspective, and it concludes by presenting the limitations of this study. The review concludes with a summary of the main contributions in Sect. 5 .

2 Background

2.1 supply chain finance.

SCF is a micro-finance concept defined as the use of financial instruments, practices, and technologies for optimising the management of the working capital and liquidity tied up in supply chain processes between collaborating business partners [ 19 ]. According to Xu et al. [ 158 ] and Ali et al. [ 4 ], the term was introduced by Stemmler [ 131 ], who explained that SCF constitutes an essential part of supply chain management (SCM) and aims to integrate finance with the supply chain operations. The appeal of SCF is to mitigate the payment and performance risks and to concurrently offer to the supplier accelerated receivables and to the buyer protracted credit [ 23 , 54 ]. It is distinct from trade finance, which is an overarching term describing the financing of trade in general [ 141 ] and which is traditionally associated with financing techniques governed by rules published by the International Chamber of Commerce (ICC), such as the Uniform Rules for Collections (URC 522) for Documentary Collections, Uniform Rules for Demand Guarantees (URDG 758) for Guarantees, and the Uniform Customs and Practice for Documentary Credits (UCP 600) for Letters of Credit (L/Cs) [ 62 ].

While the financial supply chain usually refers to the discharge of the payment obligation by the buyer upon receipt of evidence of contractual performance by the seller [ 57 ], SCF is a more complex notion and scholars have taken a range of different approaches. According to Hofmann [ 67 ], SCF is an approach of two or more organisations ‘to jointly create value through means of planning, steering and controlling the flow of financial resources on an inter-organisational level’. Similarly, Pfohl and Gomm [ 111 ], define SCF at the inter-company level as the ‘integration of financing processes to increase the value of all participating companies’. A comprehensive literature review dealing with the various definitions of SCF, and its specific solutions, is provided by Gelsomino et al. [ 54 ], who identified two major perspectives: financial-oriented, which refers to short-term receivables and payables SCF solutions provided by financial institutions, and supply chain-oriented perspective, which extends SCF scope to include the capitalisation of inventories and financing provided by non-banks [ 22 , 54 ]. While earlier reviews [ 54 , 158 ] cover papers from 2000 to 2016, this paper focuses on current developments in the field, specifically blockchain-enabled solutions.

SCF solutions are designed to increase the visibility and the availability of cash and reduce its cost for all supply chain partners [ 58 , 60 ] with a view to optimise the management of financial flows at the supply chain level [ 55 ]. Some scholars focus more on the central role that banks play in SCF [ 31 , 93 , 157 ], defining SCF as the set of products that a financial institution offers to facilitate the management of the material and information flows in a supply chain [ 21 ]. Others consider technology an essential component in the SCF scheme, describing it as financial services solutions stemming from technology service providers [ 36 , 89 ]. In the operations management literature, SCF solutions have been classified with respect to the party that provides the financing, i.e. trade credit, buyer finance and inter-mediated finance [ 10 , 34 , 135 ]. All the aforementioned elements are summarised in a definition suggested by the Global Supply Chain Finance Forum (GSCFF), which describes SCF as ‘the use of financing and risk mitigation practices and techniques to optimise the management of working capital and liquidity invested in supply chain processes and transactions’ [ 56 ]. This article will hereinafter build upon this definition and use the relevant terminology suggested by the GSCFF, which applies irrespective of the role or the existence of an intermediary and the specific enabling technology.

At a basic level, SCF consists of receivables purchases (receivables discounting, forfaiting, factoring and receivables securitisation), payables finance (dynamic discounting, reverse factoring and reverse securitisation) and borrowing using trade credit/accounts receivables as collateral (loan or advance against receivables, distributor finance, inventory finance and pre-shipment finance) [ 31 ]. In Table 1 , we provide the most commonly used definitions and the synonyms of the SCF techniques based on the classification recommended in Global Supply Chain Finance Forum [ 56 ].

Despite the variations among these mechanisms, a common feature of all SCF techniques is their need to access and process trustworthy trade data [ 57 , 92 ]. This is because SCF is an event-driven financing solution in that each intervention in the financial chain is ‘triggered’ by an event in the physical chain [ 4 , 165 ]. For example, receivables purchase techniques require access to reliable trade documentation which can verify the receivables, such as invoices or e-invoices [ 57 ]. Similarly, loan or advance-based techniques require access to data that can evidence the expectation of repayment such as, purchase order confirmations, transport documentation and warehouse receipts, while the trigger event in payables financing solutions is usually proved with the approval of the invoice from the buyer [ 69 ]. The coupling of information and material flows enables financers to reduce both the financial and operational risks within the supply chain and mitigate the credit risk [ 10 , 92 ], thereby enabling capital-constrained firms to access capital sooner and at lower rates [ 31 , 93 ]. This work investigates how the adoption of blockchain technology increases visibility into reliable trade data and allows businesses to form partnerships and accelerate cash flows throughout the financial supply chain.

2.2 Foundations of blockchain technology

Blockchain is a digital distributed ledger of time-stamped series of data records that is stored on a cluster of computers where no single entity has control, and the information is visible to all parties [ 52 , 137 ]. Transactions are broadcasted to the network and the full-node participants validate them directly through the operation of a consensus mechanism [ 7 ]. The full-node participants or miners validate whether there is a successful delivery from the sender to the recipient and examine the veracity of the signed acknowledgements provided by the intermediate nodes [ 63 ]. An encryption method secures data against unauthorised interference to ensure censor-resistance and to safeguard sensitive information [ 41 ]. A key aspect of blockchain is its anti-double spending feature, which ensures that a person transferring an asset in the form of unspent transaction outputs/inputs [ 7 ] or in the form of a balance within an account [ 8 ] cannot transfer the same asset more than once [ 137 ].

Blockchains are classified as permission-less (‘public’) and permissioned, in alignment with the extent to which nodes may be involved in the consensus process [ 52 , 164 ]. In a permission-less blockchain, such as Bitcoin or Ethereum, anyone can run as a pseudonymous full node, make contribution, and receive awards pursuant to the corresponding rules. Permissioned blockchains can be further categorised into private and consortium-based blockchains. Simply put, consortium Blockchains, such as the Hyperledger project, have a governance structure and consensus procedures controlled by pre-set nodes in the system [ 20 ]. In private blockchains, which can be built on Hyperledger Fabric [ 6 ] or Corda [ 64 ], for example, access is controlled by a single organisation [ 137 ]. A comparison of key features among different types of blockchain is provided in Chang et al. [ 25 ] and Tasca and Tessone [ 137 ], who argue that the extent of decentralisation is weaker in permissioned blockchains, but the speed of transaction validation is faster [ 146 ]. It is noted that an extensive discussion regarding the differences and the similarities between different blockchains of the same class/type regarding their appropriateness for SCF techniques is, to the best of our knowledge, absent from the literature.

From a technical perspective, blockchain comprises a decentralised data infrastructure employing a cryptographic hash function [ 45 ]. It can be considered as an infrastructure layer that runs on top of the internet and which is suitable for recording, tracing, monitoring, and transacting all type of assets on a global scale [ 149 ]. The first blockchain application was a data protocol for keeping the chronological records of Bitcoin transactions [ 105 ]. Since then, blockchain technology has been hailed as an ingenious innovation with countless possibilities for applications in numerous areas [ 41 , 136 ]. In this regard, the digitisation of documents and the tokenisation of assets into the blockchain can help dismantle financing barriers and pain points in international trade transactions. In the next sections we will examine how blockchain can address existing inefficiencies in trade and supply chain finance processes based on a detailed review of the extant literature.

2.3 Contribution to the literature

Blockchain technology is a significant high-tech breakthrough that may revolutionise SCF. This paper is one of a few works that endeavour to illuminate the positive disruption caused by blockchain for trade and supply chain finance processes. The review examines the existing research on the subject matter and highlights the identified gaps in the literature. It proposes a re-examination of the subject matter through the prism of foundational concepts and results from supply chain management (SCM), economics, legal analysis and platform theory. The provided practical and theoretical insights can be conducive to reflection by SCF practitioners and serve as a base for future academic studies on blockchain adoption in SCF.

3 Current developments in blockchain supply chain finance

This section presents the scientific publications identified through the research protocol outlined in Appendix  1 and the state-of-the-art business developments. Some common themes observed in the literature and in practice are summarised in this section. The areas in which blockchain provides most value to SCF will be explored in the next section.

3.1 Academic literature

Although blockchain is still in its nascence, its capacity for trade and supply chain finance has already been acknowledged in the academic literature, where related value-added activities are being mapped and several implementation systems have been proposed. Bogucharskov et al. [ 17 ] have proposed a blockchain prototype of a documentary Letter of Credit (L/C). Similarly, Chang et al. [ 26 ] and Tsiulin et al. [ 144 ] discuss modern blockchain-supported L/C services built on a consortium blockchain, while Chang et al. [ 25 ] recommend the re-engineering of L/Cs via smart contracts, which is argued to improve the performance of the payment process and enhance the overall supply chain efficiency.

Chen et al. [ 30 ] leverage blockchain, alongside systems and technologies such as cloud computing and the Internet of Things (IoT), to establish an integrated SCF platform running as-a-service for the automotive retail industry. The platform, called Blockchain auto SCF, provides equal visibility on transactions and collateral custody information to interested parties and collaborates with financial institutions to supply inventory financing and purchase order financing [ 30 ]. Yu et al. [ 162 ] move beyond the performance analysis of operations under the existing SCF techniques and propose a new model for SCF that enables a platform-based financer to offer the best SCF solutions under different conditions and to optimise service fees and price setting based on the client’s opportunity cost rate for self-guarantee. This is achieved by leveraging reliable information stored in a blockchain that demonstrate to the financer, based on the customer’s operational information, the sufficiency of the credit or assets. The proposed model also enables the customer to mortgage its assets, which can range from raw materials to finished products, and transfer these assets to the financer in case of default, all happening in an integrated manner on the blockchain [ 162 ].

In their analysis, Omran et al. [ 107 ] describe the use cases of blockchain for reverse factoring and dynamic discounting. Reverse factoring can be optimised because blockchain enables invoice status information to be transferred securely, allowing financiers to offer high-frequency financing services for any transaction value at lower risk [ 107 ]. In conjunction with smart contracts, blockchain can improve the access to reliable real-time information and automate decision-making through the integration of financial and informational flows in supply chains [ 93 , 157 ]. That way, the risk premium of an early payment financing proposal can be continuously adjusted at each step of the material flow [ 107 ]. Hofmann et al. [ 69 ] discuss applications in various buyer-led SCF techniques and examine a new solution that implements blockchain-based reverse-securitisation. Specifically, they propose the issuing and post-trade clearing and settlement processing of the asset-backed securities that require various intermediaries, data reconciliations and manual intervention to be issued directly into the blockchain as digital assets, thereby switching the ultimate record of ownership from central depositories and custodians onto a blockchain. By doing so they expound an effective and instantaneous clearing and settlement mechanism leading to lower financing costs [ 69 ]. Moreover, Li et al. [ 94 ] introduce a blockchain use-case in logistics finance to tackle financing shortages for SME retailers. They propose a blockchain-enabled logistics finance execution platform, whereby retailers, suppliers, commercial institution financers and third-party logistics providers can arrange inventory financing by leveraging dynamic pledge of warehouse operations [ 94 ]. Du et al. [ 45 ] integrate the characteristics of blockchain to solve the problem of non-trust and information asymmetry among the participants in the supply chain and present a solution for warehouse receipts financing through a service platform, which has already been active for a year and has served more than 500 companies in China with an accumulated transaction value of USD 1.2 billion.

