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The Blockchain Trilemma, popularized by Ethereum co-founder Vitalik Buterin, highlights how cryptocurrency and blockchain are interconnected. Blockchain records cryptocurrency transactions as a digital ledger secured through cryptography. It maintains an incorruptible, permanent, and verifiable transaction history, bolstering security by preventing data alteration or counterfeiting. This security feature also protects user profiles from unauthorized access or fund transfers. As a result, cryptocurrency transactions are more secure and reliable than traditional payment systems.
The vision behind decentralized and secure blockchains is to create systems independent of third-party control over networks or markets. However, experts recognize a significant challenge hindering widespread adoption known as the Blockchain Trilemma.
In this article, we delve into the three critical components of the Blockchain Trilemma—decentralization, security, and scalability—and explore their complex interplay within blockchain technology.
Decentralization forms a crucial part of the blockchain as decentralized blockchain networks, like Bitcoin, have no single owner. Instead, all participants openly share and validate data, enabling the creation of a secure and fast decentralized Internet, known as Web3.
Decentralization helps ensure that the blockchain remains resilient and unaffected by any potential malicious attackers. By decentralizing the system, each node (user) has an equal amount of power and authority. This helps to ensure fair and transparent transactions. Decentralization also keeps the system decentralized and prevents any one organization from having too much control over the network.
Blockchain security combines cryptography, consensus algorithms like Proof of Work (PoW), and widespread participation. Cryptography ensures data blocks are securely linked and immutable. Consensus algorithms, such as PoW, safeguard the cryptocurrency ledger by mandating miners solve puzzles to verify and add transactions. More participants enhance security, as it becomes increasingly difficult for any single entity to dominate and alter consensus decisions.
Scalability is the ability of a blockchain to increase the number of transactions it can process per second (TPS) without sacrificing security or decentralization. Many blockchains struggle with scalability due to the need to prioritize decentralization and security, resulting in limited TPS compared to centralized networks. Blockchain scalability solutions are being developed to address this issue, such as through the use of different consensus mechanisms, sharding, and off-chain solutions.
Traditional blockchains: Bitcoin, Ethereum, or Litecoin. Each of their participants manages a complete node that validates each transaction. Such networks have a high level of security and decentralization but low bandwidth.
High-speed blockchains, including those based on Delegated Proof-of-Stake algorithms, have a small number of nodes (10-100). At the same time, each requires high requirements—the need to have expensive server hardware or a large number of native coins. One organization or location hosts the majority of its nodes, leading to a limited distribution of trust and control. These are productive and secure but not sufficiently decentralized networks.
Multichain systems connect applications to multiple blockchains using cross-chain protocols. This decentralized and scalable network lacks inherent security. A successful attack requires controlling a majority of nodes in just one blockchain to disrupt the entire system, negatively affecting all participants.
The most obvious and basic solution to the problem described above is to reduce the number of participants who confirm and add data to the network in exchange for greater scale and speed. However, when control is given to fewer participants, this will weaken decentralization. It will also weaken security, as fewer participants mean a higher likelihood of attacks.
Thus, there is a trilemma: Given the relationship between the desired properties of decentralization and security, the fundamental design of the blockchain makes it difficult to scale. By increasing one, you weaken the other. How do you achieve scalability without sacrificing decentralization, security, or both?
The problem, which presents a demanding challenge to resolve, has led to some interesting innovations in the blockchain industry. Various ideas exist depending on the foundation of the project and whether it relies on a different project to operate (like, for example, a Decentralized application needs Ethereum), and it’s fascinating to see how they might impact the network in the future.
Without delving too deeply into the technology, here are a couple of interesting approaches that projects have taken:
Sharding has become a popular solution for scaling projects that do not rely on another network, such as Ethereum. When a network “shards,” it breaks the transactions that run on the blockchain up into easier sets of data that can be processed by the network more quickly. This means more transactions can take place at the same time without causing congestion. Security is maintained because the different shards interact with each other and send information to the main blockchain, so information isn’t compromised.
In contrast, rollups allow networks on Ethereum’s blockchain to “roll up” multiple transactions into a single off-chain (with validated proof) and then submit the rolled-up data to the main chain. It’s comparable to carpooling. Rollups are clever because they reduce the amount of data required for a transaction, thereby reducing traffic and increasing speed.
The Lightning Network is referred to as a “layer 2” solution. The reason is that it offers an additional layer over the main network. Bitcoin, our primary example, “suffers from success” and struggles with transaction speed and cost. The Lightning Network allows you to conduct transactions without having to interact directly with Bitcoin’s main chain.
Instead of transacting on the main blockchain, you set up “channels” with people to transact with. Inside the channels, which are run by smart contracts, you can transact directly, instantly, and at a far reduced cost than that on the main blockchain. With a state channel, you create a channel (kind of like opening a tab). Then this channel is recorded on the main blockchain. From there, all transactions will take place “off-channel” (not on the main chain) until the channel is closed. When a transaction is closed, only the opening and closing information is sent to the main blockchain, not all information. Because state channels operate through smart contracts, security is maintained.
Instead of offering a one-blockchain solution, Polkadot favors the idea of blockchains collaborating with other blockchains (interoperability). The network is designed with “a relay chain” as the backbone to offer a highly scalable network. It does this by using “parachains,” which are independent blockchains that connect to the main relay chain.
It means that the chains operate independently in their governance, allowing the network to scale but ultimately unite for additional security.
Although most people are unaware of the blockchain trilemma, they are aware of the issues it presents (such as Bitcoin’s slower transaction speed). If projects can successfully solve the trilemma, we may see new levels of blockchain adoption.
Suppose there is a successful way to check the “decentralized” box without worrying about security or the inconvenience of a lack of scalability. In that case, we are looking at a scalable blockchain future in which individuals from multiple industries (from money to logistics, from legalities to property) can benefit. At its heart, blockchain offers a more fair and balanced playing field for individuals to thrive rather than relying on a traditional, centralized, and controlled system.