The invention of blockchain technology is one of the most important inventions in the history of human civilization. Since the invention of Bitcoin in 2008, blockchain technology has gained widespread popularity and is now one of the obvious future for us. With the advancement and widespread adoption of blockchain technology, some of its limitations have been presented to us. ”Blockchain trilemma” – is a problem that is one of the biggest challenge for growth of blockchain Technology.
What is The Blockchain Trilemma?
Blockchain technology has been developed standing on three main principals or three core concepts: decentralization, scalability and security.
The blockchain trilemma is a concept coined by Vitalik Buterin (co-founder of Ethereum) that proposes a set of three main issues — decentralization, security and scalability — that developers encounter 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.
1. Decentralized: creating a blockchain system that does not rely on a central point of control.
2. Secure: the ability of the blockchain system to operate as expected, defend itself from attacks, bugs, and other unforeseen issues.
3. Scalable: the ability for a blockchain system to handle an increasingly growing amount of transactions.
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Example of the Blockchain Trilemma:
Bitcoin is a great innovation, but its platform isn’t the most scalable. However, Bitcoin does have one of the most secure and decentralized platforms on the internet. In terms of scalability, it has unfortunately garnered a poor reputation of slow transaction speeds. This makes it suboptimal if you’re trying to use it as a currency. When compared to card processors like Mastercard or Visa, Bitcoin lags behind because the competition processes transactions in milliseconds. Ultimately, any cryptocurrency looking to be used as a fiat currency must be able to sufficiently scale.
The issue that Vitalik Buterin was raised about is whether or not it’s possible to achieve all three of these aspects in a single network. Many developers have concluded that achieving all three principal of blockchain is impossible, and that it comes down to making do with what is possible with the current technology — and figuring out how to make the trade-off in a real-world environment. As much as each project tries to optimize their network, there will be some shortcomings with each blockchain design. Thus, the key for developers is to figure out how much of each characteristic they’re willing to sacrifice in order to achieve optimal performance.
The Fundamental Elements of Blockchain Trilemma
Decentralization is a core component of blockchain. In traditional finance, the system is entirely centralized. Customers pass control of their assets to banks, from their personal documentation to their assets themselves, for the banks to handle with full control. Decentralized systems matter because they empower permissionless ownership where anyone can use and build on the platform. Decisions are made by consensus, which means transactions are approved by a group of nodes as opposed to an individual node.
Once these transactions are verified by consensus, they can’t be altered after the fact. Therefore, risk isn’t placed in one central entity, and trust doesn’t rely on another individual when conducting a transaction. The trade-off of pure decentralization, however, is speed. If a transaction requires multiple confirmations before reaching consensus, then inherently, it would take longer than if a transaction can be confirmed by a single entity. Bitcoin is known to be robustly decentralized, but at the same time, pretty slow.
As a novel, promising technology looking to make its name by improving existing infrastructure, the security of a blockchain system is paramount. With a barrage of high-profile hacks of exchanges and manipulated vulnerabilities in source code, it’s evident that many crypto projects had chosen to focus on decentralization and scalability, leaving security behind.
Blockchain ecosystems, for all their upsides, hinge on the strength of the underlying source code — like anything else, it must be carefully examined. Due to the transparent nature of the source code and the potentially lucrative benefits one can receive from conducting a successful attack, blockchains have become prime targets for hackers.
While scalability focuses on the upside, security prevents the downside — something just as important, but all too often forgotten. Promising blockchain use cases have faced setbacks that stifled their growth, such as the notorious DAO attack, which was the result of improper source code security.
Scalability is important for mass adoption. It’s the question of how much a blockchain system can sustain, and whether the system can operate smoothly as demand increases.
Blockchain technologies must be capable of handling an increasingly large volume of transactions to compete with centralized platforms. While blockchain technologies remain on the fringe today, they require massive improvements to scalability for technologies like DeFi, NFT, Gaming Etc to take over a significant volume of conventional transactions.
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Why do blockchains need to scale?
Imagine every time you had to make a transaction, you had to wait in traffic for your transaction to be validated and go through. And more people transacting means the more the network and validation process needs time to happen. It creates traffic on an unscalable network, presenting an unsustainably slow approach. So simply put, if blockchain technology is going to reach any sort of mass adoption, scalability is critical. If a network can’t scale, it just won’t be able to compete with traditional platforms in convenience, transaction speed, and throughput
How to Solve the Blockchain Trilemma?
Although the Blockchain Trilemma presents significant challenges to adopting blockchain technology. The goal is to find an effective balance between network security, decentralization, and scalability. While the CAP theorem has held true for almost four decades, the implementation of Layer-1 and Layer-2 solutions — alongside the emergence of Proof-of-Stake systems — is shifting the paradigm toward decentralized blockchain networks that are at once distributed, secure, and scalable.
So how can we solve the Blockchain Trilemma and achieve decentralization, security, and scalability simultaneously? The answer comes in the form of Layer-1 and Layer-2 solutions. Developer are finding out few more option to scale blockchain Technology for mass adoption.