The benefits of blockchain in eliminating or reducing information asymmetry have recently been analysed using game theory in Chod et al. [ 35 ] and Lee et al. [ 91 ]. Based on a signalling game between a buyer and a bank, Chod et al. [ 35 ] show that signalling operational quality through larger purchase order quantities leads to less disruptions than cash signalling in the form of inflated loan requests. Inventory signalling requires the bank to verify supply chain transactions, which calls for the use of blockchain. Accordingly, Chod et al. [ 35 ] introduce a Bitcoin-based low-cost transaction verification protocol that maintains privacy. The study postulates that a high-type buyer is more likely to adopt blockchain if its reliability increases, if the product has no salvage value, e.g. highly customised or perishable, if its market size increases, and if the verification costs are lower. Focusing on transaction costs, Choi [ 36 ] shows that blockchain-based transactions in a newsvendor setting lead to higher profit than a bank-mediated trade, if the blockchain transaction costs are sufficiently lower than the bank charges. Lee et al. [ 91 ] compare dynamic interest rates with uniform interest rates in an abstract multi-stage trade finance setting where the bank may benefit from blockchain by reducing the information asymmetry or improving the efficiency of information flows. When there are long delays in collecting reliable information, the blockchain is required for the dynamic interest rates to be rewarding [ 91 ]. The academic studies on blockchain SCF are summarised in Table 2 .

3.2 Industrial projects and initiatives

The use of blockchain for SCF is being explored by incumbent market leaders as well as start-up companies. Many proof-of-concepts, piloting, or entering production schemes have been developed in the last five years. The purpose of this section is to analyse these newly emerging blockchain projects in trade and supply chain finance and to identify how they enhance existing processes. Table 3 presents a list of popular blockchain-enabled SCF initiatives identified through a practical case-based research on the grey literature.

The findings indicate that reviewed projects can be compiled into categories according to the problems they are trying to solve. For example, We.Trade, Skuchain, and eTradeConnect utilise various business models to enhance existing processes and provide better SCF products through sharing of information and digitisation of the relevant paper-based documentation. Blockchain is also being used under Letters of Credit (L/C) by the Contour network, Financle Trade Connect, and TradeFinex, which are among the most popular trade finance projects in the industry. Similarly, the Marco Polo Network, which consists of 30 banks, aims to facilitate SCF solutions via a DLT-based platform inter alia by providing distributed data storage and bookkeeping, identity management, and asset verification [ 109 ]. In this context, the Digital Ledger Payment Commitment (DLPC) provides a payment undertaking in digital form on a blockchain for use in any trade finance transaction, which is legally binding, enforceable, negotiable and independent in a sense that it is not contingent on the underlying trade transaction [ 43 ]. Komgo and Clipeum do not only offer digital trade finance-related products, but also Know-Your-Customer (KYC) compliance services which enable the transmission of data stored in a blockchain-based platform among the participating entities on a need-to-know basis [ 39 , 129 ]. Some projects, such as Chained Finance, Halotrade, Skuchain, Hyperchain and Ant Blockchain Open Alliance leverage DLT to enhance financial transparency of micro, small and medium-sized enterprises (MSME) [ 151 ]. Skuchain, specifically, utilises a blockchain system to enhance buyer’s visibility into their inventory and provide better financing to MSMEs by allowing them to get financing at the buyer’s cost of capital, whereas Hyperchain can digitise the accounts receivable, store them in the blockchain, and based on secure information sharing allows MSMEs to benefit from the credit status of the core enterprises, such as large manufacturers. To solve the issue of inter-operability among the various blockchain-based networks and other technology platforms, organisations, such as TradeFinex and the International Chamber of Commerce’s (ICC) Digital Trade Standards Initiative (DSI), are focusing on technical standardisation [ 109 ]. An extensive analysis of each identified project is beyond the scope of this study withal. In the following section the review combines information extracted from these projects and the literature to underline how specific features of blockchain technology can address existing inefficiencies in SCF.

4 Findings and discussion

This section analyses both the academic literature and blockchain-based SCF projects from the perspectives of (i) pain points and barriers in existing SCF processes, (ii) the promise of blockchain-driven SCF solutions, and (iii) implementation challenges.

4.1 Pain points and barriers in supply chain finance

Considering that blockchain solutions apply to different existing problems, understanding the pain points and barriers in SCF processes is necessary to perceive how blockchain can revolutionise SCF. The analysis of the selected literature suggests that lack of visibility in physical supply chain processes, time consuming and inefficient manual paperwork, regulatory and compliance related costs, the risk of fraud, and high transaction costs are essential barriers in SCF in general.

4.1.1 Lack of supply chain visibility

The visibility across the supply chain has been shown to be a crucial requirement for trust, collaboration, and coordination in supply chains, resulting in the stabilisation of material flows, reduction in demand distortion and increased efficiency and agility [ 12 , 29 , 51 , 133 , 161 ]. For supply chain finance, the end-to-end visibility of financers into the material flows as well as the financial flows from invoice to cash is essential [ 35 , 88 ]. However, even the biggest corporations lack the capacity to access reliable and up-to-date information throughout their extended supply networks [ 103 , 153 ]. The principal cause of high financing rates and transaction costs in the incumbent trade and supply chain finance processes is the risk premium due the lack of transparency in credit evaluation processes [ 65 , 93 ]. Moreover, the limited visibility does not only ignite more than 25,000 disputes in SCF every year with USD 100 million tied up at any given time [ 15 ], but also hampers the collection of receivables for the core firm [ 47 , 92 ]. The lack of visibility impedes trust and commitment among supply chain partners [ 46 , 119 ] and foments moral hazard problems [ 34 ] as well as more general adverse effects of information asymmetry [ 35 , 91 ], which result in sub-optimal operational decisions that expose stakeholders in supply chains to financial risks [ 10 , 13 , 127 ]. As a result, many actors in the chain operate in opacity and a large group of MSMEs are precluded from SCF [ 45 ], especially if they do not transact directly with the core enterprises [ 93 ].

4.1.2 Laborious and inefficient processing of manual paperwork

The ingrained dependence of SCF on paper-based documentation has driven up costs and caused inefficiencies in SCF [ 2 , 36 , 117 , 144 ]. Sequential input and manual checking of the paper documentation is costly and error prone [ 25 , 30 ], and results in delays in invoice reconciliation as well as in the receipts of payments [ 103 ]. Costs occur from the complexity of inter-organisational supply chain collaboration and intra-firm cross-functional coordination [ 124 , 165 ]. Tedious, time-consuming and opaque document flows that use a computer-paper-computer manual operation model [ 85 ] introduce errors and risks [ 155 ], resulting in high administrative costs [ 25 ] and expensive billing operations [ 15 ]. The cost of processing this paperwork is estimated to be between 5 and 10 percent of the transaction value [ 148 ].

4.1.3 Regulatory and compliance-related barriers

One of the biggest hurdles of the existing SCF processes is the regulatory requirements that have been imposed on financial institutions [ 74 , 103 , 117 ]. According to a survey conducted by the Asian Development Bank (ADB), which investigated the reasons behind the rejection of financing applications by banks, \(76\%\) of the surveyed banks highlighted the cost and complexity of conducting Anti-Money-Laundering (AML) and KYC checks as the principal barriers in expanding their trade and supply chain finance operations [ 1 ]. Considering that the approval of SCF applications is manual and complex, usually only the most well-known applicants are currently being approved, while MSMEs applications remain under-served [ 2 , 74 ]. Therefore, AML/KYC compliance procedures increase transaction costs and lower the profit margin, thereby reducing the chances of SCF applications being accepted and causing a shortage of SCF around the globe [ 62 ].

4.1.4 Risk of fraud

The massive amount of money and documents changing hands in trade and supply chain finance transactions render them susceptible to attack from fraudsters [ 15 , 30 , 74 ]. The risk of fraud can be defined as the possibility that the receivable does not exist or varies from how it is represented [ 62 ]. L/Cs, purchase orders, invoices, warehouse receipts, and bills of lading (B/Ls) are all subject to tampering and alteration [ 14 , 98 ]. Some common types of trade finance fraud are multiple invoicing, over-invoicing, duplicate B/Ls that are financed multiple times, forged B/Ls and L/Cs, and backdating of transport documents [ 28 , 62 ] or even repeated pledges and empty pledges caused by asymmetric information and adverse selection [ 25 , 93 ]. Fraudulent trade and supply chain financing deals plague SCF as evidenced by the USD 10 billion uncovered fraudulent deals only in China during the year of 2014 [ 62 ].

4.2 Corresponding benefits of blockchain-driven supply chain finance

The barriers and challenges highlighted above have created a need for digitalisation in the SCF sphere. As discussed in previous parts, blockchain integration emerges as the most promising drive towards digitalisation of the SCF processes. Blockchains pledge to streamline the flow of information in supply chains and achieve the synchronisation of material, information, and financial flows [ 10 , 95 ]. In the following, we analyse the ways the blockchain-driven SCF has been proposed or shown to address the challenges above based on the review of the academic studies and the industry applications summarised in Tables  2 and 3 , respectively.

4.2.1 End-to-end supply chain visibility

The increased supply chain visibility has been presented as a pillar of blockchain technology [ 9 , 113 ]. Due to the integrity and immutability of records, blockchain enables real-time trade and cargo information from a single source of truth [ 92 , 150 ]. For example, Tradelens provides real-time visibility of the progress of goods and documents in the container transportation industry through its blockchain ecosystem [ 78 ]. Visibility provides transparency, which is crucial for orchestrating SCF programs [ 92 ] as it solves issues of information asymmetry within the supply chain that drive financing costs higher [ 45 , 93 ]. Since the SCF decisions and premiums are driven by the fluctuation of credit risk [ 55 ], information transparency provided by blockchain enables financers not only to view the credit history of the applicant [ 47 ], but also to monitor other related operational and financial data, such as order quantities, latest warehouse, shipping, and payment statuses [ 69 ], thereby gauging their risk estimations dynamically [ 91 ]. The traceability of collaterals in providing SCF solutions is a key benefit distinguishing blockchain ecosystems from other existing platforms [ 9 , 30 ]. It could also provide an unacknowledged applicant, such as an SME, with the opportunity to evidence its creditworthiness to a financer, thereby securing favourable financing terms with improved operational performance [ 35 , 36 ].

4.2.2 Increased speed and operational efficiencies enabled by digitalisation, smart-contracts, and the Internet of Things (IoT)

The promises to expedite transactional processes and to lower the overall costs of financing bring substantial benefits to all stakeholders involved in an SCF transaction [ 25 ]. Hofmann et al. [ 69 ] argue that the combination of blockchain with IoT can maintain device connectivity and deliver material flow tracing across the supply network so to adjust the risk premium throughout the shipping process. IoT enables feeding the blockchain with instant information via sensors, rather than having to rely on human ‘oracles’ to transmit data about the physical movement of goods [ 26 ]. This application involves using Radio Frequency Identification (RFID) tags, GPS tags, and other chips in the form of installed detectors throughout the physical chain [ 147 , 159 ] to achieve real-time monitoring and tracking of data [ 120 ], which can be leveraged by smart contracts to automate the execution of transactions [ 93 , 149 ]. The latter constitute automatable and enforceable agreements that can run on blockchains by coding various contractual terms into computer code [ 24 , 134 ]. Undoubtedly, there is a resemblance between the programmable nature of smart contracts and the state-contingent character of traditional trade finance procedures, such as documentary collections and L/Cs [ 17 ]. For example, trade finance techniques, are usually designed to release a tranche by detecting that some pre-determined conditions have been met, such as that a B/L has been sent or that a shipment has been made [ 25 , 159 ]. The flexibility of smart contracts renders them suitable to automate further SCF solutions, such as receivables or payables finance. Automation is achieved through implementing staged trigger points for key events for a range of SCF solutions [ 69 , 93 , 112 ], resulting thus in efficient, transparent and cost-effective flow of information and value [ 150 ].

In practice, numerous initiatives have been vigorously researching blockchain-supported proposals that tackle the inefficiencies occurring from manual processing of information in trade finance (see cases from Komgo to Marco Polo in Table 3 ). For instance, by utilising a blockchain-based network that links all the entities involved in a L/C transaction, platforms like Finacle Trade Connect and Contour have achieved to reduce the end-to-end processing time by 90 per cent. Similarly, Komgo promotes structured data fields instead of documents in its platform, so that it can streamline seamlessly the entire document workflow in trade finance transactions in its platform. More ambitiously, TradeFinex provides a marketplace for peer-to-peer trade and SCF transactions utilising cryptocurrencies. The BAFT DLPC provides a legally binding digital payment commitment in fiat currency, which can inter-operate with Skuchain to digitalise L/Cs and other trade and SCF transactions and automate execution of these instruments through smart-contracting [ 156 ].

