What is the Blockchain Trilemma?

Blockchain technology is one of the greatest innovations of the 21st century. Its unique approach to decentralization makes it a key facet of cryptocurrencies - another great invention. However, for a crypto asset to be accepted by the majority, it has to go beyond decentralization. It should also be scalable and fast enough to accommodate expanding growth.

However, most cryptocurrencies cannot simultaneously handle these three qualities to the same degree. Thus they have to compromise on one to enhance the other two. This phenomenon is known in the crypto world as the blockchain trilemma.

Even though the trilemma presents a stiff challenge to the worldwide adoption of cryptocurrencies, it is not invincible. The proliferation of developers and great minds on the crypto scene has resulted in several initiatives to tackle the problem. We will address such initiatives in this article. First, let us explain in detail what blockchain trilemma is all about.

The Three Pillars of Crypto Technology

Decentralization

Decentralization is what makes crypto assets so interesting. It simply means taking control away from a central entity and splitting it among various smaller entities. Thus, no one has a monopoly over decisions on a decentralized platform.

It is a far cry from the working mechanism of various aspects of the financial world today. Banks, for example, are centralized platforms that promise you the security of your monetary assets in exchange for total control over them. Thus, a small group of people make the rules and enforce them. And you can even be denied access to your money if the bank deems it so.

In contrast, cryptocurrencies don’t work that way. There is no single entity or group responsible for running the network. Instead, everyone on the network can run a node and confirm transactions. Once transactions have been confirmed, they are added to the digital ledger and stored there permanently for all to see.

However, while the decentralization of cryptocurrencies makes them much more appealing than banks, it presents a unique problem. Because everyone on the network (or at least the majority) needs to confirm the authenticity of transactions, it can take some time for the information to go around.

Therefore, blockchains can be very slow, especially when there is a high number of transactions that need to be processed. Typically, Bitcoin confirms its transactions on the blockchain within 10 minutes. However, this can increase to hours, or even days, when high transaction demand congests the blockchain.

To solve this problem, blockchains need to scale to prepare for increased adoption. How do they achieve that? Let us introduce you to the second agent of the trilemma - scalability.

Scalability

Blockchain scalability refers to the ability of the network to handle an increasing amount of transactions without sacrificing efficiency. It is essential for a blockchain to increase its potential of being accepted as mainstream. However, as essential as it is, many blockchains still struggle with being scalable.

The decentralized nature of blockchains is a major reason for this. The more participants a network has, the more ‘distance’ it travels to confirm transactions. This is where it is easier for banks and other centralized agencies. Because they do not have to worry about sharing information with all network members before making a decision, transactions are much faster.

MasterCard, for example, can process up to 5,000 transactions per second; while Visa can handle up to 24,000 tps. Bitcoin, on the other hand, can only handle about seven tps; and Ethereum can currently scale up to 15 tps - far from impressive!

Something else that makes scalability difficult for many blockchains is the consensus mechanism they use. Some, like the Proof-of-work consensus mechanism, are energy-intensive and require a lot of computing power. Thus, they are naturally slower.

As slow as it can be, though, the PoW mechanism is very secure. So, the question arises: To what extent should security be sacrificed to attain scalability? Let us discuss the third agent of the trilemma - blockchain security.

Security

Because anyone can participate in decentralized systems like cryptocurrencies, there is more tendency for malicious attacks. Therefore, blockchain systems must be secure to resist these attacks and foster trust in users. How is this security attained?

Decentralization itself is a major component of this security. The more decentralized a network is, the harder it is for malicious actors to get their way. This is because a decentralized system has participants spread across the entire planet, and each participant repeatedly confirms the network’s efficiency.

In addition to decentralization, each crypto blockchain has its security measures. These measures usually center around the digital signature and consensus mechanism it uses.

The digital signature (or hash function) is a sort of mathematical code that identifies each block of data within a blockchain. Once set, it cannot be altered. Any attempt to do so would be quickly identified by the rest of the network and resisted immediately. Thus, blockchains are inherently immutable and thus trustworthy.

