One fact about the blockchain is that it can only handle a limited number of transactions per second. Let’s take Bitcoin for example. Its network can only process no more than seven transactions per second. If we want mass adoption for blockchain to happen, any blockchain should be able to handle more data at a faster speed without delays or being expensive to use.
However, the basics of most blockchain networks is that an increase in scalability compromises decentralization and security. This issue is known as the blockchain trilemma. Developers are looking for ways to solve this problem and are currently experimenting with different consensus mechanisms and scalability solutions.
Defining the Blockchain Trilemma
The blockchain trilemma is the set of three issues that plague blockchains: decentralization, security and scalability. The concept was coined by Vitalik Buterin, founder of Ethereum, as it became the most common issue encountered by developers when building blockchains, forcing them to ultimately sacrifice one “aspect” for as a trade-off to accommodate the other two.
It is a widely held belief that decentralized networks can only provide two of three benefits at any given time concerning decentralization, security, and scalability.
However, ongoing innovation across the decentralized ecosystem has led to a diverse range of Layer-1 and Layer-2 solutions that are overcoming these obstacles to solve the trilemma once and for all in the following fashion:
- Decentralization. Rather than being managed by a single entity, blockchains distribute control over the network equally to all participants.
- Security. Blockchain networks should have ironclad defenses that prevent malicious entities from taking over.
- Scalability. Blockchains should support an enormous number of transactions and users without faltering by increasing fees and transaction times.
For some in the industry, achieving all three aspects is an impossible feat that will never be achieved, at least not in the near future. However, there are still ambitious developers who believe that blockchain networks can indeed have all three aspects and even more. One example of a project touting that they’re solving the blockchain trilemma is Algorand.
Three goals to achieve when creating a blockchain
To further understand the blockchain trilemma, let’s break down each of the goals when developers create a blockchain, the challenges they present and how the blockchain community responds to them.
Decentralization
The main idea behind cryptocurrency was to facilitate transactions without a central authority, that is, to have a decentralized network. In the interest of decentralization, that information on public blockchains is stored on a wide network of nodes (computers of those using the blockchain) across different locations. This means that anyone can read and write on the blockchain. The presence of a large number of nodes makes it nearly impossible to attack a public blockchain since transactions can be traced back to individual nodes.
However, the presence of a lot of nodes (and consequently, a high number of users) also slows down the number of transactions per second processed on the blockchain.
Scalability
The slow speed of the public blockchain leads us to the second goal, scalability. To become more useful and practical on a large scale, blockchains need to be capable of processing a myriad of transactions quickly without charging a steep fee for them. Yet, public blockchains are not very scalable as of yet due to low transaction speed.
Security
Blockchains need to be highly secure to ensure that those putting their savings into crypto investments don’t lose them to hacks or malicious attacks. While public blockchains, like Bitcoin and Ethereum (which will be switching to proof-of-stake mechanism soon), are “near impossible” to hack, their strength only lies in the number of miners on the blockchain. This is because these blockchains use the proof-of-work (PoW) consensus mechanism. Using a PoW system puts blockchains at the risk of a 51% attack, which is a situation where fraudulent attacks can be initiated by a group of miners who control more than 50% of the mining power. This situation occurred thrice on the Ethereum Classic Network in August 2020. Another issue with the PoW mechanism is that it consumes a lot of energy and has been shunned for its environmental impact.
To put it simply, it is toilsome to attain these three goals simultaneously because achieving one puts you in a position where you miss out on the other. If you are decentralized, then it becomes harder to be scalable. If you are private and scalable, you are not transparent. If you are transparent and have a lot of miners, you are secure, but this security comes at the cost of consuming a lot of energy in the mining process and slow transaction speeds. However, if you don’t have a lot of miners, then you aren’t secure anymore and run the risk of being attacked.
Why does the Blockchain Trilemma exist?
The most obvious and basic solution to the problem outlined above is to reduce the number of participants confirming and adding to the network data in exchange for greater scale and speed. But doing so would lead to a weakening of decentralization with control handed to a smaller number of participants. And it would also lead to a weakening of security as fewer players means a higher chance of attacks.
So here lies the trilemma: given the connection between the desired properties of decentralization and security, the fundamental design of how blockchain works makes it hard to scale. Increase one, and you weaken another. How do you push scalability without damaging decentralization, security, or both?
What will be the solution?
For developers aiming for the success of their projects, the blockchain trilemma is a deal breaker. Well, it will not be for long. Advanced solutions like Proof of Stake (PoS), sharding, and side chains are now realized and are being integrated into the blockchain. Crypto enthusiasts will now have the chance to see what a perfect blockchain network looks like.
These solutions have arrived with the launch of Ethereum 2.0. The upgraded network incorporates all of the aforementioned features for the sake of creating a Proof-of-Stake blockchain that is decentralized, scalable, and secure.
Ethereum 2.0 is already here, but sadly, we still have to wait at least a year for Vitalik Buterin and the team to integrate sharding and side chains. They will come in scheduled roll-ups throughout the year that will slowly scale Ethereum. Until then, the new PoS network will work side-by-side with the old PoW blockchain.
Once all updates have been implemented, the old network that we have known for years will disappear. To put it more accurately, Ethereum (PoW) will become one of Ethereum 2.0’s 64 sidechains, which enables the project’s continuity.
But again, Ethereum’s envisioned future is still a concept. We still have to see whether Proof of Stake and sharding work in theory and have the ability to support a large workload. For now, we can all hope and wait while paying $50 in fees on decentralized exchanges.
What solving the Blockchain Trilemma means for the future of blockchain?
Although most people might not know about the blockchain trilemma, there is an awareness of the problems it presents (like Bitcoin’s slower transaction speed). If projects are able to successfully solve the trilemma, we could be looking at new levels of blockchain adoption, and mass adoption, of course!
If there’s a successful way to tick the “decentralized” box without worrying about security and the inconvenience from a lack of scalability, we are looking at a scalable blockchain future where individuals across multiple industries (from money to logistics, from legalities to property) can benefit. At the heart of it, blockchain offers a more fair, more balanced playing field for individuals to thrive rather than rely on a traditional, centralized and controlled system.
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