4.2.3 Reduced regulatory costs

Blockchains constitute distributed trustworthy databases, shared by a community, which can be used for KYC, Customer Due Diligence (CDD), and AML purposes [ 25 , 117 ]. The key functionality for financers of an immutable ledger, in which near real-time data are recorded, is the provision of reliable evidence about new clients, such as IDs and any relevant background documentation [ 69 , 159 ]. Process integrity, disintermediation and decentralisation can enable secure information sharing amongst various parties [ 120 ], thereby rendering it possible to eliminate duplication of regulatory compliance processes, such as KYC checks, by sharing the existing information on a blockchain so that other financers would no longer need to execute the same controls manually [ 52 , 107 ]. Blockchain can, thus, enable a system where all financers simultaneously hold KYC data and benefit from economies of scale resulting from checks needing to be undertaken only once [ 11 , 164 ]. As evidenced in Table  3 , some blockchain projects, such as Clipeum or Komgo, are building platforms where the members can upload KYC documents and authorise other participants to consult these documents upon request on a need-to-know basis [ 39 , 66 ]. Therefore, blockchain could assist in credit checks, diminish compliance costs, and, thus, simplify the establishment of SCF programs.

4.2.4 Mitigated fraud risk

As explained in Han et al. [ 62 ] and Lawlor [ 90 ], the primary aim of tokenising trade documents on a blockchain is to avoid fraud and double-financing issues. As an immutable and shared registry [ 150 ], blockchain can preserve the integrity and authenticity of the trading background, including shipping and warehouse status and purchase order data, which are vital for SCF techniques [ 93 ]. Each document is hashed and time-stamped to create an original identifier, and, if a malicious actor attempts to use the same document for financing purposes through the platform, that identifier signals the previous case of financing to all parties [ 69 ]. Thus, blockchains limit forgery and multi-financing issues in, for example, inventory financing, pre-shipment financing, advance against receivables and distributor finance techniques [ 69 ], thereby enhancing SMEs credibility to obtain financing from previously hesitant financers [ 94 ].

4.3 Implementation challenges to further adoption of blockchain technology in the SCF sphere: toward a more collaborative business model?

Thus far, this paper discusses how blockchain technology can transform trade and supply chain finance processes. This section reveals the challenges associated with blockchain implementation in this environment, which are summarised in Table  4 .

4.3.1 Business implementation challenges

A decentralised and immutable database which enables SCF stakeholders to securely share peer-to-peer digital trade documentation and tokenised assets entails a paradigm shift toward automation, real-time risk management, and cheap, efficient, and inclusive financing at reduced administrative cost [ 9 , 26 ]. However, there is evidence of opposition from incumbent economic leaders within the banking system to the blockchain transformation in SCF out of fear of being cut-off [ 149 ] or of missing revenue streams [ 101 ]. Other actors are unwilling to share valued information and reluctant to the total transparency provided by blockchain [ 82 , 149 ]. Given that production costs, order quantities and transaction prices are usually perceived as trade secrets, privacy concerns will be a major problem in SCF should visibility be achieved [ 45 ]. Hence, parties that extract information rent are expected to be reluctant to take part in blockchain platforms that decrease information asymmetry.

Saberi et al. [ 120 ] analysed inter-organisational blockchain implementation challenges, alongside intra-organisational, system related, and external to the supply chain challenges. They identified information sharing issues, cultural differences, and challenges in coordination and communication that impede collaboration in supply chains [ 120 ]. Kouhizadeh et al. [ 86 ] detect the complexity of blockchain technology and the need for re-engineering of business processes across the supply chain in an orchestrated manner as the inter-organisational barriers, in addition to the aforementioned confidentiality and security concerns. Korpela et al. [ 85 ] focus on the requirements for the digital supply chain transformation to succeed. Companies must develop their business model to maximise effectiveness in leveraging blockchain in their business offerings and should establish information model platforms to achieve inter-operability and integration among multiple internal platforms of various organisations [ 85 ]. As discussed in supply chain collaboration literature based on EDI, CPFR, and RFID technologies [ 50 , 114 , 122 ], the industry must develop standards which would enable business-to-business (B2B) process connectivity so that members in SCF transactions can exchange original documents and conduct transactions online [ 147 ]. Lastly, integration channel intermediaries, similar to EDI or SWIFT operators, are needed to reconcile data formats and distribute information across the various blockchain systems of independent organisations [ 85 ]. In this regard, several industrial projects (e.g. TradeFinex and Digital Trade Standards Initiative in Table 3 ) explicitly refer to the need for standardisation as a prerequisite to utilise blockchain in SCF.

4.3.2 Managerial implementation challenges

Despite that blockchain provides for networked applications across an ecosystem of companies, with no single party controlling the application [ 142 ], to ensure that a company’s systems are compatible with blockchain SCF platforms requires surmounting some managerial challenges. Batwa and Norrman [ 15 ] discovered that the lack of acceptance in the industry, lack of technological maturity, and the need for collaboration and coordination among competing parties are the main obstacles for blockchain integration in SCF processes. Likewise, Queiroz and Fosso Wamba [ 115 ] discuss implementation challenges through the prism of technology acceptance models in order to understand the individual behaviours in IT adoption based on performance expectancy, effort expectancy, facilitating conditions, perceived usefulness, and trust among supply chain actors. Other scholars suggest institutional theory, diffusion of innovations theory [ 118 ], theory of planned behaviour, technology readiness and the classical technology acceptance model [ 80 ] to explain the reasons why a particular organisation adopts a new and disruptive technology [ 86 , 150 , 159 ].

In this context, Iansiti and Lakhani [ 71 ] developed a blockchain applicability model based on how innovative technologies are naturally being adopted. To this end, Wang et al. [ 150 ] propose using sense-making in assisting managerial decision-making, which refers to the process of developing specific assumptions, expectations, and an awareness of the said technology [ 147 ], which then frame the actions of the decision makers towards it [ 99 ]. Wang et al. [ 150 ], thus, focus on managers’ prospective sense-making perspectives and extricate their views on the issues that may negatively influence blockchain diffusion through interviews with 14 supply chain experts. Numerous stakeholders who may develop conflicting objectives would be involved in a blockchain platform. Therefore, cultural hurdles against new innovations, data ownership and intellectual property issues, the lack of standards, costly implementation, security issues and regulatory uncertainties present barriers to blockchain deployment in SCF [ 120 , 159 ]. In this regard, a solution to overcome these challenges has been suggested arguing that government-led initiatives and a paradigm shift toward a more collaborative business model in the industry could convince top management in organisations aboard blockchain SCF platforms [ 150 ].

4.3.3 Technical implementation challenges

Lu and Xu [ 97 ] and Kouhizadeh et al. [ 86 ] discuss technical issues, such as usability, energy consumption, size and bandwidth and throughput latency, while Wang et al. [ 149 ] point out that despite the immutable character of blockchain, hacking is still possible [ 163 ]. In a similar fashion, Kshetri [ 87 ] highlights the technological immaturity of sensor devices, the borderline between the physical and virtual worlds, and the high degree of computerisation that might not be accessible in some parts of the world. Moreover, Babich and Hilary [ 9 ] underline the ‘garbage in, garbage out’ weakness, namely the issue that there might be discrepancies between the information recorded in the blockchain and the physical state due to mistakes or intent. Although IoT is often presented as the solution to the flaw of introducing erroneous data into the blockchain [ 27 ], the technological risks of the system are not sufficiently discussed in the extant literature. For instance, the system is vulnerable to fraudulent activities by malignant actors, who may separate the sensor from the rest of the cargo to automatically trigger the release of an unlawful payment.

4.3.4 Legal implementation challenges

Despite the continuous development and improvement of the technology to achieve digitalisation in SCF, the absence of enabling regulatory and legal frameworks and broadly accepted standards may impede blockchain diffusion in SCF. For example, both Article 3 of the Uniform Commercial Code (UCC) in the US and its ancestor, Article 3 of the English Bills of Exchange Act 1882, apply only to ‘written’ bills of exchange and promissory notes, thereby not covering bills of exchange, promissory notes, and other negotiable instruments or payment commitments that are in digital form and registered via blockchain in SCF [ 116 ]. Similarly, the market practice in international trade is currently dependent on paper negotiable bills of lading and other paper documents of title [ 138 ] as there is uncertainty regarding the legal value of digitally issued documents of title [ 57 ].

Other legal issues relate to the legal enforceability of smart contracts and to the legal liabilities of decentralised blockchain platforms, with respect to whom is responsibility attributable for platform-related risks, such as system malfunctions, leakage of sensitive information, insuring against risks and non-compliance with regulations, including data protection regulations [ 41 ]. Further legal issues that need to be addressed include the legal status of blockchain records and the issue of synchronicity between the state of the blockchain and the legal status, which might be different due to the occurrence of fraud or incapacitation [ 125 ]. The situation is further complicated as blockchain-driven SCF operates worldwide, which requires numerous parties to comply with different national laws, regulations, and institutions [ 61 ].

Current solutions rely on private legal frameworks established through multipartite agreements-contracts to establish rights and liabilities [ 57 ]. However, without coherency and unification, the market is vulnerable to fragmentation. Hence, the adoption of a stable legal environment is imperative for blockchain-based trade and supply chain finance to succeed [ 15 , 150 ]. Even though the SCM literature does take into account legal considerations in abstract, as a general factor that impedes blockchain adoption in SCF [ 86 , 150 ], there is limited in-depth consideration of the specific legal issues that arise and affect the feasibility of each theoretical proposition.

4.4 Critique and future avenues of research

Building on the proposition of Saberi et al. [ 120 ] that supply chain governance mechanisms must be further evaluated for effectiveness in understanding blockchain-based supply chains, it is argued herein that future research should integrate some overlooked analytical frameworks and employ empirical methods as well as mathematical modelling in order to investigate blockchain implementation challenges further and propose solutions.

4.4.1 Global supply chain management

According to the idealised view of supply chain management, supply chains are perceived as networks of organisations that collaborate together to produce competitive advantage [ 37 ]. However, firms might get stuck in long-term adversarial relationships with their suppliers, making them susceptible to opportunistic behaviour due to information asymmetry [ 83 ]. As discussed above, blockchain promises to address this issue by ensuring trust through immutability of records and transparency. However, this necessitates the participation of the stakeholders in the first place. Mechanisms for incentivising blockchain participation remains a major strategic challenge and an open research question [ 124 ]. Therefore, further theoretical development is needed to understand the conditions for the establishment of blockchain-based SCF networks.

4.4.2 Platform theory and strategic management

We suggest that blockchain SCF networks may be conceptualised as ecosystem platforms [ 76 ], which consist of members that are themselves other organisations and operate as evolving organisations or meta-organisations [ 3 ] that shift along a continuum of different innovation configurations [ 53 ]. This means that potential innovators of complementary products can utilise Application Programming Interfaces (APIs), to build compatible complements [ 40 ]. As Google or Facebook have developed and shared APIs to encourage independent software developers to build applications [ 53 ], blockchain platforms can provide the necessary open APIs in the form of flexible script code system to encourage participants to code smart-contracts and offer innovative payment and financing solutions [ 93 ]. For instance, companies may promote Tradelens and create complementary services, such as smart contracts and other decentralised SCF applications, on top of its platform for their clients. This may enable new SCF channels, such as an open market for financing of invoices [ 47 ]. To this end, Choi [ 36 ] reported new blockchain-enabled SCF solutions in which participants conduct transactions peer-to-peer using cryptocurrency and concluded that these solutions can yield higher expected profits and lower level of operational risk compared to existing SCF techniques.

4.4.3 Co-opetition strategy

The current debate regarding the appropriate strategies and operational practices for the use of blockchain in SCF can be improved by drawing on the co-opetition strategy that combines competition and cooperation to leverage on the shared resources [ 18 , 154 ]. As we have seen in Table 3 , most of the projects trying to leverage blockchain technology within the financial supply chain sphere are essentially consortia. Being a network-based endeavour, blockchain technology is facilitating cooperation between competitors. In this regard, a V-form organisational structure has been suggested as ‘an outsourced, vertically integrated organisation’ tied together by blockchain [ 5 ]. This form of organisation is comprised of an ecosystem of fully independent companies which coordinate and audit their activities through DLT [ 41 , 79 ]. Future research could focus on the notion of co-opetition with a view of determining the organisational conditions under which a blockchain SCF network is feasible and stable. Game theoretical network formation models [ 75 ] provide an analytical framework for such an endeavour, and can help identify SCF methods, market structure, and economic conditions under which blockchain-based SCF can be established.