The consensus mechanism of a blockchain refers to the way it makes decisions. The Proof-of-work consensus mechanism was the first. It requires that participants verify transactions through a process known as mining. Mining requires a lot of energy and takes up huge computational power. Thus, the barrier is high and stiff for any malicious actor. This serves to protect the entire network.

Why the Blockchain Trilemma Exists

A perfect blockchain should be not only decentralized but also secure and scalable. However, developers often have to compromise on one to enhance the others to implement the three pillars discussed.

For example, an obvious solution to improving scalability is to reduce the number of participants to allow the network to handle more load. But that will compromise its decentralization. It also compromises its security because it reduces the barriers hackers must climb to attack the blockchain.

Thus, the trilemma presents itself. How do you attain the perfect blockchain when it seems the three pillars can not mutually co-exist?

Solutions to the Trilemma

Defeating the blockchain trilemma is not a job for one person. Different developers have developed solutions that tackle the problem on different levels. We can divide these solutions into layer-1 and layer-2 solutions.

Layer-1 solutions

These solutions look to solve the trilemma by changing or modifying the design of the original blockchain layer. We will consider two such solutions.

Sharding

By definition, shards are smaller pieces of a bigger material. Therefore, sharding involves dividing a blockchain into various segments, each with its ledger capable of processing its transactions. The various shards are connected to the main chain, which operates in a managerial position.

Thus, sharding removes the load from a single chain and splits it among the shards. This makes the network faster. It also doesn’t compromise the decentralization and security of the blockchain because the protocols remain the same. An example of a project that implements sharding is the NEAR blockchain.

Scalable consensus mechanisms

There are other consensus mechanisms besides proof-of-work. Some of these mechanisms were created to address the blockchain trilemma. Take the Proof-of-stake (PoS) mechanism, for example. In this mechanism, participants do not need high computational power. They simply need to stake or lock their tokens to verify transactions.

This results in much greater scalability without compromising decentralization. It also gets more secure with more participants. This is exemplified in the case of Ethereum. While it worked with the PoW mechanism, it could only handle about 20 transactions per second. However, with its transition to the PoS mechanism, the network could handle up to 100,000 transactions per second in the future!

Layer-2 solutions

These solutions do not change the underlying blockchain. Instead, they find ways to address the problem by building on the existing blockchain framework. Some of the solutions are:

Sidechains and parachains

These are alternate blockchains created to run alongside the original chain. They are different from shards in that they are not segments of the main blockchain but are entirely different blockchains. But they achieve the same aim of relieving the main blockchain by handling some of its load.

Sidechains only communicate with the main or relay chain, while parachains communicate with one another in addition to the main chain. Polygon (MATIC) is an example of a sidechain on the Ethereum blockchain. Examples of parachain projects are the Polkadot and Kusama networks.

The Bitcoin Lightning Network

This is a layer-2 protocol that runs on the Bitcoin network and improves its speed and affordability. It was developed in 2015 by Thaddeus Dryja and Joseph Poon.

The Lightning Network is an off-chain payment channel with only the first and last transactions registered on the Bitcoin blockchain. All other transactions in the middle are processed offline and do not add to the load of the Bitcoin blockchain. Thus, transactions are much faster and still secure since the payment channel is eventually registered on the blockchain.

As a result of this offline diversion, the Bitcoin Lightning Network excels in scalability, being able to process up to one million transactions per second. That’s massive! We offer a more detailed explanation of the Lightning network in this article.

Conclusion

Blockchain technology is a ground-breaking invention that seeks to disrupt the finance and technology industries. Being relatively new, it must still battle herculean challenges before it attains worldwide adoption. One of those challenges is the blockchain trilemma. However, this article has shown that it is not an insurmountable problem. With the various solutions offered, the trilemma may fizzle off as time passes.