What is the Blockchain Trilemma?
| KEY TAKEAWAYS: |
| — The perfect blockchain boasts three elements: Security, decentralization, and scalability. But finding a balance between the three is difficult and presents a problem referred to as the blockchain trilemma. — Scalability and decentralization are often held back by security, but security tends to be compromised by any shifts on a network that offer scalability. — Projects either choose to focus on two out of three or work on finding a solution to tackle the trilemma once and for all. Innovative ideas like sharding, side-chains and state channels are used to address the trilemma but they’re still experimental. — A solution to the problem could lead to greater adoption of cryptocurrency and blockchain and a wide-spread use of the technology across industries. |
Security. Decentralization. Scalability. Three of cryptocurrency’s pillars that all seem to constantly strive to co-exist but struggle to live in harmony.
The blockchain trilemma, as coined by Vitalik Buterin himself, refers to this idea and it’s leading to some interesting ways that projects and networks are looking to solve the problem once and for all. But what exactly is the blockchain trilemma, and why isn’t there an easy solution? Let’s get into it!
The Three Fighting Factors
You know how you can’t balance a social life, work, and sleep easily? The blockchain trilemma is similar. It’s the belief held across the cryptocurrency community that truly decentralized networks need to choose between security and scalability. Let’s have a quick look at them before we dive in.
What is Decentralization?
Decentralization talks about how control is shifted from one central entity, company, or government and is split across smaller groups to govern something. In blockchain, decentralization gives power to people across the world to govern using their computer (crypto nodes) rather than having a central control of the network live with one person or party.
What is Security On The Blockchain?
Blockchain is inherently secure, but is not entirely immune to hacking. If a hacker is able to secure control of more than half of the network (51%), they are able to alter a blockchain and manipulate transactions to steal from the network. In blockchain, the more nodes, the more security.
What is Scalability?
Scalability in blockchain is the same as in business – it refers to how much a network can grow in the future while maintaining the same sort of transaction speed and output.
Scalability and decentralization tag-teaming up tends to compromise security, while security restricts changes that allow the decentralized network to scale. Why? Well, basically because decentralized networks take a bit of work to operate and it makes scaling a little difficult.
Decentralization and Security: Blockchain Best Friends
Decentralization is basically the backbone of blockchain and cryptocurrency. It means there is no central authority or entity driving the project and eliminates the need for third parties to allow industries to operate. For example, in traditional finance, we’ve got banks. They’re centralized and act as a party that sits in the middle between you and your money. This is generally accepted because banks take responsibility to offer a way for us to store and send money safely – we expect money to go where we send it and in exchange for security we give some control of our money.
With blockchain, decentralized networks hand the keys to the individual, with direct access to their money.
It does this by making use of community control and relies on blockchain technology rather than the corporation. Blockchain, by means of a set of self-executing rules, offers an alternative to a middleman approach. The network keeps its security because each transaction needs to be validated by more than half of the network’s nodes (and remember: the more nodes that are part of the network, the more the blockchain becomes decentralized, enhancing the security that the network offers).
This is great because no one is in control, but it comes with a bit of a tricky drawback: because of the sheer weight of information processed to maintain the shared system, transaction times can be slow, and the system is harder to scale.
Adding in Scalability and the Threat It Presents to Security
On a blockchain, you can think of each bit of information as something with weight. As more information is added, the data becomes heavier and it is slower to move around. It’s important to keep the information up to date to streamline the cumbersome amount of information moving around. One way of doing that is by limiting how far and wide the blockchain is distributed.
But, by limiting how far the network is spread, there is less of a barrier for attackers who want to take over the network. This means there’s more chance of an attack because hackers will have an easier time taking over enough of the network and they’ll be able to manipulate the blockchain. It’s not ideal and it shows how adding in scalability to the blockchain trifecta comes at a price.
But Why Do Blockchains Need To Scale?
You know how awful it is to sit in traffic? Traffic on a road exists because roads weren’t built to scale the number of cars that would be on the road at the same time. 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 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.
So to scale, a project either needs to cash in security or decentralization, right? Well, no.
The Search for a Solution
The problem, which presents a demanding challenge to resolve, has led to some interesting innovations in the blockchain industry. There are various ideas, depending on the foundation of the project and whether it relies on a different project to operate (like a dApp needs Ethereum, for example) and it’s fascinating to see how they might impact the network in the future.
Without taking too deep a dive into the technology, there are a couple of neat solutions that projects have taken like the following:
Ethereum 2.0: Sharding and Rollups
Sharding has become a popular solution to scale projects like Ethereum, which don’t rest on another network. Basically, 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 quicker. This means more transactions can take place at the same time without congestion. Security is maintained because the different shards interact with each other and send information to the main blockchain so information isn’t compromised.
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 kind of like carpooling. Rollups are clever because they reduce the data needed for a transaction, reducing traffic and enhancing speed.
The Lightning Network: State Channels
The Lightning Network is referred to as a layer 2 solution because it offers an additional layer that sits over the main network. Bitcoin, as our key example, “suffers from success” and struggles with transaction speed and cost. The Lightning Network offers a way for you to transact without the need 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), which 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. Once closed, only the opening and closing information is sent to the main blockchain instead of every piece of information. Because state channels operate through smart contracts, security is maintained.
Polkadot: Relay Chains and Parachains
Instead of offering a one-blockchain solution, Polkadot likes the idea of blockchains collaborating with other blockchains (irnteroperability). The network is designed with “a relay chain” as the backbone to offer a highly scalable network. It does this by using “parachains” as 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 overall unite for additional security.
What Tackling the Trilemma Means for The Future of Blockchain
Although most people might not know about the blockchain trilemma, there is an awareness of the problems it presents (like Bitcoin’s slower transaction speed). If projects are able to successfully solve the trilemma, we could be looking at new levels of blockchain adoption.
If there’s a successful way to tick the “decentralized” box without worrying about security and the inconvenience from a lack of scalability, we are looking at a scalable blockchain future where individuals across multiple industries (from money to logistics, from legalities to property) can benefit. At the heart of it, blockchain offers a more fair, more balanced playing field for individuals to thrive rather than rely on a traditional, centralized and controlled system.
Knowledge is Power.
Trust yourself and keep learning. Check out our important – but highly entertaining – School of Block episode on what happens to your crypto when you die.