4.4.4 Legal analysis

Another promising direction of research is the articulation of the legal implementation challenges, which is already underway by one of the authors. For instance, the lack of a sufficient legislative and regulatory framework for blockchain alternatives to paper trade documentation begets a risk of a legal void surrounding the use of blockchain SCF platforms. The key legal issues raised by the development and the use of blockchain records operating on global trade platforms need to be explored by legal scholars in order to establish how would the legislative and regulatory environment need to change to ensure legal enforceability of blockchain-based SCF solutions.

4.4.5 Information systems and empirical analysis

Further studies could investigate the underlying technology in more depth. For example, a comparative study regarding the appropriateness of different blockchains of the same type (e.g. Hyperledger Fabric and Corda) for SCF would be an important contribution. Currently, most academic studies investigate blockchain and SCF by utilising either conceptual or simulation methods. Future studies should consider more mathematical modelling and empirical studies to develop an analytical understanding of the key factors that drive the relationships between different types of flows and stakeholders with conflicting interests acting on networked systems. For instance, there has been little empirical investigation into the blockchain impact on terms of return on investment and realised customer value [ 143 ] or on its impact on critical supply chain properties, such as network risk and resilience.

4.5 Limitations

Finally, a few limitations of this literature review need to be considered. First, this review focuses on the impact of blockchain technology on SCF. The authors acknowledge that the choice of keywords might have excluded some relevant blockchain articles. Here, we aimed to provide a concise discussion of the implications of blockchain in trade and supply chain finance, while a comprehensive discussion on the broader benefits and challenges of blockchain for SCM is beyond the scope of this article and has been provided elsewhere [ 27 , 113 , 115 , 149 ]. Second, most industrial projects are at their early stages; hence, there is limited empirical data on the results of these projects. Thus, the conclusions have to be drawn from the analysis of the projects based on restricted information in the public domain as well as theoretical discussions in the literature. Third, the academic literature on blockchain-enabled SCF is in its infancy and the publications are dispersed over journals in various fields and topics. This review provides a starting point for future studies that may quantify the significance of the various implementation challenges, identify causal relationships among them, and suggest possible solutions to effectively manage blockchain adoption in trade and supply chain finance.

5 Conclusions

The current pandemic has made clear that digitalisation and platform-enabled change is the only way forward for international commerce [ 106 , 126 ]. It forced corporations and banks to digitalise their operations, seek digital alternatives to wet-ink documentation and understand the inefficiencies of the existing internet solutions and internal systems [ 72 ]. This crisis might evolve into an opportunity for the industry to acknowledge the need for creative technology solutions, and to invest in and embrace blockchain resources toward digitalisation [ 73 ].

This review contributes to the SCF literature by articulating the rationale behind blockchain adoption. It has enriched this emerging field by discussing several theoretical studies and industry blockchain applications. This paper is one of the first to consolidate the state-of-the-art of blockchain applications in trade and supply chain financing. By elucidating the current perspectives in academia and practice, the areas where blockchain may bring value to trade and supply chain finance have been identified. This review sets out to explore how blockchain technology may transform SCF by exploring the answers to three research questions.

The first research question (RQ1) concerned the key barriers and pain points that hold back innovation in existing SCF processes and contribute to the growing financing gap of international commerce. Our literature review found that the lack of visibility into supply chain material flows, the inefficient manual processes, the paper-based documentation, the burden of compliance with regulations, and the risk of fraud are the main bottlenecks in existing SCF processes. The second research question (RQ2) probed how blockchain combined with related technologies, such as smart-contracts and IoT, can provide solutions to these inefficiencies. Via an analysis of the academic literature, grey literature, and blockchain use cases, the expected gains from blockchain adoption in trade and supply chain finance were identified to include the provision of end-to-end supply chain visibility, the increased operational efficiencies, the reduced transaction and regulatory costs and the mitigation of fraud-related risks. Our review allowed us to further capture several blockchain implementation challenges in SCF at the frontier of practice, ranging from business and managerial implementation challenges to technical and regulatory issues, which were the focus of RQ3. On this question the research attempted to introduce a novel viewpoint in the discussion, suggesting that future academic literature can examine blockchain adoption challenges in SCF through game theoretical models and using the concept of co-opetition, which is tailored to blockchain platforms wherein many competing companies participate and collaborate.

To our knowledge, this study is one of the very few to have contemplated the implementation challenges for blockchain adoption in SCF. It brings valuable insights about SCF and blockchain, thus placing a foundation to motivate further cross-disciplinary research on this emerging technology and range of financing solutions. It will also help practitioners to further understand where and how blockchain may revolutionise SCF processes and stimulate managers to develop strategies and employ the necessary changes that are required for blockchain-driven SCF to succeed. Considering the nascent nature of the technology, regulators can either instigate and mould the development of blockchain-based SCF solutions through pro-innovation policies and regulations or constrain their impact by strict over-regulation. Therefore, understanding how to regulate blockchain-based projects presupposes an analysis of its novel use-cases [ 41 ]. Our review provides such an analysis of blockchain-based solutions in trade and supply chain financing, along with a state-of-the-art examination of the theoretical solutions, thus enhances the ability of the regulators to identify further legal issues that might emerge and design laws and mechanisms that will facilitate innovation.

Availability of data and material

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Acknowledgements

We would like to thank Prof. Miriam Goldby whose detailed comments and constructive feedback on an earlier draft helped improve and clarify this manuscript. All errors remain our own

This study was supported by the Economic and Social Research Council (Grant no. ES/P000703/1).

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APPENDIX: Materials and methods

Considering the rapidly evolving nature of blockchain technology and the paucity of publicly available results on the implementation of blockchain-supported SCF, we have used critical literature review methodology to be able to generate new perspectives [ 140 ]. To conduct a transparent and reproducible critical literature review, the process suggested by Torraco [ 140 ] and Snyder [ 128 ] has been adopted, which was extended by some elements of the PRISMA statement (see Fig. 1 ).

Procedural steps of the search protocol for the academic literature, Source: Moher et al. [ 102 ]

The review covers the state-of-the-art use of blockchain in SCF in the past five years, 2016 to 2020. Primary data is collected through a systematic search and review of the literature [ 59 ], while additional data is collected from grey literature. To avoid biases stemming from omitted literature, the articles were located through keyword search in the core collection of Web of Science of terms related to SCF, trade finance, and more generally, supply chain and international trade. Considering the inter-disciplinary nature of the topic and the diversity of the outlets, no constraints were imposed on specific fields or journals. Additional papers were identified through the bibliography of the relevant articles found by the initial keyword search. Finally, the so-called ‘grey literature’ and reports commissioned by public institutions were also examined to capture the current state of industrial applications, which were located through searches in Google and Google Scholar, supplemented by insights gained by attending several industry events and virtual presentations organised by the International Chamber of Commerce (ICC), the World Trade Organisation (WTO), the International Trade and Forfaiting Association (ITFA), the Bankers Association for Finance and Trade (BAFT) and other organisations and industry associations over the summer 2020, in which market leaders discussed their current efforts.

1.1 A.1 Keyword selection

A research protocol was created to search for all relevant papers on the topic and closely related areas. The terms used in the final selection were determined after some pilot searches, where multiple possible combinations of search strings and keywords were tested. After this iterative trial and error process, the search protocol was formulated as shown in Table 5 .

As our topic consists of three elements (i.e. blockchain technology, supply chain, and finance), three groups of search terms were included to ensure that all three aspects are fully captured. We included not only the term blockchain in the first group, but also related concepts, such as Distributed Ledger Technology (DLT) or smart contracts, which are sometimes used interchangeably. To narrow down the scope to supply chain processes and international trade transactions, the second group consisted of supply chain and platform-related terms, including keywords such as ‘supply chain’, ‘trade’ and ‘ecosystem’. As the majority of these keywords can be applied in different themes, they were combined with a third string of keywords consisting of finance-related terms. That way, the second group should always be related with both blockchain technology (first group) and financial perspectives (third group). Specific SCF solutions, ‘factoring’, ‘forfaiting’, ‘discounting’, ‘receivables’ and ‘payables’, as discussed in Sect.  2 , were also included among the finance related terms. Finally, main trade finance methods and payment mechanisms used in international trade transactions, such as ‘letter of credit’, ‘open account’ and ‘bank payment obligation’, were added. This literature could not be neglected in the present review, because trade finance is not only highly related [ 54 , 160 ] but it also partially overlaps with the concept of SCF [ 21 , 84 ]. Consequently, these keywords were searched for in the scientific article titles, abstracts, author’s keywords, and the keywords-plus field.

1.2 A.2 Article selection criteria and process

After employing the above-mentioned research protocol, 493 studies were returned by the keyword search. Specific exclusion criteria were then applied to identify the directly relevant articles. Articles that were written in any language other than English, editorials, calls for papers, book reviews, articles with missing abstracts, and preliminary studies were excluded to ensure transparency, validity, and academic rigour [ 128 ]. Moreover, articles for which the focus fell fully under disciplines other than economics, finance, law, and business and management, e.g. computer science or electrical engineering, were removed. In addition to peer-reviewed academic journals, the search included the proceedings of leading international conferences. Furthermore, certain popular books and book chapters on blockchain, such as Chuen and Deng [ 38 ], De Filippi and Wright [ 69 ], Hacker et al. [ 41 ], Hofmann et al. [ 61 ] were included to better understand how blockchain is framed within the popular literature. Consequently, 161 studies were obtained.

Following the guidelines of Snyder [ 128 ], the literature review can be conducted in phases by reading abstracts first, making selections, and then reading full-text articles, before making the ultimate selection. Papers that discuss mainly different topics, e.g. cryptocurrency markets and Bitcoin’s price fluctuations, or that focus solely on specific sectors, e.g. use of blockchain in healthcare were discarded. As illustrated in Fig. 1 , 51 research papers were retrieved and downloaded.

A full text analysis for finer selection of the candidate papers was employed to align the content of the selected papers with the focus of the review. Twenty-two papers were removed from the poll as they were not directly associated with blockchain implementations in SCF. Publications that discussed features of blockchain that support explicitly SCF received further scrutiny pursuant to their relevance, quality and academic rigour. Ultimately, the selected corpus of core publications consisted of 13 records, which are summarised in Table  2 and discussed in Sects. 3 and 4 of the main text.

As academic studies tend to fall behind the practical implementation of technological innovations, relying merely on academic literature would give a rather constringed view of the topic, especially considering the industry is teeming with blockchain projects. Therefore, the above list is supplemented by a desk-based research on blockchain-supported projects and an analysis of documents beyond academic publishing, such as industry-produced research, to provide a solid overview for understanding how blockchain technology is practically being used in SCF. This led to the identification of the 16 blockchain-based SCF projects discussed in the paper.

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Ioannou, I., Demirel, G. Blockchain and supply chain finance: a critical literature review at the intersection of operations, finance and law. J BANK FINANC TECHNOL 6 , 83–107 (2022). https://doi.org/10.1007/s42786-022-00040-1

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Research • October 19, 2023

Scaling Blockchains: The Modularity Thesis

Making sense of blockchain modularity.

Christine Kim

Vice President, Research

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Introduction

Throughout the 14-year history of cryptocurrencies, observers and builders have developed a wide variety of theses, theories, and technologies to address the blockchain scaling trilemma , the idea that no public blockchain can simultaneously achieve maximum decentralization, security, and scalability. And while different projects have proposed and built several types of solutions with various tradeoffs, demand still exists for a cleaner and more comprehensive solution to this tricky design conundrum. None thus far have proven successful.

In recent years, a new thesis called blockchain modularity has emerged and, this year, crypto industry stakeholders will be able to see this thesis applied with the launch of the Celestia blockchain. Celestia is a Layer-1 blockchain optimized to support Layer-2 rollups, which themselves perform general purpose blockchain computation. Because Celestia does not itself support general purpose blockchain computation natively, but rather offloads the responsibility of smart contract execution to other Layer-2 networks, the theory is that Celestia can become the backbone for a highly scalable and interoperable network of rollups and, most importantly, achieve this modular vision without sacrificing decentralization or security.

