The blockchain has proven to be the next technological breakthrough that will revolutionize how we share and store information, moving from centralized finance and cloud-based storage to a decentralized and immutable distributed ledger. However, this technology comes at a certain cost. The blockchain brings with it new challenges that centralized networks didn’t face before. These challenges might be what’s stopping the blockchain from mass adoption. The core problem of blockchain tech is the blockchain trilemma.
In this article, we’ll go through the aspects of the blockchain trilemma, possible solutions, and the future of the tech if the trilemma was solved.
What Is the Blockchain Trilemma?
In order for the blockchain to function at its full potential, three elements need to be present: decentralization, security, and scalability. The blockchain trilemma is the popular belief that the blockchain cannot achieve all three properties simultaneously, and thus, one element always has to be sacrificed for the other two to be achieved. Increasing one property will proportionally decrease the other.
To paint a clearer picture, we have to look at how centralized and decentralized networks work. Centralized networks work in a server-client model. That means that if a certain central organization wants to verify transactions, the verification process comes from one central network, and thus, it’s scalable.
However, decentralization is a bit more complicated. Blockchains are built using consensus mechanisms to verify transactions. Since the blockchains are distributed networks operated by nodes, the verification of transactions doesn’t come from one single server like that in a centralized network. All nodes participating in the decentralized network have to verify transactions, and thus, must reach a certain consensus.
The decentralization of the blockchain network makes it highly secure without having a single point of failure. So here we have a decentralized and secure blockchain. What’s missing? Scalability. Because the network is too decentral and each node has to verify each transaction, the network can become slow and inefficient. For example, Bitcoin is a highly secure and decentralized blockchain, however, it operates at the rate of 7 transactions per second (TPS).
Scalability is the property the most sacrificed when it comes to the blockchain trilemma because the other two properties are of higher importance. However, some blockchains, like Hyperledger Fabric, are secure and can process more TPS, but are too central. And so, the blockchain trilemma goes on in an endless loop.
Let’s understand better each component of the blockchain trilemma.
If you’ve been hanging around the Web3 space, you’ll probably know that decentralization is the heart and main ethos of blockchain technology. Web3 is trying to create a new era of the internet where there is no need for central authorities. Decentralized networks eliminate the need for third parties and intermediaries. Imagine a world where banks are not needed anymore, and transactions are processed directly on an immutable ledger. In addition, decentralization means that no one entity can control or censor the data being distributed.
However, the problem with decentralization is that it can affect scalability and decrease network throughput. Since many miners are required to participate in the process of verification, transaction speed might decrease, which in consequence would put a strain on widespread adoption.
One of the major selling points of blockchain technology is its security and immutability. The decentralization property of the blockchain plays an important role in achieving a near-impossible-to-hack network. That’s because the distribution of the digital ledger creates no single points of failure. However, the blockchain can be subjected to several types of attacks, most famously the 51%.
The 51% attack occurs when a hacker gets hold of over 50% of the total hashing power in the network. This is achievable by taking hold of more than half of the operating node, and can as a consequence create a fork chain and disrupt the network.
When the blockchain network is too decentralized, a 51% attack is less likely to happen. However, compromising the decentralization aspect for higher scalability can lead to security breaches, and thus the blockchain trilemma unfolds again.
Scalability referrers how well a system can manage increasing amounts of data. In a blockchain sense, scalability is how much a blockchain’s protocol can handle high demand and increase transaction throughput. In another sense, it’s how much a blockchain’s performance can be stable and at a high rate even with widespread adoption.
The problem with scalability is that if blockchains don’t have a high transaction throughput, the technology wouldn’t be able to compete with centralized platforms. To put it in perspective, central organizations like Visa can get to 24,000 transactions per second, while bitcoin can only manage 7 TPS. Visa can manage such a high number because its system is central and free of considerations such as network nodes and consensus mechanisms.
As we saw before, limiting the number of nodes in the network can make the blockchain achieve high throughput, but that will compromise the decentralization property, which itself will affect the overall network security. The blockchain trilemma. Again.
Ways to Solve the Blockchain Trilemma
Solving the blockchain trilemma is not that easy. Considering how important the problem is, there have been several different approaches to try to tackle the issue and achieve the optimal blockchain state. These proposed solutions range from layer-1 and layer-2 solutions, let’s have a look at them.
Change of Consensus
One of the layer-1 solutions to tackle the blockchain trilemma is to change the consensus protocol it operates on. The biggest element that compromises scalability in the Bitcoin blockchain for example is its proof-of-work consensus. That’s because PoW requires miners to solve cryptographic algorithms that use huge amounts of power to verify one transaction. Which, of course, can take a long time.
In the Ethereum 2.0 upgrade, the blockchain shifted from proof-of-work to proof-of-stake consensus to limit energy consumption and increase the network’s throughput. In a proof-of-stake consensus, validators stake their funds for a random chance to validate a block. This limits the verification time and thus increases scalability. However, this shift has only made Ethereum reach 27 TPS.
Sharding is a splitting technique used to distribute the computational and storage load across the blockchain network. That way, each node isn’t tasked with handling all the transaction load of the whole network. So, instead of having each node holding all blockchain history, the information can split and be held by different nodes.
Sharding works by splitting the blockchain into smaller partitioned blockchains that manage their own specific data segments. The split blockchains are referred to as “shards” that process their own transactions, while the beacon chain or main chain manages interactions between these shards.
What makes sharding a solution is that shards can process transactions simultaneously with each other. Which creates a high network throughput, thus, improving scalability.
In a blockchain sense, layer-2 solutions are protocols that are built on top of an existing layer layer-one blockchain. Layer 2 blockchains usually improve transaction speed and cost efficiency. Layer-2 protocols’ goal is usually to fix blockchain scalability issues.
These solutions include side chains and state chains. Side chains are blockchains that function adjacently to the main chain, and are responsible for large batch transactions. Side chains usually use a different consensus mechanism from that of the main chain. Which, can be great for scalability issues. A state chain doesn’t require an addition of a chain. It rather uses smart contracts to let users interact with each other without publishing on the blockchain. Although state chains compromise some degree of decentralization, they are great layer-2 solutions to achieve scalability.
Solving the Trilemma Might Change Blockchains’ Future
The blockchain trilemma is standing in front of the distributed network’s mass adoption. No one would love the idea of ditching centralized platforms that have a high throughput for a new decentral technology that can’t scale to users’ demands. However, the implementation of layer-1 and layer-2 solutions might help to progressively end the scalability problem. We’ll have to wait for other technologically advanced solutions to emerge that might lead to placing the blockchain on the mass adoption map.