1. Layer 0
Proof of Work (PoW) consensus such as Bitcoin’s is inferior for achieving a solution to the blockchain trilemma. Instead, it’s best for PoW networks to switch to a PoS system. By doing so, blockchains increase scalability and processing speeds. This change also makes it a lot easier for people to become part of a network. With a good consensus algorithm, it’s easier to grow a network as well. The foundational aspects of Layer 0 cannot be overstated. Nothing can be done well if this layer is poorly designed.
2. Layer 1 Blockchain
Layer 1 refers to top-level networks, such as Bitcoin or Ethereum. While change happens slowly at these networks, several significant changes in the pipeline could improve performance. At the same time, new Layer 1 networks take advantage of these new ideas from the onset, providing a higher level of performance out of the box.
The main consideration for Layer 1 is figuring out how to scale. That means tweaking the consensus mechanism or other aspects of the blockchain that can increase scalability. Layer 1 provides the foundation needed in order to ensure the network works at its proper capacity. Networks that don’t have a solid Layer 1 invariably end up having problems down the road.
3. Layer 2 solution
Layer 2 blockchains exist to improve the processing speed of the base blockchain. However, these solutions must be approached intelligently to achieve sufficient blockchain processing speeds. For example, the Lightning Network is a Layer 2 solution built atop Bitcoin. These networks have become a popular way to improve blockchain performance without completely rebuilding Layer 1 solutions, enabling developers and consumers to reduce gas fees and improve performance. Arbitrum,optimism and few other projects trying to scale Ethereum by building layer-2 solution ontop Ethereum.
Sharding is a concept taken from the database world. This innovation is important for databases because it’s one of the many ways to scale across multiple servers. Otherwise, you’d need to keep the entire database on one server. The same thing is true of a blockchain. If each validator must contain the entire blockchain, it’s inefficient because there are several validators keeping the identical data, even when they don’t need it. This makes it difficult to achieve consensus because it has to be done among all nodes in the validator chain.
Sharding splits up the blockchain and separates it across multiple validators. It’s a risky way of doing things because of the theoretical possibility that all validators holding a certain shard might go down. In this case, the entire piece of the blockchain would be lost. There are several algorithms to prevent this from occurring, which is one of many ways to improve the process Ethereum offers shard chains as a way of improving scalability. This method splits the entire blockchain horizontally, putting the load across multiple servers and making it possible for network participation and processing power to increase geometrically.
5. Nested Blockchains
Nested blockchains are similar to sharding in that a piece of work is delegated from the mainchain, processed in a child blockchain, and then added back to the mainchain to improve speed and reduce cost. A nested blockchain exists within another blockchain. Layer 1 blockchains delegate processing to a nested blockchain, meaning that custom processing solutions can be created relatively easily. This is one of the best and easiest ways to solve the blockchain trilemma without too much difficulty. The biggest example of this is Ethereum Plasma, which uses a separate blockchain that’s anchored to the main chain, capable of offering proof of fraud to arbitrate disputes.
A sidechain is essentially a separate blockchain that connects to the main blockchain by using a two-way peg. It increases the existing blockchain’s interoperability and processing power. For example, Bitcoin’s network can use sidechains to process transactions even faster. This is one of the many ways people are getting more performance out of Bitcoin, even when technically it shouldn’t be possible.
Essentially, rollups process transactions outside of the Layer 1 blockchain and post it later when consensus is reached. This separates a lot of the process that goes into Layer 1 performance. A big piece of the puzzle is the Zero-Knowledge Rollup (ZK-Rollup), which processes hundreds of transfers off of the current blockchain and posts them at a later date. It speeds up everything, and is therefore one of the best ways of improving performance.
8. State Channels
State channels are two-way communication mechanisms between a blockchain and off-chain transactions. Rather than requiring miners to validate a transaction, they have a smart contract mechanism that only reports the final “state.” A state channel essentially has delegated transaction processing and capacity. Its nodes don’t require validation, meaning that it’s like an adjacent resource that does what it needs. The Layer 1 network only requires that the final state of the channel be recorded into the blockchain.
Can the Blockchain Trilemma be solved?
First and foremost, the Blockchain Trilemma is merely a model for conceptualizing the numerous issues blockchain technology faces. No rule says the three aspects can’t be combined. However, teams have experimented with many ways to maximize decentralization, scalability, and security. The basic layer is the foundation upon which all other layers are built: security. Decentralization could be corrupted without it, and scalability could be short-lived. The foundation for both decentralization and scalability will be laid by security. Decentralization is a long process, and scalability is something that should be constantly improved.
The blockchain community has long awaited the full adoption of blockchain technology by established businesses, with scalability generally cited as the key impediment. While scalability may be a factor, a lack of trustworthy security would undoubtedly be a major contributor to this apprehension. Regardless of how the Trilemma is shaped, it is widely acknowledged that achieving decentralization, scalability, and security in a blockchain system is challenging. Blockchain technology is still in its early stages, and the technology approaches are expected to develop.