At its core, the blockchain modularity theory proposes that the core functions of modern blockchains—execution, settlement, data availability, and consensus—should themselves be disaggregated and broken into different layers or networks, allowing for tweaks and maximizations that increase the efficiency of each while sacrificing the fidelity of none. This report will explore the blockchain modularity thesis and present a comprehensive overview of different components of the modular blockchain stack.

There are three distinct properties of blockchains that technologists have struggled to maximize simultaneously.

Decentralization : The level of distributed and public participation from users reinforcing the rules of the network. Traditionally, measured by the number of independent node operators on a blockchain. A node operator is an individual or entity that runs software verifying the blocks and transactions finalized on the network. This is not to be confused with a miner or validator, which are individuals or entities that run software to produce and append new blocks to the blockchain. Oftentimes, miners and validators must also run full nodes in addition to their own software for producing blocks to have access to an updated view of the network state. There are other secondary metrics by which to measure a blockchain’s decentralization such as client diversity and supply distribution. For a deeper understanding of the ways decentralization as a property is measured on blockchains, read this blog post by Ethereum founder Vitalik Buterin.

Security : The second key property of a blockchain is security, which refers to the level of resilience a blockchain has against a coordinated attack. Examples of ways in which a malicious actor could compromise the security of a blockchain include an attacker halting or disrupting block production, re-writing transaction history, and/or censoring certain types of activities on the network from executing. The extent to which a blockchain can resist these forms of attack relies on the collective amount of value stakeholders have expended on or locked into the network. For example, on Bitcoin, the collective amount of hashpower (computation) expended every second by stakeholders makes it extremely (i.e., prohibitively) expensive for attackers to disrupt the network. Miners are responsible for progressing the Bitcoin blockchain and most network attack types would require amassing more than 51% miner computation at any given period. On Ethereum, the collective amount of ether (ETH) staked secures the network against reorg attacks, which are attacks that attempt to rewrite chain history. Validators, which today are deposits of 32 ETH (although this threshold may change in the near future, see our recent report ), are responsible for progressing the Ethereum blockchain and attacks on the network would require manipulating at least two-thirds of staked ETH at any given period. Manipulating one-third of staked ETH would prevent Ethereum from reaching chain finality, but it would not prevent block production or disrupt chain liveness. For more information about Ethereum’s proof-of-stake (PoS) consensus mechanism, see our recent report .

Scalability : The third and final property of a blockchain in the blockchain trilemma is scalability, perhaps the primary trait that technologists have focused on improving over the last decade. Bitcoin launched in 2009 with a maximum block size of 1MB. A small, fixed block size limits the amount of data that can be included during each interval, effectively limiting the network’s transaction throughput. While 2017’s Segregated Witness (SegWit) upgrade essentially raised the block size limit to 4mb, the property of limiting the maximum size of blocks puts an upper bound on the network’s transaction throughput.

As of 2023, Bitcoin is processing approximately 7 transactions per second (TPS), which is a far cry away from the TPS of centralized payment rails such as Visa, which is 24,000 TPS . To boost Bitcoin’s scalability without sacrificing the network’s properties of decentralization, the bitcoin community has focused on Layer 2 technologies like the Lightning Network. Bitcoin’s Lightning Network was launched in 2018 and can theoretically can reach up to 1m TPS . However, while significant strides have been made, the Lightning Network is difficult to operate in a non-custodial manner and is still in its early stages.

Ethereum has also struggled to improve network scalability over the years. Ethereum launched in 2015 with a maximum block capacity of 3.1m gas. Gas is a measure of the computational energy needed to execute an operation on the network. (True to its genesis as primarily a general computation network, Ethereum calculates the maximum block size in computational units rather than formatted file capacity). Unlike Bitcoin developers’ resistance to block size increases for the sake of preserving decentralization, Ethereum developers have liberally implemented increases to block gas limits over the past several years. Since the launch of Ethereum in 2015, the maximum block gas capacity has been incrementally increased from 3.1m gas to now 30m gas. However, despite increases in available blockspace, user activity continues to stretch the network to its limits and cause network fees to skyrocket under times of high on-chain activity.

The concept of the blockchain trilemma suggests that meaningfully increasing the scalability of a blockchain necessarily results in the degradation of either decentralization or security. This concept has proven itself to be true despite the advent of recent technologies and blockchain designs over the past few years. In the next section of this report, we will give a brief overview of popular approaches to blockchain scaling leading up to the ideation of the modular blockchain thesis.

Monolithic Blockchains

The two most valuable monolithic blockchains are Bitcoin and Ethereum. However, the limitations of each of these networks have inspired scaling solutions that offload transaction activity to separate layers (i.e., protocols) with varying degrees of functionality and interoperability. Before discussing the various layered scaling solutions that Bitcoin and Ethereum with which developers (and those of other Layer-1 blockchains) have experimented in prior years, it’s worth highlighting Solana as an example of a notable and high-value blockchain that continues to pursue scaling without layers.

Solana is a general purpose blockchain that debuted in March 2020. Notably, Solana’s approach to achieving long-term scalability does not rely on moving parts of on-chain computation off-chain or to alternative blockchain layers. Instead, Solana developers are laser focused on utilizing and stretching node capacity to its limits such that they can tune and optimize all available computational resources for validating the blockchain. Developers argue that advancements and breakthroughs in hardware technology over time will inevitably enable further improvements to network capacity and decentralization. In theory, Solana can achieve 50,000 TPS . To sustain such elevated levels of on-chain activity, the network must rely on users operating advanced computers to operate nodes and validators. The requirements to operate a node on Solana are significantly more costly than most other public blockchains and therefore, usually operated by a business or institution, rather than an individual. In practice, even with advanced machinery supporting the network, the Solana blockchain is notorious for frequently experiencing outages during times of high transaction activity. It is worth noting that recent upgrades have reduced node requirements and increased uptime, though they are still significant issues. Therefore, two tradeoffs for Solana’s elevated level of transaction throughput have historically been network decentralization and uptime, or security. Whether Solana can expand beyond these tradeoffs and overcome the scalability trilemma long-term remains to be seen.

For more information about the Solana blockchain and its approach to scalability, read this Galaxy Research report .

Layered Scaling Solutions

As discussed, Bitcoin developers have experimented with layered scaling solutions through the development of the Lightning Network, which enables users to create bi-directional payment channels atop Bitcoin that function independently from Bitcoin except when opening or closing a channel. Aside from Lightning, other layered scaling projects on Bitcoin include the Liquid sidechain created by blockchain infrastructure company Blockstream and Rootstock, a smart contract protocol that is secured by the Bitcoin blockchain through a technique known as merge mining. More recently, two teams Kasar Labs and Chainway have begun working on new sovereign zero-knowledge rollups that settle to Bitcoin’s Layer 1 blockchain, though these have not yet launched.

On Ethereum, developers have experimented with different approaches to layered scaling including state channels and sidechains like the ones seen on Bitcoin through Liquid and Rootstock, but also through other techniques such as Plasma , sharding , and rollups. (We will discuss rollups in detail later in this report.) The proliferation of layered scaling projects on Ethereum has grown significantly larger in value, adoption, and diversity than the layered scaling projects on Bitcoin. One of the most valuable sidechains built atop Ethereum is Polygon.

Polygon PoS is a sidechain of Ethereum that launched in May 2020. Polygon relies on a modified proof-of-stake (PoS) consensus model that relies on both its own set of independent validators staking the MATIC token in addition to the existing validator set operating on Ethereum staking ETH. Due to the fast 2 second block times on Polygon and the way validators propose multiple blocks at a time in a sprint , there is a high probability of chain reorgs and increased latency when it comes to withdrawing funds from the network back to Ethereum. To address these issues with the Polygon sidechain design, the development team behind Polygon is actively researching and building other technologies, most notably a zkEVM rollup.

To learn more about zkEVMs as a scalability solution on Ethereum, read this Galaxy Research report.

Other Notable Blockchain Scaling Solutions

Aside from the layered scaling solutions experimented on Bitcoin and Ethereum, there are a handful of other innovative approaches to layered scaling featured on other Layer-1 blockchains. The following is a table comparing the value and speed of Layer-1 blockchains from the Galaxy Research Report, ‘ Ready Layer One ’:

For the purposes of illustrating a few examples of other notable blockchain scaling solutions outside of Bitcoin and Ethereum that focus on layered approaches to scaling, we will highlight the design of Avalanche and Cosmos.

Avalanche is a public blockchain that debuted in September 2021 comprised of three blockchain layers: the X-Chain, C-Chain, and P-Chain. Avalanche developers designed each of these layers to support different blockchain activities. For example, on the X-Chain users can create and trade new cryptocurrencies. On the C-Chain, users can deploy smart contracts, and finally on the P-Chain, users can spin-up their own custom mini-blockchains, also called subnets. The primary advantage of Avalanche over other Layer-1 blockchains like Ethereum and Solana is the network’s fast block times, typically between 1-2 seconds. Avalanche can achieve fast finality due to the network’s reliance on an innovative set of consensus models known as Avalanche Consensus and Snowman Consensus.

Despite faster block times, the scalability of subnets and the C-Chain of Avalanche is still limited by bandwidth constraints of nodes. Solana validators need equipment with 12 core CPU and at least 128 GB of RAM. Avalanche validators by comparison require 8 core CPU and 16 GB of RAM. As the use of the C-Chain increases, Avalanche developers will have to either increase node requirements to increase block size or consider other solutions for achieving long-term scalability. Additionally, the node requirements increase with the creation of new subnets, which again presents a bottleneck to scalability. (For more information about the Avalanche blockchain and its consensus model, read this Galaxy Research report .)

Cosmos launched in 2019 as the “ internet of blockchains ,” offering users a modular software stack comprised of a plug and play consensus model, called CometBFT , and a flexible software development kit (SDK) for enabling smart contract functionality on these blockchains. Within the Cosmos ecosystem, transaction throughput is split between independent networks known as “zones” that can connect with each other via an interoperability protocol called the Inter-Blockchain Communication Protocol (IBC). IBC defines a standard for zones to communicate with each other and exchange data, messages, and tokens in a permissionless and trustless manner. Even though Cosmos software is modular by design, the modular components of Cosmos (i.e., its consensus protocol and SDK) still present bottlenecks to network scalability.

One of the key bottlenecks to scalability for blockchains, be it Cosmos zones or Avalanche subnets, is the bandwidth constraints of nodes to verify on-chain data through a central blockchain, even despite novel consensus mechanisms, data compression techniques through cryptographic proof generation, and multiple validator sets. Over the years, blockchain developers have researched ways to address the bandwidth constraints of nodes such that they can verify large amounts of data without increasing block size. This issue is at the core of why most general-purpose blockchains that achieve scalability through layering or off-chain computation are unable to meaningfully scale without sacrificing decentralization. The next section of this report will dive into the key innovations of forthcoming blockchain projects like Celestia that address the blockchain trilemma in new ways and through new paradigms.

The Modular Blockchain Thesis

As discussed in the prior section, many approaches to scaling blockchains have emerged over the years. However, designing scalable blockchains by removing core functionalities as opposed to replicating them across layers, hubs, shards, parachains, subnets, etc. is a relatively new concept. The concept was first laid out by British computer security researcher and co-founder of Celestia Mustafa Al-Bassam in 2019 in an academic paper titled, “ LazyLedger: A Distributed Data Availability Ledger with Client-Side Smart Contracts .” In this paper, Al-Bassam proposes a blockchain design where the functions of network consensus and data availability are decoupled from transaction settlement and execution. In other words, the LazyLedger chain only ensures that block data is available and ordered, while a separate application-layer queries this data and then executes valid transactions on a different chain.

Taking a step back, the four core functions of a blockchain are:

Execution refers to the state transition function of a blockchain, meaning the process through which user transactions and smart contracts get defined and then deployed.

Settlement is the functionality of a blockchain that verifies the validity of a transaction and determines whether certain transactions were erroneously recorded (i.e., should not be part of the canonical chain).

