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The Blockchain Trilemma: A Formidable Challenge

July 05, 2023 - 7 min read

According to the Blockchain Trilemma, decentralized networks can only excel in two of three key properties —decentralization, security, and scalability—at any given time.

Computer scientist Eric Brewer introduced the world to CAP theorem back in the 1990s. According to Brewer’s theory, a decentralized database can only possess two of the three key characteristics of consistency, availability, and partition resistance. As a result, the theorem presents a challenge because it requires the developers of a decentralized database to give up one of three crucial features to optimize the attributes and performance of the other two. This has thus far guided the decisions of developers of decentralized systems, and has limited the growth and adoption of many projects over time.

More recently, Vitalik Buterin applied CAP theorem to the blockchain, and coined the phrase “blockchain trilemma.” This describes a similar dilemma faced by blockchain builders when juggling three conflicting requirements: decentralization, security, and scalability. For example, every full node that functions on Bitcoin confirms every transaction (in blocks) together in lockstep every ten minutes. 

This makes Bitcoin very secure and decentralized, but it limits the network’s bandwidth in terms of how many transactions can fit into each block. That means that if too many people submitted transactions at the same time, it could lead to longer wait times for transactions to settle, making it less scalable and impractical for use on a global scale. So, by prioritizing decentralization and security, the Bitcoin network has upper limits on its ability to scale, giving it two of the three qualities we mentioned in the trilemma. 

The blockchain trilemma is frequently presented as a universal law, which may not be entirely accurate. It may not necessarily be the case that a blockchain can never optimize a perfect trinity of decentralization, security and scalability. Software developers, engineers, and hardware manufacturers are working tirelessly to push the limits of what is possible when it comes to solving the blockchain trilemma. 

Decentralization is one of blockchain technology’s key features. Improved security and scalability are two of its benefits. However, decentralization does have significant drawbacks like it can lead to fragmentation and make it more difficult to come to a consensus on the network.

If all network nodes confirm transactions while upholding the maximum level of security, public blockchains’ decentralized consensus will function as intended. The transaction can be entered into a centrally managed database to provide a safe and scalable alternative, although doing so will compromise decentralization.

Scalability expansion may undermine security, decentralization, or both. Decentralization and security have been achieved by many well-known blockchains. Yet, blockchain networks cannot compete with established centralized platforms without being scalable. As centralized platforms now provide significantly better network usability and settlement times. Realizing a blockchain network’s scalability as a level of efficiency is essential.

Scalability and security are incompatible because security always seeks to preserve the network’s functionality and stability and is concerned with data security. Whereas scalability tries to grow the system without reducing the effectiveness. Decentralization and security are already widely accepted as the core components of many blockchain platforms. Thus, scaling continues to be a major obstacle for huge decentralized networks of today.

How to overcome the blockchain trilemma?

Each blockchain project must strike a unique balance between scalability, security, and decentralization. It’s critical to realize that scalability, security, and decentralization are not antagonistic concepts. A decentralized system that is safe and scalable is conceivable. But trade-offs will always be required. For instance, a highly decentralized system may give up some scalability in order to accomplish its objectives.

Furthermore, it’s critical to remember that there isn’t a perfect answer to the blockchain trilemma. However, a decentralized, secure, and scalable blockchain system can be built with proper planning and implementation.

Here are a few potential solutions to the blockchain trilemma:

Layer-1 Solutions

Consensus protocol improvements:

The Proof-of-Work (PoW) consensus protocol is used by a number of well-known cryptocurrencies, including Bitcoin. PoW is secure, however transactions take a long time to execute. For instance, the maximum transaction rate for Bitcoin is seven per second. Owing to its increased transactional rate, the Proof-of-Stake (PoS) consensus mechanism is chosen by many blockchain networks. The most prominent example is Ethereum 2.0. PoS is faster since validators are in charge and include the transactions in the blocks rather than leaving it up to miners to complete a cryptographic puzzle.

PoW networks’ energy consumption will rise as more miners join the network. Since the PoS system uses less power, it is an environmentally beneficial method. As PoS relies on a small number of validators to verify transactions and create new blocks on the chain, it can make a blockchain system more scalable and secure. However, if the same validators can maintain control over the entire network over time, it could lead to centralization.