Data availability (“DA”) refers to the record keeping function of a blockchain. Once nodes propagate a transaction, they should store a copy of the transaction and ensure that other nodes can retrieve this data for a period.

Consensus is the activity through which nodes order transactions in a specific block and determine collectively how to append new blocks to the chain.

Ethereum as a monolithic blockchain fulfills all four functions on the same network. All transactions and smart contracts are processed through an execution environment known as the Ethereum Virtual Machine (“EVM”). Data about finalized transactions are stored in Merkle Patricia Trie data structures. An LMD GHOST fork choice rule dictates settlement of competing blocks or opposing views of blockchain state. Finally, a proof-of-stake consensus mechanism known as Gasper enforces rules around how new blocks are proposed and which network stakeholders have the rights to participate in the process of creating network consensus.

A modular blockchain differs from a monolithic chain in that one or more of these four functions are offloaded to a separate layer. Celestia (formerly LazyLedger) is an example of a blockchain that specializes in fulfilling the function of data availability (“DA”) and consensus by offloading the responsibility of transaction execution and settlement to a different network. Celestia has no native smart contract functionality and, as a result, is more like a decentralized data platform with distributed consensus than a full-featured blockchain like Ethereum. Layer-2 rollups are also examples of modular blockchains. Rollups specialize in fast and low-cost transaction execution for end-users and decentralized application (dapp) developers, while offloading the function of DA and consensus to another layer. By posting transaction data to a separate DA layer, Layer-2 rollup sequencers can specialize in cheap and fast transaction execution without the additional computational burden of performing DA.

Rollups in the modular stack

One of the earliest examples of a crypto project that specialized for transaction execution and offloaded the function of DA to another chain was Mastercoin. Launched in 2013, Mastercoin was the first crypto project funded through an initial coin offering (ICO). Mastercoin developers later renamed the project to Omni and Omni became the bedrock for the creation of Tether (USDT). The Mastercoin protocol sought to introduce programmability to the Bitcoin blockchain by creating a separate network that would execute transactions according to a different, more flexible set of rules than Bitcoin. While the Mastercoin protocol defines the execution of transactions, transaction data is committed down to Bitcoin and thus inherit the strong guarantees of DA from the Bitcoin blockchain.

Since Mastercoin, there have been other rollup projects on Bitcoin and Ethereum that similarly have no DA capabilities of their own. Instead of introducing more flexibility to transaction execution like Mastercoin, the latest rollup projects on Ethereum seek to introduce cost savings for transaction execution through data compression. Most rollups on Ethereum mimic the same execution environment of Ethereum (the EVM) to which users and dapp developers are already accustomed and for which tooling has been built. Layer-2 rollups on Ethereum are smart-contract based, meaning transactions on Layer-2 rollups are finalized through interactions with a smart contract on Ethereum. Users can directly submit transactions to the rollup smart contract and have their transactions included in a block on the Layer-2 or can rely on rollup sequencers. Relying on a sequencer is more cost-effective for users because sequencers batch and compress user transactions. However, today rollup sequencers are generally centralized entities operated by a single company. ( Read our recent report on the state of decentralization for two of the most widely used rollups, Arbitrum and Optimism).

Fraud and validity proofs are the mechanisms through which users can withdraw funds from a Layer-2 rollup to Ethereum, or bridge assets to other blockchains. For a detailed explanation of the Layer 2 ecosystem on Ethereum, read this Galaxy Research report.

Despite the innovations in rollup technologies and the diverse ways to optimize a blockchain for execution, as opposed to other functions, there has been little focus on optimizations for the underlying DA layer. However, as rollup technology advances and their use specifically for scalability proliferates, the bottleneck in unlocking the full scaling potential for rollups falls on the DA layer. Both Bitcoin and Ethereum, as monolithic blockchains, can and do behave as DA layers but they are not optimized for this function. To post data to these chains, rollup sequencers are subject to the same fee market, block size constraints, and block times as regular transactions.

DA layers in the modular stack

Optimizing blockchains for DA is a relatively new area of research in the crypto space that has reinvigorated excitement in modular blockchain design and potentially unlocked new levels of scalability through rollups. A key technique that major blockchain projects like Ethereum and Celestia are pursuing to enhance DA functionality is known as data availability sampling (“DAS”) . DAS was formalized in a paper by Celestia co-founder Mustafa Al-Bassam in 2018 , a year before the Lazy Ledger publication.

The role of a DA layer in the blockchain modular stack is to guarantee that transaction data from rollups have been ordered and published on-chain. A DA layer does not necessarily need to guarantee that transactions are valid according to a rollup’s state transition machine, but the DA layer does need to ensure that the block proposers have accurately recorded all block content data and made this data available for anyone to retrieve. Due to the resource constraints of nodes operating on a DA layer, the amount of data that can be recorded in one block from execution layers is limited, even despite sophisticated ways to compress data from Layer-2 rollups in batches. In other words, the standard way blockchain developers have been ensuring data availability is to require that nodes download and verify the full data contents of a block, which means that the larger the block size, the greater the burden on nodes in terms of both latency and storage, which can lead to centralization.

One of the unique techniques used by DA layers to increase the scalability of the blockchain by orders of magnitude without increasing node capacity is data availability sampling (“DAS"). DAS relies on sampling random pieces of data within a block, rather than the entirety of the block itself.

Caption: A diagram showing a node sampling data in a block. Source: Vitalik Buterin

With each successful sample of data, the probability that the block is complete (meaning the full set of transactions has been communicated by a block proposer) increases. Nick White, COO of Celestia Labs, explains in a tweet thread , “If you have a 4MB block and you need 20 samples of 1kB each, then you only need to download ~0.5% of the total block to be 99.9999% sure [the data] is available.” This method of DAS only becomes more efficient the bigger block sizes become. By downloading only a fraction of the contents of a block, a node operator can verify the DA for the entire block.

DAS introduces a novel way to scale DA on blockchains. Rather than breaking up transaction load across different mini-blockchains, called shards, to process transactions in parallel, which creates a significant amount of network complexity and coordination overhead, and rather than moving transaction load off-chain, relying only on the base layer for settlement purposes, which reduces security, DA layers optimized through DAS can scale by relying on relatively simple assumptions of mathematical probability and statistical certainty. When coupled with other cryptographic primitives such as erasure encoding , DAS reinforces the availability of data without increasing the resource requirements of a node.

Caption: Erasure coding process

Source: TechTarget

DAS is one of the key innovations underpinning the blockchain modularity thesis and the resurgence of interest in modular blockchain design. In theory, an optimized DA layer should unlock new levels of scalability for rollups that were not possible before without sacrificing decentralization. However, it is difficult to evaluate this thesis in practice because there is not yet an example of a public and permissionless modular blockchain in production that functions exclusively as a DA layer. There are examples of monolithic blockchains that are currently being re-engineered and optimized to support a modular blockchain design but none that natively specialize in a layered scaling approach.

The next section of this report will give an overview of the projects and protocols involved in implementing various aspects of the modular blockchain thesis.

Data Availability Layer Landscape

There are high-profile projects aiming to build robust DA layers that can support permissionless rollup innovation. It is worth noting that the DA layer projects discussed below mostly couple the functions of consensus with DA, unless otherwise stated.

Ethereum: Danksharding

As the world’s largest general purpose blockchain, Ethereum itself is evolving to become more optimized and efficient as a DA layer through upgrades like proto-danksharding and danksharding. Danksharding refers to creating dedicated block space, transaction types, fee markets, and new data verification rules for execution layers. It requires the implementation of technologies like DAS so that validators on Ethereum can verify transaction data from Layer-2s efficiently and treat this data differently from regular transactions executed directly on Ethereum. Proto-danksharding refers to the early iteration of danksharding on Ethereum where validators will be able to verify up to 1 MB of additional data from execution layers. ( Read our report for a more detailed explanation of proto-danksharding).

In the future, the full vision of danksharding increases the limit for posting batched transaction data on Ethereum to 32 MB. The assumption is that the majority of user and dapp activity will migrate to Layer-2 rollups at that point and Ethereum as a base layer will be used almost exclusively for DA and consensus purposes. In addition, because Ethereum today is a monolithic blockchain that fulfills all four core blockchain functions, it is also possible that rollups built on top of Ethereum continue to rely on Ethereum as the settlement layer for inter-rollup communication and for bridging assets from one Ethereum-based rollup to another.

One of the main concerns about Ethereum’s future as a performant DA layer is the extent to which the network can pivot to another radically different technological design than the one it was first launched with. It took developers more than 7 years to complete Ethereum transition from proof-of-work (PoW) to proof-of-stake (PoS), despite the change being planned by Ethereum core developers since the inception of the network in 2015. To optimize Ethereum away from being a monolithic blockchain to a modular one will likely take years to complete and, even if it succeeds, it is unclear to what extent Ethereum will be able to excel as a DA layer given the overhead of also supporting other legacy functions such as that of transaction execution and settlement while in competition with other execution layers and settlement layers that are built on top of Ethereum.

Celestia: Mainnet Launch

Celestia is arguably the world’s first truly modular blockchain as the functions of Celestia are exclusively that of DA and consensus. The stripped-down and bare bones design of Celestia is what makes this blockchain so unique and most likely to fully realize the theoretical benefits and gains outlined in the modularity thesis. Mustafa Al-Bassam, Ismail Khoffi, and John Adler co-founded the project in 2019 under the name LazyLedger. It was rebranded to Celestia in 2021, which is also when the team released an MVP of the network and closed a $1.5mn seed round led by the Interchain Foundation with participation from Binance Labs, Maven 11, Divergence Ventures, P2P Capital, Dokia Capital, Cryptium Labs, Tokonomy, Signature Ventures and others. The graphic below provides details on Celestia’s known venture financing to date.

This year, the team has launched its first incentivized testnet where a select group of 1,000 whitelisted users will complete respective tasks for operating validators, bridge nodes, storage nodes, and light nodes on the network in exchange for points, that may translate into tokens on mainnet . In September, the Celestia Foundation announced details about the distribution of the blockchain’s native token, TIA. The Celestia team plans to launch the protocol on mainnet later this year.

Caption: A diagram illustrating the projects building atop Celestia. Source: Celestia Foundation

Due to the leanness of the Celestia protocol and its limited functionality as a blockchain, a large part of Celestia’s long-term success will depend on the adoption of the applications and protocols that rely on Celestia as a DA layer. More than the launch of Celestia, the concurrent launch of execution layers like Eclipse and Argus and settlement layers like Neutron and Dymension are what will attract end-users and capital. Celestia has no native capabilities for smart contract deployment or transaction execution. It also has no native capabilities for cross rollup bridging or dispute resolution. Therefore, Celestia adoption relies on the adoption of execution and settlement layers built on top of it. In the next section of this report, we will discuss the array of execution layer projects that are being built for the modular blockchain future. Celestia’s main strength as a blockchain will be its optimization over existing blockchains like Ethereum to perform DA functions at lower costs and greater speeds.

Data Availability Committees

Rather than posting batches of transaction data on-chain to a separate DA layer or monolithic blockchain like Ethereum, execution layers may choose to post their data to a permissioned network of computers, also called nodes. Node operators have the responsibility of holding copies of posted data and making them available to execution layer nodes upon request. Compared to the DA solutions described above, these data availability committees (“DAC”) are easier to implement as they only require the coordination between a few permissioned entities. However, DACs are smaller in size and therefore vulnerable to censorship or centralized points of failure. They are often associated with validiums, which are types of rollups in which data is posted off-chain to a DAC rather than to a dedicated DA layer. This setup weakens the guarantees of DA but may present the cheapest and most customizable option for launching a rollup without relying on public blockchain infrastructure. Given that solutions like danksharding on Ethereum and Celestia are not yet live as of September 2023, low-cost transaction execution on rollups remains elusive. In some respects, DACs are a temporary solution to low-cost rollup transactions in lieu of a robust on-chain DA layer.

The following is a list of major DACs that are live as of September 2023:

StarkEx DAC . StarkEx is a permissioned zero-knowledge rollup technology built by Starkware. StarkEx is designed to post data down to Ethereum as a DA layer or to a dedicated DAC for lower transaction costs. StarkEx’s default DAC members consist of ConsenSys, Infura, Nethermind, Cephalopod, Iqlusion, and the StarkWare team itself. One of the primary benefits of designing a StarkEx rollup to rely on a DAC is added confidentiality of posted data. With a volition-type design, developers can obfuscate transaction data and make the data only accessible by DAC members.

zkPorter . zkSync is a zero-knowledge rollup built on Ethereum. Due to the prohibitive costs associated with executing transaction even through a Layer-2 rollup on Ethereum, users have the optionality with zkSync 2.0, which went live October 2022, to post data to an off-chain DAC. The DAC is secured by users staking their zkSync tokens. This network of zkSync staking entities is known as zkPorter and, unlike most DAC solutions, zkPorter is a network that any zkSync token holder can join and earn rewards for participating in increasing the security and decentralization of the network.

Arbitrum Nova . Arbitrum is an optimistic rollup built on Ethereum. Under a similar rationale as zkPorter, OffChain Labs built Arbitrum Nova to enable lower cost rollup transactions by relying on a DAC, which is comprised of the following members: ConsenSys, FTX, GoogleCloud, OffChain Labs, P2P validator, Quicknode and Reddit. For added security for DA, Arbitrum Nova employs a fall-back mechanism in the event committee members crash or refuse to cooperate to the regular operations of the Arbitrum rollup which posts data directly to Ethereum for DA. Arbitrum Nova is presumably the first of several of its kind, also called AnyTrust Chains, which can be spun-up alongside Arbitrum, to provide lower-cost rollup transactions with group of 20 trusted committee members.

Execution Layer Landscape

Alongside projects focused on improving DA functionality on blockchains, there are projects focused on innovations for blockchain transaction execution. As discussed, a rollup is a technology that specializes in transaction and smart contract execution and minimizes state growth by relying on a separate DA layer for transaction inputs and ordering. A rollup also specializes in data compression to minimize the costs of paying a DA layer to host their transaction data through specialized block producers known as sequencers. The design space for rollups has traditionally been dominated by general purpose execution layers, such as Arbitrum and Optimism, which mimic a similar execution environment and virtual machine as Ethereum. Ethereum being the largest general purpose blockchain, the goal for most rollup projects has been to make it as easy as possible for decentralized application developers to migrate away from Ethereum to their rollup.

However, relying on Ethereum as a DA is costly because rollup sequencers must compete for block space in the same fee market as all other transactions and smart contract deployment. There are teams of developers designing execution layers for more optimized DA layers like Celestia where rollup sequencers can post batches of transaction data for lower costs. In addition, there are projects working on frameworks and software development kits to make it easier to deploy rollups on top of multiple DA layers. In addition, there are execution layers optimizing to simply connect rollups to other rollups and function as a separate settlement layer for bridging assets between rollups.

The following is an overview of the three main types of rollups based on their settlement strategies:

Smart contract rollups

The most common type of rollups are smart contract rollups that rely on Ethereum not only as a DA layer but also a settlement layer. Rollup sequencers post data to Ethereum and update rollup state through interactions with a dedicated smart contract. Withdrawals from the rollup back to the Layer-1 blockchain are made possible through proof systems, such as fraud or validity proofs that can be interpreted by smart contracts on Ethereum to verify a rollup’s finalized state such as the state of account balances. In other words, withdrawals from a rollup to Ethereum or any other blockchain should be thought of as a bridging contract that is secured through a proof system such as an optimistic proof system or a zero-knowledge proof system.

The main weaknesses of smart contract rollups, and more broadly rollups in general, are censorship resistance and decentralization. Rollup developers relegate the activity of batching and compressing user transactions into a block for posting to a DA layer to a single entity, that is the sequencer. Sequencer decentralization is a notoriously challenging task that requires the implementation of a consensus protocol to organizer participants and most likely a token to reward them. However, rollup projects are exploring possibilities of using existing validator sets and re-staking protocols to reduce overhead costs. Another weakness associated with rollups is their upgradeability. Due to their experimental nature and high technical risk, developers usually design rollups with emergency measures to override code in case of unexpected bugs or hacks.

Most rollups in 2023 are built with training wheels as reflected by their level of centralization and upgradeability. However, as the technology becomes battle-tested, these rollups will likely mature and ossify over time through reducing reliance on single sequencers and removing update mechanisms. A few examples of smart contract rollups on Ethereum include Arbitrum, Optimism, Base, zkSync, Polygon zkEVM, and Scroll zkEVM .

Sovereign rollups

Rather than rely on smart contracts to update rollup state, sovereign rollups rely on their own peer-to-peer network of computers, also called nodes, to verify updates to account balances and blockchain state. One of the main benefits of operating as a sovereign rollup is the ability to execute upgrades and change the rules of state transitions independently from a DA layer. As an aside, rollups that settle through DA layers that can natively validate batched transactions without the need to deploy dedicated smart contract code are sometimes referred to as enshrined rollups. While these do not yet exist on Ethereum, they are another example of how disputes around blockchain state for a rollup can be settled by nodes on the DA layer.

Nodes operating on a sovereign rollup can change the rules of what is considered a valid or invalid transaction through a hard fork, which is a backwards-incompatible upgrade, without impacting or changing the DA layer to which user transactions are posted. Another benefit of sovereign rollups is that compared to smart contract rollups and enshrined rollups, sovereign rollups can be a more cost-effective way to settle transactions. Rather than verifying proofs on Ethereum or Celestia directly, they are verified locally through execution layer nodes. Sovereign rollups also have the benefit of greater flexibility to deploy transactions of a type that are not natively verifiable by a Layer-1 blockchain. Sovereign rollups in theory will rely on their own settlement mechanisms such that they only rely on the Layer-1 blockchain to retrieve data. In theory, data availability blockchains would be able to support a multitude of rollups each designed with their own unique virtual machines and smart contract languages.

App-specific rollups are best suited for a sovereign rollup design as greater control over the network would be placed in the hands of users of the rollup, as opposed to the node operators of the DA layer. The main drawback of sovereign rollups is the fragmentation of asset liquidity. Smart contract rollups built atop Ethereum share a common settlement layer through which assets from Ethereum are locked and unlocked, which concentrates liquidity to a shared layer. Settlement through a diversity of sovereign rollups on the other hand silos asset liquidity according to each rollup’s unique proof system for state transitions. Projects working on rollup interoperability protocols to solve the issue around liquidity fragmentation include Polymer Labs and Catalyst .

Settlement rollups

Settlement rollups are rollups optimized for settling transactions and blocks from rollups and posting data to a desired DA layer. Instead of bundling execution with settlement like sovereign rollups or relegating settlement to a DA layer, which may be costly, like smart contract L2-rollups on Ethereum, settlement rollups function as the intermediary network that can interface between multiple app-specific rollups and DA layers. The app-specific execution layers built atop settlement layers, also called Layer 3’s (L3s), naturally compete with the dapps launched directly on smart contract, general-purpose rollups.

The advantages to deploying an L3 rollup vs a dapp on an L2 include:

L3s have greater flexibility when it comes to designing an execution environment for deploying smart contract code.

L3s do not need to expend resources building their own consensus model or pay fees to a costly DA layer for achieving rollup settlement.

L3s may achieve higher levels of scalability than other types of rollups as rollup developers can dedicate network resources exclusively to smart contract code execution.

In theory, the more modularized the functions of a blockchain are, the more blockchain developers can optimize the efficiency and scalability of specific core functions such as transaction execution or settlement. However, the extent to which separating out settlement from execution will result in significant gains to the developer and end-user experience remains unclear. In addition, while settlement layers make customizing an execution environment for a specific use case be it gaming or application development easier for developers, they like sovereign rollups must rely on their own consensus mechanism for transaction settlement. Therefore, the decentralization of settlement rollups and the extent to which they can work across multiple DA layers in a trust-minimized way is a determining factor to the security guarantees of L3s built atop settlement rollups. Examples of notable settlement layers being built include Eclipse, Caldera, and Dymension.

Rollup SDKs

There are projects focused on out of the box solutions for spinning up customizable rollups. Rollup software development kit (SDKs) projects seek to make rollups more customizable by letting developers choose their own settlement frameworks, between validity and fraud proofs, sequencer types, and bridging functionalities. Different rollup SDKs will present users with different toolkits for mixing and matching rollups designs. However, it is likely that rollup SDK projects also contribute a significant amount of consulting work for its users along with their toolkits to assist in the creation of customizable rollups. These projects likely need to dedicate a significant amount of blockchain engineering for each user and client. Therefore, it is unclear to what extent these types of rollup SDK projects will be able to scale overall. Notable examples of rollup SDKs are Rollkit and Sovereign Labs.

Caption: A diagram illustrating the customizable tech stack that Rollkit can offer developers who are looking to deploy their own rollup. Source: Celestia Foundation

Despite the adoption of modularity as a guiding principle for blockchain design, most projects working on the modular blockchain tech stack remain in a highly experimental and research driven phase of development as of March 2023. The next section of this report will dive into a handful of key research questions related to blockchain modularity and the competitive dynamics between and amongst modular layers.

The blockchain modularity thesis rests on innovations like DAS that optimize layers of a blockchain tech stack for specific core functions. By splitting DA and consensus from execution and settlement, in some cases even splitting the functions of execution and settlement, the argument of the modularity thesis is that the sum of these layers will be able to achieve vastly higher levels of efficiency, scalability, and decentralization. However, there remain questions around the costs associated with a modular blockchain tech stack such as latency and cross-chain communication. In addition, it is unclear to what extent bottlenecks for scalability still exist on execution and settlement layers despite techniques to alleviate throughput constraints on the DA layer.

Scaling execution

Through DAS, relatively lightweight nodes on a DA layer can theoretically support multitudes of independent execution layers, each with the same transaction execution capacity as that of a monolithic blockchain like Ethereum. However, there remains questions around how to best scale the function of transaction execution and manage state growth over time. Rollups like Arbitrum have experienced bouts of extremely high fees, impacting the user experience, due to surges in on-chain activity. One notable example occurred back in June 2022 when the Arbitrum core development team launched its NFT incentive program, Odyssey, but quickly had to shut down the program due to overwhelming demand.

Arbitrum has since deployed upgrades that have significantly improved rollup capacity, as illustrated by the chart below:

The lack of scalability on rollups is not a pressing concern as an optimized DA layer would theoretically have the capacity to support multiple Layer-2 networks without increasing the resource burden of DA layer nodes. If a single execution layer is burdened with too much user activity, it would take minimal costs and time to spin up another execution layer with the same level of decentralization and security backed by the underlying DA layer. The downside of spinning up multiple execution layers is the fragmentation of liquidity and the introduction of bridging risks. Applications launched on one execution layer lose transaction atomicity if user transactions are fragmented across multiple rollups. In addition, the transfers of assets from one execution layer to another would require additional steps such as the generation of proofs on the DA layer and the burning and minting of assets from one chain to another, which introduces latency and the greater potential for technical bugs and failures.

Therefore, it is important for modular blockchain developers to research and develop technologies for optimizing execution layers such that greater transaction activity does not overwhelm rollups and create heavy resource burdens on rollup node operators. Some of the solutions developers are actively pursuing for optimizing the execution layer include state expiry , light clients , and zero knowledge virtual machines.

MEV in a Modular World

Another outstanding question around the blockchain modularity thesis is where exactly in this modular tech stack the highest amount of maximal extractable value (MEV) will accrue. As background, MEV refers to the value created from ordering user transactions in a specific way. (Read this Galaxy Research report to learn more about MEV). MEV differs from transaction fees and issuance rewards which is value created by the user in the form of a payment and value generated by the network through supply growth, respectively. Specialized actors called searchers create MEV by identifying opportunities for value extraction through strategies such as frontrunning, backrunning, and sandwiching user transactions. On a monolithic blockchain like Bitcoin or Ethereum, this value primarily accrues to the block proposer, as the proposer has the final say over the order of transactions. On a modular blockchain, MEV will likely accrue to the layer where transaction ordering and block building occur, that is the settlement layer.