Sharding:

Sharding is a concept that originated with distributed databases. The network architecture maintains data availability while only enabling network users to download a part of the total quantity of data.

Transactions are divided into distinct units known as shards during shrading. The blockchain history may now be distributed among a number of nodes rather than being stored on every network node thanks to the network’s parallel processing of these, which also permits the transaction validation work to be completed concurrently.

Sharding eliminates concerns about a network’s latency being dependent on the speed of individual nodes. For instance, Zilliqa offers scalability via sharding. However, sharding does come with some risks. For example, one shard could become corrupted and overtake another, which would be disastrous for any given blockchain and its users, resulting in the loss of a particular blockchain block. 

Layer-2 Solutions

Sidechains:

In order to execute big batches of transactions and alleviate base tier congestion, side chains—independent blockchains operating side by side with the main chain—have their consensus mechanisms and security algorithms.

The benefit of sidechains is that they can connect to any blockchain they want to run on and support numerous base layers because they are often blockchain agnostic. This frees the backbone to concentrate on other issues like network performance, transaction disputes, and security. These sidechains can support smart contracts, issue their own tokens, and solely interact with the mainchain to update their ledgers. For example, the Ethereum sidechain is Polygon.

Nevertheless, sidechains impose more centralization than main blockchains and are dependent on a smaller number of miners than the mainnet, which can compromise the decentralized nature of blockchain.

State channels:

State channels enable two chains to communicate with one another in various ways, enhancing the functionality of the primary blockchain. In comparison, the main chain handles two transactions—one when the channel is opened and another when it is closed. By avoiding processing some transactions, the main chain nonetheless provides the same level of security with regard to transaction finality. 

All intermediate modifications made in the main chain become a reality only when the last state is altered, which is forwarded to the miners for validation. The channel is then terminated after the final net transaction has been published to the chain. For example, state channels are used by Celer.

Conclusively, state channels create a smart contract that enables user interactions without requiring a validator, eliminating the need for another side chain for transaction processing.

Nested blockchains:

A nested blockchain is a network that uses a main blockchain to set the parameters for the rest of the network. The primary chain is connected to a number of layers that are constructed in a parent-child relationship. The parent chain assigns the task to the child, who carries it out and returns the information to the parent. 

Unless a problem emerges that needs to be solved, the parent blockchain does nothing. The OMG Plasma project is an example of this concept.

Rollups:

Rollups combine a large number of transactions into a single block and only publish summary information on the main chain. Since all transactions and storage occur outside the main chain, throughput might be increased by a large factor, meaning the network can handle far more transactions per second (TPS). One of the best methods to boost performance is to bundle transactions and move processing off-chain, which speeds up everything and reduces transaction fees and processing time.

Rollups’ primary drawback is that they demand that data be left on-chain. The Layer-1 data sequencing rate would still impact its throughput, preventing rollups from scaling limitlessly. To efficiently coordinate transactions on the Layer-2 chain, many rollups still rely on centralized sequencers, which can potentially filter transactions to benefit themselves.

Final Thoughts

In conclusion, the blockchain trilemma emphasizes how challenging it is to balance scalability, security, and decentralization in blockchain systems. It isn’t easy to accomplish the trilemma’s three criteria at once.

The blockchain trilemma is familiar, and many solutions have been proposed. The advent of Layer-2 solutions, the creation of new consensus mechanisms, and the continuous research into scaling solutions all demonstrate the blockchain industry’s dedication to solving the trilemma and enhancing the functionality of blockchain systems.

We can anticipate further advancements in addressing the trilemma and creating more scalable, secure, and decentralized blockchain systems as blockchain technology develops and matures. 

To level up and gain a deeper knowledge of all things related to the future of the cryptocurrency industry, check out the latest content in the Supra Academy section.

References

  1. Bhalla, A. (2022, 26 Dec.). Blockchain trilemma: Is it inevitable with blockchain? Blockchain Council.
  2. Musharraf, M. (2022, 25 Oct.). What is the blockchain trilemma? Ledger Academy.
  3. Pandey, K. (2022, 1 Sep.). What Is the blockchain trilemma? JumpStart.
  4. Shukla, S. (2022, 11 Sep.). The ‘blockchain trilemma’ that’s holding back crypto. The Washington Post.

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