The following is a chart of the amount of MEV earned daily, in addition to regular transaction fees, on Ethereum since the Merge upgrade:

Rollups that control transaction settlement, that is sovereign rollups, have the highest amount of flexibility and autonomy when it comes to designing MEV marketplaces and incentives. On a rollup, the block proposer, that is the entity that batches user transactions and submits them for finalization to a DA layer, is the sequencer. As discussed, the sequencer is generally operated by a centralized entity because many rollups in 2023 are in a nascent stage of development. However, over time, the sequencer is expected to decentralize and therefore, so will the activity of block production. To prevent specialization among a decentralized network of sequencers, the activity of block building is likely to be abstracted away to a separate layer like how dedicated off-chain MEV marketplaces were created through MEV-Boost on Ethereum .

The following chart illustrates the percentage of Ethereum blocks submitted by validators through the use of MEV-Boost software since the Merge upgrade:

However, through the introduction of third-party block builders to the MEV supply chain on Ethereum, and it would appear in the future on rollups, there is the risk of centralization among block builders. Therefore, efforts to decentralize block building through privacy technologies such as secure enclaves, trusted execution environments, fully homomorphic encryption, threshold encryption, and multi-party computation are important to the future of MEV in a modular blockchain tech stack.

Alongside shared block building, there are ongoing efforts to decentralize rollup sequencers through shared sequencer networks. One of the projects building a shared sequencer network is Astria . The idea of a shared sequencer network is similar to the idea of re-staking in that both are motivated by the understanding that creating a decentralized network of participants is difficult to replicate and takes a long time to cultivate. Instead of sharing validators for the purposes of securing multiple DA layers, shared sequencers would enable shared security and censorship resistance across multiple rollups. Aside from a shared sequencer network, there is the possibility of sequencing, that is the ordering of transactions on a rollup, to be relegated down to the node operators of a DA layer directly. This is the idea behind based rollups . In this scenario, validators of an L1 blockchain such as Ethereum or Bitcoin would still be the primary recipient earnings MEV. Where the ordering of user transactions occurs is important to understanding where MEV will accrue in the modular blockchain tech stack. Projects like Skip and Anoma re building configurable MEV auction marketplaces designed for sovereign rollups where the role of the sequencer is not shared or relegated to the DA layer.

Latency and interoperability in a modular world

Breaking apart the core functions of a blockchain across layers introduces latency to transaction finality. Finality in this context refers to when a transaction on a rollup is considered irreversible. On Ethereum, transaction finality is determined through a supermajority vote of active validators over two epochs, that is roughly 12 minutes. On Bitcoin, transaction finality is more subjective and determined probabilistically based on the number of blocks appended on-chain after a transaction is first included in a block. In the context of a modular blockchain, there are differing levels of transaction finalization as transaction data moves from the execution layer down to the DA layer. Ultimately, transaction finality will depend on the underlying DA layer and its consensus mechanism, as well as block times. Once the rollup sequencer bundles transactions into blocks and submits them to the DA layer, the finalization of these transactions depends on how quickly the DA node operators processes the rollup bundle on-chain.

Once transaction data is posted to a DA layer, the transactions are considered final and only reversible if the security of the underlying DA layer becomes compromised and the DA layer becomes vulnerable to block reorganizations. To reduce latency created from having to commit rollup blocks to a separate DA layer, blockchain developers are researching techniques for supporting pre-confirmations of rollups blocks even before the block is successfully committed down to a DA layer.

These techniques include but are not limited to:

For rollups where transaction settlement occurs on a separate layer from the DA layer, there is the possibility of guaranteeing soft finality over rollup transactions before they are posted to a DA layer that is based on consensus between node operators on a shared settlement layer or sovereign rollup.

Another solution around pre-confirmations involves requiring sequencers to post collateral that the rollup can penalize if sequencer does not successfully post the block to a DA layer after a period. Settlement rollup projects in specific are focused on these solutions in addition to rollup interoperability.

One of the main benefits to rollups sharing the same settlement layer and DA layer is interoperability through shared block times and therefore, shared times to transaction finality. The benefits of composability between rollups in a modular blockchain tech stack is the strongest argument for why competition between DA layers and settlement layers becomes a winner take all dynamic, similar to the competitive landscape between monolithic general purpose blockchains. As the first general purpose blockchain, Ethereum has continued to dominate in terms of market share and value despite the emergence of alternative L1 competitors. Ethereum retains market share because it is difficult for application developers on Ethereum to move their projects and end-users to different chains whilst still maintaining the same level of interoperability and composability with the broader Ethereum dapp ecosystem. This will be true for settlement rollups and especially DA blockchains.

Competition among DA layers

In a future where there may exist more than one independent DA layer and DACs, it is an ongoing debate whether user activity becomes concentrated to a single DA layer or multiple. Not all applications or rollups will need the same level of security, which is why multiple DA layers with varying degrees of decentralization may persist over time. Naturally, it will be more expensive to launch an execution layer on top of a DA layer with a high level of security than launching the same technology on top of a DA layer with lower security guarantees. It remains unclear how wide the disparity in costs will be between DA layers. Costs between DA layers will depend heavily on the consensus model and monetary policies enforced on these chains.

One of the simplest ways to protect and reduce the likelihood of spam or denial of service attacks on a permissionless blockchain is the use of transaction fees. Fees create a way for block proposers to prioritize and order transactions within a block. All DA layers will need a fee mechanism to disincentivize execution layers from dumping copious amounts of junk transactions on-chain. Despite being highly optimized to download substantial amounts of data through techniques like DAS, DA layers will still be constrained to a block size that will dictate fees for posting transaction data on-chain. A fee mechanism will also most often be coupled with a consensus mechanism which will determine the order of transactions within a finalized block and a fork choice rule to determine what blocks were or were not included in the canonical chain.

Depending on the DA layer, the fee mechanisms and consensus protocols may differ. Regardless of the exact monetary policies and consensus models dictating the operations of a DA layer, the goal of a DA layer is to be resilient against chain reorgs and centralized points of failure. The greater the network of value built on top of a DA layer, the greater the level of security should be always guaranteeing the availability of transaction data for verification and execution purposes. Therefore, the level of decentralization and performance of a DA layer will be important to evaluate that network’s long-term potential for user adoption and value accrual in competition with other blockchains that also offer DA services. Among blockchains optimized for DA, the layer that is the most decentralized and therefore secure is likely to support the greatest amount of innovation and value. It remains unclear how the fee structures between different DA layers will evolve, especially considering restaking protocols such as EigenLayer that may create ways to rehypothecate staked assets, and therefore extend security, from one blockchain protocol to another.

Governance in a modular world

Finally, it is worth noting that governance and coordination of protocol upgrades across a modular blockchain tech stack become more complex due to the existence of independent execution layers relying on data posted to a single DA layer. Assuming execution layers do not rely on DA layers for transaction settlement, each execution layer will retain its sovereignty to interpret transaction data posted to the DA layer according to its own consensus mechanism. This gives a high degree of freedom to execution layers to dictate protocol-level changes impacting the validity of transactions separately from the governance of a DA layer. However, the extent to which a DA layer can roll back transactions posted to its network for any reason is not as easy. Like how changes to the Ethereum protocol have become more cumbersome in terms of governance because of the number of decentralized applications deployed on the network, popular DA layers are likely to face the same challenges when considering protocol-level upgrades impacting execution layers and decentralized applications built on top of those execution layers.

The ecosystem of new blockchains that are modular by design is set to explode in 2023 and beyond. These blockchains offload at least one of four core functions of settlement consensus DA and execution to another blockchain. Due to innovations around DAS that increases the ability of a blockchain to scale for DA, there is also an innovative design space for highly scalable application focused execution layers. There are several assumptions that will have to be evaluated however in this dynamic including revamped fee architecture for securing each of the layers against fraud and attacks, the level of scalability that can be achieved on execution layers, and models for decentralized governance, which is an issue as old as the blockchain trilemma.

Modularity is an exciting road forward for blockchain scalability that seeks to solve decentralization and security to which blockchain projects are already betting and building. However, key to realizing this modular vision is the continued innovation of blockchain developers implementing each layer of the modular blockchain tech stack, not just DA but also that of execution and settlement. The Celestia team will launch their DA layer this year. However, it is really the innovations and projects built on top of the Celestia DA layer that will prove the modular blockchain thesis correct. To that end, the adoption of execution layers and settlement layers connecting to Celestia will be most important to watch and evaluate in the years ahead.

Ongoing research topics include the impacts of MEV and re-staking on a modular blockchain tech stack. In addition, increased latency to transaction finalization and reduced composability between dapps built on app-specific rollups are third-order consequences from separating out the functions of a blockchain that settlement rollups in specific are trying to mitigate. Due to the nascency of modular blockchain projects, it is difficult to predict the competitive dynamics between rollups and emerging DA layers. However, early analysis does suggest concentration of dapp activity to a single settlement and DA layer is likely. The evolution of the blockchain modularity thesis has resulted in a paradigm shift in how many general purpose blockchains including Ethereum are approaching the blockchain trilemma and solving for long-term scalability. There is still much to be built before the benefits of modularity can be fully realized and rigorously evaluated, but the growing consensus between blockchain developers in the crypto space around the blockchain modularity thesis affirms the strong potential of these ideas to revolutionize blockchain tech in the years forthcoming.

Legal Disclosure: This document, and the information contained herein, has been provided to you by Galaxy Digital Holdings LP and its affiliates (“Galaxy Digital”) solely for informational purposes. This document may not be reproduced or redistributed in whole or in part, in any format, without the express written approval of Galaxy Digital. Neither the information, nor any opinion contained in this document, constitutes an offer to buy or sell, or a solicitation of an offer to buy or sell, any advisory services, securities, futures, options or other financial instruments or to participate in any advisory services or trading strategy. Nothing contained in this document constitutes investment, legal or tax advice or is an endorsementof any of the digital assets or companies mentioned herein. You should make your own investigations and evaluations of the information herein. Any decisions based on information contained in this document are the sole responsibility of the reader. Certain statements in this document reflect Galaxy Digital’s views, estimates, opinions or predictions (which may be based on proprietary models and assumptions, including, in particular, Galaxy Digital’s views on the current and future market for certain digital assets), and there is no guarantee that these views, estimates, opinions or predictions are currently accurate or that they will be ultimately realized. To the extent these assumptions or models are not correct or circumstances change, the actual performance may vary substantially from, and be less than, the estimates included herein. None of Galaxy Digital nor any of its affiliates, shareholders, partners, members, directors, officers, management, employees or representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of any of the information or any other information (whether communicated in written or oral form) transmitted or made available to you. Each of the aforementioned parties expressly disclaims any and all liability relating to or resulting from the use of this information. Certain information contained herein (including financial information) has been obtained from published and non-published sources. Such information has not been independently verified by Galaxy Digital and, Galaxy Digital, does not assume responsibility for the accuracy of such information. Affiliates of Galaxy Digital may have owned or may own investments in some of the digital assets and protocols discussed in this document. Except where otherwise indicated, the information in this document is based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after the date hereof. This document provides links to other Websites that we think might be of interest to you. Please note that when you click on one of these links, you may be moving to a provider’s website that is not associated with Galaxy Digital. These linked sites and their providers are not controlled by us, and we are not responsible for the contents or the proper operation of any linked site. The inclusion of any link does not imply our endorsement or our adoption of the statements therein. We encourage you to read the terms of use and privacy statements of these linked sites as their policies may differ from ours. The foregoing does not constitute a “research report” as defined by FINRA Rule 2241 or a “debt research report” as defined by FINRA Rule 2242 and was not prepared by Galaxy Digital Partners LLC. For all inquiries, please email [email protected] . ©Copyright Galaxy Digital Holdings LP 2023. All rights reserved.

1 hr 36 min

Motion: The industry is growing out of the Fat Protocol Thesis (Jeff Dorman vs. Joel Monegro‪)‬ The Blockchain Debate Podcast

Announcement: I have a new show called “Crypto This Week.” It’s a weekly, five-minute news comedy satire focused on the world of crypto. Check it out on YouTube here: Crypto This Week with Richard YanGuests:Jeff Dorman (twitter.com/jdorman81)Joel Monegro (twitter.com/jmonegro)Host:Richard Yan (twitter.com/gentso09)Today’s motion is “The industry is growing out of the Fat Protocol Thesis.”The Fat Protocol Thesis was coined by a blog post on Union Square Ventures’ website. The Fat Protocol Thes...

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